Spark Energy
Annual Report 2017

Plain-text annual report

2017 Annual Report Dear Fellow Shareholders 2017 was a record year for Spark Energy. We achieved $103 million in Adjusted EBITDA, despite severe weather challenges, including a mild summer, Hurricane Harvey, and the winter storm over the holidays. We have delivered double-digit EBITDA growth each year for the last three years, a truly remarkable accomplishment. We passed the 1 million RCE mark through our combination of organic and M&A growth, highlighted by the acquisition of Verde Energy in July. We launched a company-wide initiative to further integrate acquisitions and realize significant cost synergies. With a solid customer base and focus on cost reduction, we are well positioned for continued top-and bottom-line growth. We worked to enhance shareholder value by executing a 2-for-1 stock split in June 2017 to increase liquidity in our float. We closed a preferred stock offering in March 2017, and a follow-on offering in early 2018. Those two offerings, along with our new, more flexible $200 million credit facility, enable continued growth. The board has maintained a $0.18125 dividend each quarter, which is the same, on a split-adjusted basis, as the dividend we have paid since our IPO in July 2014. When we consider the track record of growth since our IPO, the initiatives under way to streamline our operations and realize synergies, and the still-fragmented nature of the retail energy space, we are excited about the future. Following on the success we have experienced in our North American business, along with our successful launch in Japan, we are looking at international market opportunities as a source for continued growth. On behalf of everyone at Spark Energy, I want to thank our customers, suppliers, affiliates, and investors for their continued commitment to Spark Energy. We appreciate you, and we thank you for your partnership. Sincerely, Nathan Kroeker President and CEO Sincerely, Nathan Kroeker President and CEO Nathan Kroeker - President and CEO UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K ýý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2017. ORoo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-36559Spark Energy, Inc.(Exact name of registrant as specified in its charter)Delaware 46-5453215(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 12140 Wickchester Ln, Suite 100 (713) 600-2600 Houston, Texas 77079 (Address and zip code of principal executiveoffices) (Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of each class Name of exchange on which registeredClass A common stock, par value $0.01 per share The NASDAQ Global Select Market8.75% Series A Fixed-to-Floating RateCumulative Redeemable Perpetual Preferred Stock, par value$0.01 per share The NASDAQ Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities ActYes oo No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes oo No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.Yes x No ooIndicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this Chapter) during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files).Yes x No ooIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, andwill not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form 10-K. ooIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company"in Rule 12b-2 of the Exchange Act. Large accelerated filer o o Accelerated filer x Non-accelerated filer oo (Do not check if a smaller reporting company) Smaller reporting company ooEmerging Growth Company xIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with anynew or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes oo No x The aggregate market value of common stock held by non-affiliates of the registrant on June 30, 2017, the last business day of the registrant's most recentlycompleted second fiscal quarter, based on the closing price on that date of $18.80, was approximately $215 million. The registrant, solely for the purpose ofthis required presentation, had deemed its Board of Directors and Executive Officers to be affiliates, and deducted their stockholdings in determining theaggregate market value.There were 13,135,636 shares of Class A common stock, 21,485,126 shares of Class B common stock and 3,707,256 shares of Series A Preferred Stockoutstanding as of March 7, 2018.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant's definitive Proxy Statement in connection with the 2018 Annual Meeting of Stockholders are incorporated by reference into Part IIIof this Form 10-K.Table of Contents PagePART I Items 1 & 2. Business and Properties 7Item 1A. Risk Factors 22Item 1B. Unresolved Staff Comments 41Item 3. Legal Proceedings 41Item 4. Mine Safety Disclosures 44PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters andIssuer Purchases of Equity Securities 45 Stock Performance Graph 48Item 6. Selected Financial Data 48Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations 49 Overview 49 Drivers of Our Business 51 Factors Affecting Comparability of Historical Financial Results 56 How We Evaluate Our Operations 56 Consolidated Results of Operations 60 Operating Segment Results 64 Liquidity and Capital Resources 67 Cash Flows 68 Summary of Contractual Obligations 75 Off-Balance Sheet Arrangements 76 Related Party Transactions 76 Critical Accounting Policies and Estimates 76 Contingencies 82Item 7A. Quantitative and Qualitative Disclosures About Market Risk 84Item 8. Financial Statements and Supplementary Data 86 Index to Consolidated Financial Statements 86Item 9. Changes in and Disagreements with Accountants on Accounting andFinancial Disclosure 154Item 9A. Controls and Procedures 154Item 9B. Other Information 154PART III Item 10. Directors, Executive Officers and Corporate Governance 157Item 11. Executive Compensation 157Item 12. Security Ownership of Certain Beneficial Owners and Management andRelated Stockholder Matters 157Item 13. Certain Relationships and Related Transactions, and Director Independence 157Item 14. Principal Accounting Fees and Services 157PART IV Item 15. Exhibits, Financial Statement Schedules 157Item 16. Form 10-K Summary SIGNATURES 163EXHIBIT INDEX 158GlossaryCFTC. The Commodity Futures Trading Commission.CPUC. California Public Utility Commission.ERCOT. The Electric Reliability Council of Texas, the independent system operator and the regional coordinator of various electricitysystems within Texas.ESCO. Energy service company.FCC. Federal Communications Commission.FERC. The Federal Energy Regulatory Commission, a regulatory body that regulates, among other things, the transmission andwholesale sale of electricity and the transportation of natural gas by interstate pipelines in the United States.FTC. Federal Trade Commission.ISO. An independent system operator. An ISO manages and controls transmission infrastructure in a particular region.MMBtu. One million British Thermal Units, a standard unit of heating equivalent measure for natural gas. A unit of heat equal to1,000,000 Btus, or 1 MMBtu, is the thermal equivalent of approximately 1,000 cubic feet of natural gas.MWh. One megawatt hour, a unit of electricity equal to 1,000 kilowatt hours (kWh), or the amount of energy equal to one megawatt ofconstant power expended for one hour of time.Non-POR Market. A non-purchase of accounts receivable market.NYPSC. New York Public Service Commission.POR Market. A purchase of accounts receivable market.REC. Renewable Energy Credit.RCE. A residential customer equivalent, refers to a natural gas customer with a standard consumption of 100 MMBtus per year or anelectricity customer with a standard consumption of 10 MWhs per year.REP. A retail electricity provider.RTO. A regional transmission organization. A RTO, similar to an ISO, is a third party entity that manages transmission infrastructure ina particular region.TCPA. Telephone Consumer Protection Act of 1991.Cautionary Note Regarding Forward Looking StatementsThis Annual Report on Form 10-K (this "Annual Report") contains forward-looking statements that are subject to a number of risks anduncertainties, many of which are beyond our control. These forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the“Exchange Act”) can be identified by the use of forward-looking terminology including “may,” “should,” “likely,” “will,” “believe,”“expect,” “anticipate,” “estimate,” “continue,” “plan,” “intend,” “projects,” or other similar words. All statements, other than statementsof historical fact includedin this Annual Report, regarding strategy, future operations, financial position, estimated revenues and losses, projected costs,prospects, plans, objectives and beliefs of management are forward-looking statements. Forward-looking statements appear in a numberof places in this Annual Report and may include statements about business strategy and prospects for growth, customer acquisitioncosts, ability to pay cash dividends, cash flow generation and liquidity, availability of terms of capital, competition and governmentregulation and general economic conditions. Although we believe that the expectations reflected in such forward-looking statements arereasonable, we cannot give any assurance that such expectations will prove correct.The forward-looking statements in this Annual Report are subject to risks and uncertainties. Important factors that could cause actualresults to materially differ from those projected in the forward-looking statements include, but are not limited to:•changes in commodity prices and the sufficiency of risk management and hedging policies;•extreme and unpredictable weather conditions, and the impact of hurricanes and other natural disasters;•federal, state and local regulation, including the industry's ability to address or adapt to potentially restrictive newregulations that may be enacted by the New York Public Service Commission;•our ability to borrow funds and access credit markets and restrictions in our debt agreements and collateral requirements;•credit risk with respect to suppliers and customers;•changes in costs to acquire customers and actual customer attrition rates;•accuracy of billing systems;•whether our majority stockholder or its affiliates offer us acquisition opportunities on terms that are commerciallyacceptable to us;•ability to successfully identify, complete, and efficiently integrate acquisitions into our operations;•competition; and•the “Risk Factors” in this Annual Report, and in our quarterly reports, other public filings and press releases.You should review the Risk Factors in Item 1A of Part I and other factors noted throughout or incorporated by reference in this AnnualReport that could cause our actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements speak only as of the date of this Annual Report. Unless required by law, we disclaim any obligation to publiclyupdate or revise these statements whether as a result of new information, future events or otherwise. It is not possible for us to predictall risks, nor can we assess the impact of all factors on the business or the extent to which any factor, or combination of factors, maycause actual results to differ materially from those contained in any forward-looking statements.6Table of ContentsPART I.Items 1 & 2. Business and PropertiesGeneralWe are a growing independent retail energy services company founded in 1999 and now organized as a Delaware corporation thatprovides residential and commercial customers in competitive markets across the United States with an alternative choice for theirnatural gas and electricity. We purchase our natural gas and electricity supply from a variety of wholesale providers and bill ourcustomers monthly for the delivery of natural gas and electricity based on their consumption at either a fixed or variable-price. Naturalgas and electricity are then distributed to our customers by local regulated utility companies through their existing infrastructure.Our business consists of two operating segments:•Retail Electricity Segment. We purchase electricity supply through physical and financial transactions with market counterpartsand independent system operators ("ISOs") and supply electricity to residential and commercial consumers pursuant to fixed-price and variable-price contracts. For the years ended December 31, 2017, 2016 and 2015, approximately 82%, 76% and 64%,respectively, of our retail revenue were derived from the sale of electricity. •Retail Natural Gas Segment. We purchase natural gas supply through physical and financial transactions with marketcounterparts and supply natural gas to residential and commercial consumers pursuant to fixed-price and variable-pricecontracts. For the years ended December 31, 2017, 2016 and 2015, approximately 18%, 24% and 36%, respectively, of ourretail revenues were derived from the sale of natural gas. We also identify wholesale natural gas arbitrage opportunities inconjunction with our retail procurement and hedging activities, which we refer to as asset optimization. See Note 15 "Segment Reporting" to the Company’s audited consolidated financial statements in this report for financial informationrelating to our operating segments.Recent DevelopmentsSee “Management's Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” for a discussionof recent developments affecting our business and operations.Our OperationsAs of December 31, 2017, we operated in 94 utility service territories across 19 states and the District of Columbia and hadapproximately 1,042,000 RCEs. An RCE, or residential customer equivalent, is an industry standard measure of natural gas orelectricity usage with each RCE representing annual consumption of 100 MMBtu of natural gas or 10 MWh of electricity. We servenatural gas customers in fifteen states (Arizona, California, Colorado, Connecticut, Florida, Illinois, Indiana, Maryland, Massachusetts,Michigan, Nevada, New Jersey, New York, Ohio and Pennsylvania) and electricity customers in twelve states (Connecticut, Delaware,Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Ohio, Pennsylvania and Texas) and the District ofColumbia using nine brands (Spark Energy, CenStar Energy, Electricity Maine, ENH Power, Major Energy, Oasis Energy, ProviderPower Mass, Respond Power, and Verde Energy).Customer Contracts and Product OfferingsFixed and variable-price contractsWe offer a variety of fixed-price and variable-price service options to our natural gas and electricity customers. Under our fixed-priceservice options, our customers purchase natural gas and electricity at a fixed price over the7Table of Contentslife of the customer contract, which provides our customers with protection against increases in natural gas and electricity prices. Ourfixed-price contracts typically have a term of one to two years for residential customers and up to three years for commercial customersand most provide for an early termination fee in the event that the customer terminates service prior to the expiration of the contractterm. In a typical market, we offer fixed-price electricity plans for 6, 12 and 24 months and fixed-price natural gas plans from 12 to 24months, which may come with or without a monthly service fee and/or a termination fee. Our variable-price service options carry amonth-to-month term and are priced based on our forecasts of underlying commodity prices and other market factors, including thecompetitive landscape in the market and the regulatory environment. We also offer variable-price natural gas and electricity plans thatoffer an introductory fixed price that is generally applied for a certain number of billing cycles, typically two billing cycles in ourcurrent markets, then switches to a variable price based on market conditions. Our variable plans may or may not provide for atermination fee, depending on the market and customer type.As of December 31, 2017, approximately 54% of our natural gas RCEs were fixed-price, and the remaining 46% of our natural gasRCEs were variable-price. As of December 31, 2017, approximately 82% of our electricity RCEs were fixed-price, and the remaining18% of our electricity RCEs were variable-price.Green products and renewable energy creditsWe offer renewable and carbon neutral (“green”) products in certain markets. Green energy products are a growing market opportunityand typically provide increased unit margins as a result of improved customer satisfaction and less competition. Renewable electricityproducts allow customers to choose electricity sourced from wind, solar, hydroelectric and biofuel sources, through the purchase ofrenewable energy credits (“RECs”). Carbon neutral gas products give customers the option to reduce or eliminate the carbon footprintassociated with their energy usage through the purchase of carbon offset credits. These products typically provide for fixed or variableprices and generally follow the terms of our other products with the added benefit of carbon reduction and reduced environmentalimpact. We currently offer renewable electricity in all of our electricity markets and carbon neutral natural gas in several of our gasmarkets.In addition to the RECs we purchase to satisfy our voluntary requirements under the terms of our green contracts with our customers,we must also purchase a specified amount of RECs based on the amount of electricity we sell in a state in a year pursuant to individualstate renewable portfolio standards. We forecast the price for the required RECs at the end of each month and incorporate this costcomponent into our customer pricing models.Customer Acquisition and Retention8Table of ContentsOur customer acquisition strategy consists of customer growth obtained through traditional organic customer acquisitions,complemented by opportunistic acquisitions. We make decisions on how best to deploy capital on customer acquisitions based on avariety of factors, including cost to acquire customers, availability of opportunities and our view of attractive commodity pricing inparticular regions. For example, we may seek to make an acquisition of a large number of customers in a particular group of marketseven though the initial acquisition cost may be higher because long-term margins are higher. We expect to focus on organic growththrough 2018.Organic GrowthOur organic sales strategies are used to both maintain and grow our customer base by offering competitive pricing, price certainty,and/or green product offerings. We manage growth on a market-by-market basis by developing price curves in each of the markets weserve and comparing the market prices and the price the local regulated utility is offering. We then determine if there is an opportunityin a particular market based on our ability to create an attractive customer value proposition that is also able to enhance our profitability.The attractiveness of a product from a consumer’s standpoint is based on a variety of factors, including overall pricing, price stability,contract term, sources of generation and environmental impact and whether or not the contract provides for termination and other fees.Product pricing is also based on a several other factors, including the cost to acquire customers in the market, the competitive landscapeand supply issues that may affect pricing.Once a product has been created for a particular market, we then develop a marketing campaign using a combination of sales channels,with an emphasis on door-to-door and web-based marketing. We identify and acquire customers through a variety of additional saleschannels, including our inbound customer care call center, online marketing, email, direct mail, brokers and direct sales. We typicallyemploy multiple vendors under short-term contracts and have not entered into any exclusive marketing arrangements with salesvendors. Our marketing team continuously evaluates the effectiveness of each customer acquisition channel and makes adjustments inorder to achieve targeted growth and customer acquisition costs. We attempt to maintain a disciplined approach to recovery of ourcustomer acquisition costs within defined periods.AcquisitionsWe acquire both portfolios of customers as well as retail energy companies through some combination of cash, borrowings under theSenior Credit Facility, the issuance of common or preferred stock or other financing arrangements with our Founder and his affiliates.Historically, a significant component of our customer acquisition strategy has been the relationship and growth strategy structure withNG&E. See “—Relationship with our Founder and Majority Shareholder” for a discussion of this relationship.The following table provides a summary of our acquisitions over the past five years, including the name of the retail energy companyor an indication if the acquisition was a portfolio of customers, the date completed, the RCE count, the segment and the source of theacquisition:9Table of Contents Company / PortfolioDate CompletedRCEsSegmentAcquisition Source Customer PortfolioFebruary 28, 201512,500ElectricityThird Party CenStar Energy Corp.July 8, 201565,000Natural GasElectricityThird Party Oasis Power Holdings, LLCJuly 31, 201540,000Natural GasElectricityFounder / NG&E Customer PortfolioSeptember 30, 20159,500Natural GasThird Party Provider Companies (1)August 1, 2016121,000ElectricityThird Party Major Energy Companies (2)August 23, 2016220,000Natural GasElectricityFounder / NG&E Perigee Energy, LLCApril 1, 201717,000Natural GasElectricityFounder / NG&E Verde Companies (3)July 1, 2017145,000ElectricityThird Party Customer Portfolio (4)October 31, 2017 (4)44,000ElectricityThird Party HIKO Energy, LLCMarch 1, 201829,000Natural GasElectricityThird Party Customer Portfolio(5)50,000Natural GasElectricityFounder / NG&E(1)Included Electricity Maine, LLC, Electricity N.H., LLC, Provider Power Mass, LLC (collectively, the “Provider Companies”).(2)Included Major Energy Services, LLC, Major Energy Electric Services, LLC, and Respond Power, LLC (collectively, the “Major Energy Companies”).(3)Included Verde Energy USA, Inc.; Verde Energy USA Commodities, LLC; Verde Energy USA Connecticut, LLC; Verde Energy USA DC, LLC; Verde Energy USAIllinois, LLC; Verde Energy USA Maryland, LLC; Verde Energy USA Massachusetts, LLC; Verde Energy USA New Jersey, LLC; Verde Energy USA New York, LLC;Verde Energy USA Ohio, LLC; Verde Energy USA Pennsylvania, LLC; Verde Energy USA Texas Holdings, LLC; Verde Energy USA Trading, LLC; and Verde EnergySolutions, LLC (collectively, the “Verde Companies”).(4)Includes customers transferred from April 2017 through October 2017 from the original owner of Perigee.(5)Customers will begin transferring to the Company in April 2018.Please see and Item 9B. “Other Information” and Note 3 "Acquisitions" in the notes to our consolidated financial statements for a moredetailed description of these acquisitions, including the purchase price, the source of funds and financing arrangements with ourFounder and/or NG&E.We are actively monitoring acquisition opportunities that may arise in the domestic acquisition market as smaller retailers facedifficulties in managing risk and liquidity issues caused by the recent extreme weather patterns. Our ability to grow at historic levelsmay be constrained if the market for acquisition candidates is limited and we are unable to make acquisitions of portfolios of customersand retail energy companies on commercially reasonable terms. Please see “Risk Factors—Risks Related to Our Business and OurIndustry—We may be subject to risks in connection with acquisitions, which could cause us to fail to realize many of the anticipatedbenefits of such acquisition” and “Risk Factors—Risks Related to Our Capital Stock—We engage in transaction with our affiliates andexpect to do so in the future. The terms of such transactions and the resolution of any conflict that may arise may not always be in ouror our stockholders’ best interest.”Growth Sources and Sales ChannelsDuring the year ended December 31, 2017, our RCE acquisitions were generated from the following sources and sales channels:Indirect Sales Brokers30%Acquisitions25%Web Based14%Door to Door13%Outbound5%Other13%10Table of ContentsIn 2017, we grew our commercial and industrial (“C&I”) customer base. C&I customers typically have larger natural gas and electricityvolume requirements, but at lower margins than residential customers. These C&I customers also typically have longer contract terms.After significant growth in our C&I customer count in 2017, management is rebalancing our mix of customers in the first part of 2018to focus on higher margin residential customers. At December 31, 2017, approximately 48% of the Company’s RCEs were C&Icustomers.Retaining customers and maximizing customer lifetime valueFollowing our acquisition of customers, management and marketing teams devote significant attention to customer retention. We havedeveloped a disciplined renewal communication process, which is designed to effectively reach our customers prior to the end of thecontract term, and employ a team dedicated to managing this renewal communications process. Customers are contacted in each utilityprior to the expiration of the customer's contract. Spark may elect to contact the customer through additional channels such as outboundtelephone calls and electronic mail communication. We encourage retention and promote renewals by means of each of these contactmethods.We also apply a proprietary evaluation and segmentation process to optimize value both to us and the customer. We analyze historicalusage, attrition rates and consumer behaviors to specifically tailor competitive products that aim to maximize the total expected returnfrom energy sales to a specific customer, which we refer to as customer lifetime value.Investment in ESMThe Company and Spark HoldCo, together with eREX Co., Ltd., a Japanese company, are joint venture partners in eREX SparkMarketing Co., Ltd ("ESM"). Operations for ESM began on April 1, 2016 in connection with the deregulation of the Japanese powermarket. As of December 31, 2017, the Company has contributed 156.4 million Japanese Yen, or $1.4 million, for a 20% ownershipinterest in ESM. As of December 31, 2017, ESM has approximately 100,000 customers, which are currently excluded from our count ofresidential customer equivalents ("RCEs").Asset OptimizationPart of our business includes asset optimization activities in which we identify opportunities in the natural gas wholesale marketplace inconjunction with our retail procurement and hedging activities. Many of the competitive pipeline choice programs in which weparticipate require us and other retail energy suppliers to take assignment of and manage natural gas transportation and storage assetsupstream of their respective city-gate delivery points. With respect to our allocated storage assets, we are also obligated to buy andinject gas in the summer season (April through October) and sell and withdraw gas during the winter season (November throughMarch). These purchase and injection obligations in our allocated storage assets require us to take a seasonal long position in naturalgas. Our asset optimization group determines whether market conditions justify hedging these long positions through additionalderivative transactions.Our asset optimization group utilizes these allocated transportation and storage assets for retail customer usage and to effect transactionsin the wholesale market based on market conditions and opportunities. Our asset optimization group also contracts with third parties fortransportation and storage capacity in the wholesale market. We are responsible for reservation and demand charges attributable to bothour allocated and third-party contracted transportation and storage assets. Our asset optimization group utilizes these allocated andthird-party transportation and storage assets in a variety of ways to either improve profitability or optimize supply-side counterpartycredit lines.We frequently enter into spot market transactions in which we purchase and sell natural gas at the same point or we purchase naturalgas at one point or pool and ship it using our pipeline reservations for sale at another point or pool, in each case if we are able tocapture a margin. We view these spot market transactions as low risk because we enter11Table of Contentsinto the buy and sell transactions simultaneously on a back-to-back basis. We will also act as an intermediary for market participantswho need assistance with short-term procurement requirements. Consumers and suppliers will contact us with a need for a certainquantity of natural gas to be bought or sold at a specific location. We are able to use our contacts in the wholesale market to source therequested supply, and we will capture a margin in these transactions.The asset optimization group historically entered into long-term transportation and storage transactions. Our risk policies require thatthis business is limited to back-to-back purchase and sale transactions, or open positions subject to our aggregate net open positionlimits, which are not held for a period longer than two months. Furthermore, all additional capacity procured outside of a utilityallocation of retail assets must be approved by our risk committee. Hedges on our firm transportation obligations are limited to twoyears or less and hedging of interruptible capacity is prohibited.We also enter into back-to-back wholesale transactions to optimize our credit lines with third-party energy suppliers. With each of ourthird-party energy suppliers, we have certain contracted credit lines, within which we are able to purchase energy supply from thesecounterparties. If we desire to purchase supply beyond these credit limits, we are required to post collateral, in the form of either cash orletters of credit. As we begin to approach the limits of our credit line with one supplier, we may purchase energy supply from anothersupplier and sell that supply to the original counterparty in order to reduce our net buy position with that counterparty and open upadditional credit to procure supply in the future. Our sales of gas pursuant to these activities also enable us to optimize our credit lineswith third-party energy suppliers by decreasing our net buy position with those suppliers.Commodity SupplyWe hedge and procure our energy requirements from various wholesale energy markets, including both physical and financial marketsand through short and long term contracts. Our in-house energy supply team is responsible for managing our commodity positions(including energy procurement, capacity, transmission, renewable energy, and resource adequacy requirements) within risk tolerancesdefined by our risk management policies. We procure our natural gas and electricity requirements at various trading hubs, city gatesand load zones. When we procure commodities at trading hubs, we are responsible for delivery to the applicable local regulated utilityfor distribution.We periodically adjust our portfolio of purchase/sale contracts in the wholesale natural gas market based upon continual analysis of ourforecasted load requirements. Natural gas is then delivered to the local regulated utility city-gate or other specified delivery pointswhere the local regulated utility takes control of the natural gas and delivers it to individual customers’ locations. Additionally, wehedge our natural gas price exposure with financial products. During the year ended December 31, 2017, we transacted physical andfinancial settlement of natural gas with approximately 93 wholesale counterparties.In most markets, we typically hedge our electricity exposure with financial products and then purchase the physical power directly fromthe ISO for delivery. From time to time, we use a combination of physical and financial products to hedge our electricity exposurebefore buying physical electricity in the day-ahead and real-time market from the ISO. During the year ended December 31, 2017, wetransacted physical and financial settlement of electricity with approximately 17 suppliers.We are assessed monthly for ancillary charges such as reserves and capacity in the electricity sector by the ISOs. For example, the ISOswill charge all retail electricity providers for monthly reserves that the ISO determines are necessary to protect the integrity of the grid.We attempt to estimate such amounts, but they are difficult to estimate because they are charged in arrears by the ISOs and are subjectto fluctuations based on weather and other market conditions. Many of the utilities we serve also allocate natural gas transportation andstorage assets to us as a part of their competitive choice program. We are required to fill our allocated storage capacity with natural gas,which creates commodity supply and price risk. Sometimes we cannot hedge the volumes associated with these assets because they aretoo small compared to the much larger bulk transaction volumes required for trades in the wholesale market or it is not economicallyfeasible to do so.12Table of ContentsRisk ManagementOur management team operates under a set of corporate risk policies and procedures relating to the purchase and sale of electricity andnatural gas, general risk management and credit and collections functions. Our in-house energy supply team is responsible formanaging our commodity positions (including energy procurement, capacity, transmission, renewable energy, and resource adequacyrequirements) within risk tolerances defined by our risk management policies. We attempt to increase the predictability of cash flows byfollowing our various hedging strategies.The risk committee has control and authority over all of our risk management activities. The risk committee establishes and oversees theexecution of our credit risk management policy and our commodity risk policy. The risk management policies are reviewed at leastannually and the risk committee typically meets quarterly to assure that we have followed its policies. The risk committee also seeks toensure the application of our risk management policies to new products that we may offer. The risk committee is comprised of ourChief Executive Officer and our Chief Financial Officer, who meet on a regular basis to review the status of the risk managementactivities and positions. Our risk team reports directly to our Chief Financial Officer and their compensation is unrelated to tradingactivity. Commodity positions are typically reviewed and updated daily based on information from our customer databases and pricinginformation sources. The risk policy sets volumetric limits on intra-day and end of day long and short positions in natural gas andelectricity. With respect to specific hedges, we have established and approved a formal delegation of authority specifying each trader'sauthorized volumetric limits based on instrument type, lead time (time to trade flow), fixed price volume, index price volume and tenor(trade flow) for individual transactions. The risk team reports to the risk committee any hedging transactions that exceed these delegatedtransaction limits.Commodity Price and Volumetric RiskBecause our contracts require that we deliver full natural gas or electricity requirements to many of our customers and because ourcustomers’ usage can be impacted by factors such as weather, we may periodically purchase more or less commodity than ouraggregate customer volumetric needs. In buying or selling excess volumes, we may be exposed to commodity price volatility. In orderto address the potential volumetric variability of our monthly deliveries for fixed-price customers, we implement various hedgingstrategies to attempt to mitigate our exposure. Our commodity risk management strategy is designed to hedge substantially all of our forecasted volumes on our fixed-price customercontracts, as well as a portion of the near-term volumes on our variable-price customer contracts. We use both physical and financialproducts to hedge our fixed-price exposure. The efficacy of our risk management program may be adversely impacted by unanticipatedevents and costs that we are not able to effectively hedge, including abnormal customer attrition and consumption, certain variable costsassociated with electricity grid reliability, pricing differences in the local markets for local delivery of commodities, unanticipatedevents that impact supply and demand, such as extreme weather, and abrupt changes in the markets for, or availability or cost of,financial instruments that help to hedge commodity price.Customer demand is also impacted by weather. We use utility-provided historical and/or forward projected customer volumes as a basisfor our forecasted volumes and mitigate the risk of seasonal volume fluctuation for some customers by purchasing excess fixed-pricehedges within our volumetric tolerances. Should seasonal demand exceed our weather-normalized projections, we may experience anegative impact on financial results.In addition to our forward price risk management approach described above, we may take further measures to reduce price risk andoptimize our returns by: (i) maximizing the use of storage in our daily balancing market areas in order to give us the flexibility to offsetvolumetric variability arising from changes in winter demand; (ii) entering into daily swing contracts in our daily balancing marketsover the winter months to enable us to increase or decrease daily volumes if demand increases or decreases; and (iii) purchasing out-of-the-money call options for contract periods with the highest seasonal volumetric risk to protect against steeply rising prices if our13Table of Contentscustomer demands exceed our forecast. Being geographically diversified in our delivery areas also permits us, from time to time, toemploy assets not being used in one area to other areas, thereby mitigating potential increased costs for natural gas that we otherwisemay have had to acquire at higher prices to meet increased demand.We utilize NYMEX-settled financial instruments to offset price risk associated with volume commitments under fixed-price contracts.The valuation for these financial instruments is calculated daily based on the NYMEX Exchange published closing price, and they aresettled using the NYMEX Exchange’s published settlement price at their maturity.Basis RiskWe are exposed to basis risk in our operations when the commodities we hedge are sold at different delivery points from the exposurewe are seeking to hedge. For example, if we hedge our natural gas commodity price with Chicago basis but physical supply must bedelivered to the individual delivery points of specific utility systems around the Chicago metropolitan area, we are exposed to basis riskbetween the Chicago basis and the individual utility system delivery points. These differences can be significant from time to time,particularly during extreme, unforecasted cold weather conditions. Similarly, in certain of our electricity markets, customers pay theload zone price for electricity, so if we purchase supply to be delivered at a hub, we may have basis risk between the hub and the loadzone electricity prices due to local congestion that is not reflected in the hub price. We attempt to hedge basis risk where possible, buthedging instruments are sometimes not economically feasible or available in the smaller quantities that we require.Customer Credit RiskOur credit risk management policies are designed to limit customer credit exposure. Credit risk is managed through participation inpurchase of receivables ("POR") programs in utility service territories where such programs are available. In these markets, we monitorthe credit ratings of the local regulated utilities and the parent companies of the utilities that purchase our customer accounts receivable.We also periodically review payment history and financial information for the local regulated utilities to ensure that we identify andrespond to any deteriorating trends. In non-POR markets, we assess the creditworthiness of new applicants, monitor customer paymentactivities and administer an active collections program. Using risk models, past credit experience and different levels of exposure ineach of the markets, we monitor our aging, bad debt forecasts and actual bad debt expenses and continually adjust as necessary.In many of the utility services territories where we conduct business, POR programs have been established, whereby the local regulatedutility purchases our receivables, and then becomes responsible for billing the customer and collecting payment from the customer. Thisservice results in substantially all of our credit risk being linked to the applicable utility and not to our end-use customer in theseterritories. For the year ended December 31, 2017, approximately 66% of our retail revenues were derived from territories in whichsubstantially all of our credit risk was directly linked to local regulated utility companies, all of which had investment grade ratings as ofsuch date. During the same period, we paid these local regulated utilities a weighted average discount of approximately 1.1% of totalrevenues for customer credit risk. In certain of the POR markets in which we operate, the utilities limit their collections exposure byretaining the ability to transfer a delinquent account back to us for collection when collections are past due for a specified period. If ourcollection efforts are unsuccessful, we return the account to the local regulated utility for termination of service. Under these serviceprograms, we are exposed to credit risk related to payment for services rendered during the time between when the customer istransferred to us by the local regulated utility and the time we return the customer to the utility for termination of service, which isgenerally one to two billing periods. We may also realize a loss on fixed-price customers in this scenario due to the fact that we willhave already fully hedged the customer’s expected commodity usage for the life of the contract.In non-POR markets (and in POR markets where we may choose to direct bill our customers), we manage commercial customer creditrisk through a formal credit review and manage residential customer credit risk through a variety of procedures, which may includecredit score screening, deposits and disconnection for non-payment. We14Table of Contentsalso maintain an allowance for doubtful accounts, which represents our estimate of potential credit losses associated with accountsreceivable from customers within non-POR markets.We assess the adequacy of the allowance for doubtful accounts through review of the aging of customer accounts receivable andgeneral economic conditions in the markets that we serve. Our bad debt expense for the year ended December 31, 2017 was $6.6million, or 0.8% of retail revenues. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Drivers of Our Business—Customer Credit Risk” for a more detailed discussion of our bad debt expense during the year endedDecember 31, 2017.We have limited exposure to high concentrations of sales volumes to individual customers. For the year ended December 31, 2017, ourlargest customer accounted for less than 1% of total retail energy sales volume.Counterparty Credit Risk in Wholesale MarketWe do not independently produce natural gas and electricity and depend upon third parties for our supply, which exposes us towholesale counterparty credit risk in our retail and asset optimization activities. If the counterparties to our supply contracts are unableto perform their obligations, we may suffer losses, including as a result of being unable to secure replacement supplies of natural gas orelectricity on a timely and cost-effective basis or at all. At December 31, 2017, approximately 84% of our total exposure of $34.2million was either with an investment grade customer or otherwise secured with collateral or a guarantee.Operational RiskAs with all companies, the Company is at risk from cyber-attacks (breaches, unauthorized access, misuse, computer viruses, or othermalicious code or other events) that could materially adversely affect our business, or otherwise cause interruptions or malfunctions inour operations.We mitigate these risks through multiple layers of security controls including policy, hardware, and software security solutions. We alsohave engaged third parties to assist with both external and internal vulnerability scans and continue to enhance awareness withemployee education and accountability. As of December 31, 2017, we have not experienced any material loss related to cyber-attacksor other information security breaches.Relationship with our Founder and Majority ShareholderGrowth SupportWe have historically leveraged our relationship with affiliates of our founder, chairman and majority shareholder, W. Keith Maxwell III(our "Founder"), to execute on our growth strategy, which includes sourcing of acquisitions, financing support, and operating costefficiencies. To support this relationship, our Founder formed National Gas & Electric, LLC, an affiliate of the Company (“NG&E”), in2015 for the purpose of purchasing retail energy companies and retail customer books that could ultimately be resold to the Company.This relationship affords us access to opportunities that might not otherwise be available to us due to our size and availability of capital.On March 7, 2018, we entered into an asset purchase agreement with NG&E pursuant to which we will acquire approximately 50,000RCEs from NG&E for a cash purchase price of $250 for each RCE, or approximately $12.5 million in the aggregate. Please see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Acquisition ofCustomers from NG&E.” For a summary of historical acquisitions with our Founder and NG&E, please see “—Customer Acquisitionand Retention—Acquisitions.”We may engage in additional transactions with NG&E in the future. We currently expect that we would fund any future transactionswith NG&E with some combination of cash, subordinated debt, or the issuance of Class A common stock or Class B common stock toNG&E. However, actual consideration paid for the assets will depend, among other things, on our capital structure and liquidity at thetime of any transaction.15Table of ContentsGiven our Founder's significant economic interest in us, we believe that he is incentivized to offer us opportunities to grow through thisdrop-down structure. However, our Founder and his affiliates are under no obligation to offer us acquisition opportunities, and we areunder no obligation to buy assets from them. Additionally, as we grow and our access to capital and opportunities improves, we mayrely less upon NG&E as a source of acquisitions and seek to enter into more transactions directly with third parties. Any acquisitionactivity involving NG&E or any other affiliate of our Founder will be subject to negotiation and approval by a special committee of theBoard of Directors consisting solely of independent directors. Please see “Risk Factors—Risks Related to Our Business and OurIndustry—We may be subject to risks in connection with acquisitions, which could cause us to fail to realize many of the anticipatedbenefits of such acquisitions" and "Risk Factors—Risks Related to Our Capital Stock—We engage in transactions with our affiliates andexpect to do so in the future. The terms of such transactions and resolution of any conflicts that may arise may not always be in our orour stockholders' best interest."Master Service AgreementWe entered into a Master Service Agreement (the “Master Service Agreement”) effective January 1, 2016 with Retailco Services, LLC("Retailco Services"), which is wholly owned by our Founder. The Master Service Agreement is for a one-year term and renewsautomatically for successive one-year terms unless the Master Service Agreement is terminated by either party. On January 1, 2018, theMaster Service Agreement renewed automatically pursuant to its terms for a one year period ending on December 31, 2018.Retailco Services provides us with operational support services such as: enrollment and renewal transaction services; customer billingand transaction services; electronic payment processing services; customer services and information technology infrastructure andapplication support services under the Master Service Agreement (collectively, the "Services"). Spark HoldCo pays Retailco Services amonthly fee consisting of a monthly fixed fee plus a variable fee per customer per month depending on market complexity. We meetwith Retailco Services quarterly to discuss fees and Service Levels (as defined below) based on changes in assumptions; to date, wehave not adjusted fees or the Service Levels. The Master Service Agreement provides that Retailco Services perform the Services inaccordance with specified service levels (the “Service Levels”), and in the event Retailco Services fails to meet the Service Levels,Spark HoldCo receives a credit against invoices or a cash payment (the “Penalty Payment”). The amount of the Penalty Payment wasinitially limited to $0.1 million monthly, but adjusts annually based upon the amount of fees charged by Retailco Services for Servicesover the prior year. Furthermore, in the event that the Service Levels are not satisfied and Spark HoldCo suffers damages in excess of$0.5 million as a result of such failure, Retailco Services will make a payment (the “Damage Payment”) to Spark HoldCo for theamount of the damages (less the amount of any Penalty Payments also due). The Master Service Agreement provides that in no eventmay the Penalty Payments and Damage Payments exceed $2.5 million in any twelve-month period.In connection with the Master Service Agreement, certain of Spark HoldCo’s employees who previously provided services similar tothose to be provided under the Master Service Agreement became employees of Retailco Services, and certain contracts, assets, andintellectual property were assigned to Retailco Services. In addition, in order to facilitate the Services, Spark HoldCo granted RetailcoServices a non-transferable, non-exclusive, royalty-free, revocable and non-sub-licensable license to use certain of its intellectualproperty.Either Spark HoldCo or Retailco Services is permitted to terminate the Master Service Agreement: (a) upon 30 days prior written noticefor convenience and without cause; (b) upon a material breach and written notice to the breaching party when the breach has not beencured 30 days after such notice; (c) upon written notice if Retailco Services is unable for any reason to resume performance of theservices within 60 days following the occurrence of an event of force majeure; and (d) upon certain events of insolvency, assignmentfor the benefit of creditors, cessation of business, or filings of petitions for bankruptcy or insolvency proceedings by the other party. Inthe event the Master Service Agreement is terminated for any reason, Retailco Services will provide certain transition services to SparkHoldCo following the termination, not to exceed six months at the then-current fees. 16Table of ContentsRetailco Services and Spark HoldCo have agreed to indemnify each other from: (a) willful misconduct or negligence of the other; (b)bodily injury or death of any person or damage to real and/or tangible personal property caused by the acts or omission of the other; (c)any breach of any representation, warranty, covenant or other obligation of the other party under the Master Service Agreement, and (d)other standard matters. Subject to certain exceptions (including indemnification obligations, the obligations to pay fees and the DamagePayments and Penalty Payments), each parties’ liability is limited to $2.5 million of direct damages. NuDevco Retail has entered into theMaster Service Agreement for the limited purpose of guarantying payments that Retailco Services may be required to make under theMaster Service Agreement up to a maximum of $2.0 million.During the year ended December 31, 2017 and 2016, the Company recorded general and administrative expenses of $22.0 million and$14.7 million, respectively, in connection with the Master Service Agreement. For the years ended December 31, 2017 and 2016, PenaltyPayments totaled $0.1 million, and Damage Payments totaled zero and $1.4 million, respectively. Additionally, under the MasterService Agreement, we capitalized $0.7 million and $1.3 million, respectively, during the years ended December 31, 2017 and 2016 ofproperty and equipment for software and consultant time used in the application, development and implementation of various systemsincluding customer billing and resource management systems.On March 7, 2018, we, Retailco Services and NuDevco Retail mutually agreed to terminate the Master Services Agreement, effectiveApril 1, 2018. Please see “Management’s Discussion of Analysis of Financial Condition and Results of Operations—RecentDevelopments—Termination of Master Service Agreement” and “Risk Factors—The termination of the Master Service Agreementsubjects us to a variety of risks.”CompetitionThe markets in which we operate are highly competitive. In markets that are open to competitive choice of retail energy suppliers, ourprimary competition comes from the incumbent utility and other independent retail energy companies. In the electricity sector, thesecompetitors include larger, well-capitalized energy retailers such as Direct Energy, Inc., FirstEnergy Solutions, Inc., Just Energy Group,Inc. and NRG Energy, Inc. We also compete with small local retail energy providers in the electricity sector that are focused exclusivelyon certain markets. Each market has a different group of local retail energy providers. With respect to natural gas, our nationalcompetitors are primarily Direct Energy and Constellation Energy. Our national competitors generally have diversified energy platformswith multiple marketing approaches and broad geographic coverage similar to us. Competition in each market is based primarily onproduct offering, price and customer service. The number of competitors in our markets varies. In well-established markets in theNortheast and Texas we have hundreds of competitors, while in others the competition is limited to several participants.The competitive landscape differs in each utility service area and within each targeted customer segment. Over the last several years, anumber of utilities have spun off their retail marketing arms as part of the opening of retail competition in these markets. Markets thatoffer POR programs are generally more competitive than those markets in which retail energy providers bear customer credit risk.Market participants are significantly shielded from bad debt expense, thereby allowing easier entry into the POR markets. In thesemarkets, we face additional competition as barriers to entry are less onerous.Our ability to compete by increasing our market share depends on our ability to convince customers to switch to our products andservices, and our ability to offer products at attractive prices. Many local regulated utilities and their affiliates may possess theadvantages of name recognition, long operating histories, long-standing relationships with their customers and access to financial andother resources, which could pose a competitive challenge to us. As a result of these advantages, many customers of these localregulated utilities may decide to stay with their longtime energy provider if they have been satisfied with their service in the past. Inaddition, competitors may choose to offer more attractive short-term pricing to increase their market share.Seasonality of our Business17Table of ContentsOur overall operating results fluctuate substantially on a seasonal basis depending on: (i) the geographic mix of our customer base;(ii) the relative concentration of our commodity mix; (iii) weather conditions, which directly influence the demand for natural gas andelectricity and affect the prices of energy commodities; and (iv) variability in market prices for natural gas and electricity. These factorscan have material short-term impacts on monthly and quarterly operating results, which may be misleading when considered outside ofthe context of our annual operating cycle.Our accounts payable and accounts receivable are impacted by seasonality due to the timing differences between when we pay oursuppliers for accounts payable versus when we collect from our customers on accounts receivable. We typically pay our suppliers forpurchases of natural gas on a monthly basis and electricity on a weekly basis. However, it takes approximately two months from thetime we deliver the electricity or natural gas to our customers before we collect from our customers on accounts receivable attributableto those supplies. This timing difference could affect our cash flows, especially during peak cycles in the winter and summer months.Natural gas accounted for approximately 18% of our retail revenues for the year ended December 31, 2017, which exposes us to a highdegree of seasonality in our cash flows and income earned throughout the year as a result of the high concentration of heating load inthe winter months. We utilize a considerable amount of cash from operations and borrowing capacity to fund working capital, whichincludes inventory purchases from April through October each year. We sell our natural gas inventory during the months of Novemberthrough March of each year. We expect that the significant seasonality impacts to our cash flows and income will continue in futureperiods. Regulatory EnvironmentWe operate in the highly regulated natural gas and electricity retail sales industry in all of our respective jurisdictions. We must complywith the legislation and regulations in these jurisdictions in order to maintain our licensed status and to continue our operations, and toobtain the necessary licenses in jurisdictions in which we plan to compete. Licensing requirements vary by state, but generally involveregular, standardized reporting in order to maintain a license in good standing with the state commission responsible for regulating retailelectricity and gas suppliers. There is potential for changes to state legislation and regulatory measures addressing licensingrequirements that may impact our business model in the applicable jurisdiction. In addition, as further discussed below, our marketingactivities and customer enrollment procedures are subject to rules and regulations at the state and federal level, and failure to complywith requirements imposed by federal and state regulatory authorities could impact our licensing in a particular market.As of October 2015, the state of Connecticut no longer allows retail energy providers to offer variable rate plans even after the customerrolls off of a fixed rate plan. As a result of this change, we now offer customers who end their fixed terms with another fixed term of noless than four billing cycles. This regulatory change did not have a significant impact on our results of operations, and we expect thatwe can continue to manage the renewals in these markets to maintain profitability. Other states are currently examining theeffectiveness of implementing such a restriction.On February 23, 2016, the New York State Public Service Commission ("NYPSC") issued an order ("the Resetting Order") resettingretail energy markets that, among other things, would have limited the types of competitive products that energy service companies("ESCOs"), such as us, could offer in New York. The Resetting Order stated that all new customer enrollments or expiring agreementsfor mass market (residential and certain small commercial) customers must enroll or re-enroll in a contract that offers either: (i) aguarantee that the customer will pay no more than what the customer would pay as a full service utility customer, or (ii) an electricityproduct that is at least 30% derived from specific renewable sources either in the State of New York or in adjacent market areas. OnJuly 22, 2016, most of the Resetting Order, including the provisions previously noted, was vacated by a New York state court.On July 27, 2017, the New York State Supreme Court, Appellate Division, Third Department ruled to uphold the lower court’s rulingoverturning portions of the Resetting Order because the NYPSC did not follow the proper18Table of Contentsprocess in issuing the Resetting Order. However, the court also determined that the NYPSC has authority to set ESCO rates and takeother action consistent with the Resetting Order as long as the proper administrative process is followed. The NYPSC conductedevidentiary proceedings to determine what the regulatory framework for ESCOs in New York will be going forward, which concludedin late 2017. Briefing on these hearings is due by April 30, 2018. We believe that the administrative law judges overseeing theproceeding will provide for settlement discussions before adjudication of the matter. There can be no assurance that settlementdiscussions between the NYPSC and ESCOs will occur, or if such discussions occur, that they will result in a commercially reasonableframework for ESCOs to operate in New York. See "Risk Factors—We face risks due to increasing regulation of the retail energyindustry at the state level."In addition, in connection with the Low-Income Order promulgated by the NYPSC in December of 2016, the New York State SupremeCourt, Appellate Division, Third Department ruled in September 2017 that ESCOs must proceed with returning existing low-incomecustomers to utility service and stop enrolling new low-income customers. The ESCO’s have effectively exhausted their legal remediesto appeal this matter and must now comply with the Low-Income Order. ESCOs may continue serving low income customers if thosecustomers are enrolled in longer term gift-term or guaranteed savings arrangements (that were entered into prior to the effective date ofthe Low-Income Order) or if the ESCO receives a waiver from the NYPSC to provide low-income customers with guaranteed savings.The Company and its subsidiaries are dropping low-income customers to the applicable utilities in the next twelve months as they rolloff of their contracts. These customers represent approximately less than 1% of our total customer count as of December 31, 2017.We are evaluating the potential impact of the NYPSC's Resetting Order on our New York operations while preparing to operate incompliance with any new requirements that may come as a result of any new order promulgated by the NYPSC. Given the uncertaintyof the outcome of these matters and the final requirements that may be implemented, we are unable to predict at this time whether it willhave a significant long-term impact on our operations in New York.Our marketing efforts to consumers, including but not limited to telemarketing, door-to-door sales, direct mail and online marketing, aresubject to consumer protection regulation including state deceptive trade practices acts, Federal Trade Commission ("FTC") marketingstandards, and state utility commission rules governing customer solicitations and enrollments, among others. By way of example,telemarketing activity is subject to federal and state do-not-call regulation and certain enrollment standards promulgated by stateregulators. Door-to-door sales are governed by the FTC’s “Cooling Off” Rule as well as state-specific regulation in many jurisdictions.In markets in which we conduct customer credit checks, these checks are subject to the requirements of the Fair Credit Reporting Act.Violations of the rules and regulations governing our marketing and sales activity could impact our license to operate in a particularmarket, result in suspension or otherwise limit our ability to conduct marketing activity in certain markets, and potentially lead toprivate actions against us. Moreover, there is potential for changes to legislation and regulatory measures applicable to our marketingmeasures that may impact our business models.Recent interpretations of the Telephone Consumer Protection Act of 1991 (the "TCPA") by the Federal Communications Commission("FCC") have introduced confusion regarding what constitutes an “autodialer” for purposes of determining compliance under theTCPA. Also, additional restrictions have been placed on wireless telephone numbers making compliance with the TCPA more costly.See “Risk Factors—Risks Related to Our Business and Our Industry—Liability under the TCPA has increased significantly in recentyears, and we face risks if we fail to comply."As compliance with the TCPA gets more costly and as door-to-door marketing becomes increasingly risky both from a regulatorycompliance perspective and from the risk of such activities drawing class action litigation claims, we and our peers who rely on thesesales channels will find it more difficult than in the past to engage in direct marketing efforts. In response to these risks, the Company isexperimenting with new technologies such as ringless messaging and door-to-door sales using tablets, both of which expandopportunities to market directly to customers.Our participation in natural gas and electricity wholesale markets to procure supply for our retail customers and hedge pricing risk issubject to regulation by the Commodity Futures Trading Commission, including regulation19Table of Contentspursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act. In order to sell electricity, capacity and ancillary servicesin the wholesale electricity markets, we are required to have market-based rate authorization, also known as “MBR Authorization”,from the Federal Energy Regulatory Commission ("FERC"). We are required to make status update filings to FERC to disclose anyaffiliate relationships and quarterly filings to FERC regarding volumes of wholesale electricity sales in order to maintain our MBRAuthorization.The transportation and sale for resale of natural gas in interstate commerce are regulated by agencies of the U.S. federal government,primarily FERC under the Natural Gas Act of 1938, the Natural Gas Policy Act of 1978 and regulations issued under those statutes.FERC regulates interstate natural gas transportation rates and service conditions, which affects our ability to procure natural gas supplyfor our retail customers and hedge pricing risk. Since 1985, FERC has endeavored to make natural gas transportation more accessible tonatural gas buyers and sellers on an open and non-discriminatory basis. FERC’s orders do not attempt to directly regulate natural gasretail sales. As a shipper of natural gas on interstate pipelines, we are subject to those interstate pipelines tariff requirements and FERCregulations and policies applicable to shippers.Changes in law and to FERC policies and regulations may adversely affect the availability and reliability of firm and/or interruptibletransportation service on interstate pipelines, and we cannot predict what future action FERC will take. We do not believe, however, thatany regulatory changes will affect us in a way that materially differs from the way they will affect other natural gas marketers and localregulated utilities with which we compete.On December 26, 2007, FERC issued Order 704, a final rule on the annual natural gas transaction reporting requirements, as amendedby subsequent orders on rehearing. Under Order 704, wholesale buyers and sellers of more than 2.2 million MMBtus of physicalnatural gas in the previous calendar year, including natural gas gatherers and marketers, are required to report, on May 1 of each year,aggregate volumes of natural gas purchased or sold at wholesale in the prior calendar year to the extent such transactions utilize,contribute to, or may contribute to the formation of price indices. It is the responsibility of the reporting entity to determine whichindividual transactions should be reported based on the guidance of Order 704. Order 704 also requires market participants to indicatewhether they report prices to any index publishers, and if so, whether their reporting complies with FERC’s policy statement on pricereporting. As a wholesale buyer and seller of natural gas, we are subject to the reporting requirements of Order 704.EmployeesWe employed 176 people as of December 31, 2017. This number does not include employees of Retailco Services who provideservices to us under the Master Service Agreement as described under “Relationship with Our Founder and Majority Shareholder—Master Service Agreement.”We are not a party to any collective bargaining agreements and have not experienced any strikes or work stoppages. We consider ourrelations with our employees to be satisfactory. We also utilize the services of independent contractors and vendors to perform variousservices.FacilitiesOur corporate headquarters is located in Houston, Texas. We believe that our facilities are adequate for our current operations. Weshare our corporate headquarters with certain of our affiliates. NuDevco Midstream Development, LLC, an indirect subsidiary of TxExEnergy Investments, LLC, is the lessee under the lease agreement covering these facilities. NuDevco Midstream Development, LLCpays the entire lease payment on behalf of the affiliates of TxEx Energy Investments, LLC, and we reimburse NuDevco MidstreamDevelopment, LLC for our share of the leased space.20Table of ContentsAvailable InformationOur principal executive offices are located at 12140 Wickchester Ln., Suite 100, Houston, Texas 77079, and our telephone number is(713) 600-2600. Our website is located at www.sparkenergy.com. We make available our periodic reports and other information filedwith or furnished to the Securities and Exchange Commission (the “SEC”), free of charge through our website, as soon as reasonablypracticable after those reports and other information are electronically filed with or furnished to the SEC. Any materials that we havefiled with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington D.C. 20549, oraccessed by calling the SEC at 1-800-SEC-0330 or visiting the SEC’s website at www.sec.gov.21Table of ContentsItem 1A. Risk FactorsYou should carefully consider the risks described below together with the other information contained in this Annual Report on Form10-K. Our business, financial condition, cash flows, results of operation and ability to pay dividends on our Class A common stock andSeries A Preferred Stock could be adversely impacted due to any of these risks.Risks Related to Our Business and Our IndustryWe are subject to commodity price risk.Our financial results are largely dependent on the prices at which we can acquire the commodities we resell. The prevailing marketprices for natural gas and electricity have historically, and may continue to, fluctuate substantially over relatively short periods of time.Changes in market prices for natural gas and electricity may result from many factors that are outside of our control, including thefollowing:—weather conditions;—seasonality;—demand for energy commodities and general economic conditions;—disruption of natural gas or electricity transmission or transportation infrastructure or other constraints or inefficiencies;—reduction or unavailability of generating capacity, including temporary outages, mothballing, or retirements;—the level of prices and availability of natural gas and competing energy sources, including the impact of changes inenvironmental regulations impacting suppliers;—the creditworthiness or bankruptcy or other financial distress of market participants;—changes in market liquidity;—natural disasters, wars, embargoes, acts of terrorism and other catastrophic events;—significant changes in the pricing methods in the wholesale markets in which we operate;—changes in regulatory policies concerning how markets are structured, how compensation is provided for service, and thekinds of different services that can or must be offered;—federal, state, foreign and other governmental regulation and legislation; and—demand side management, conservation, alternative or renewable energy sources.Changes to the prices we pay to acquire commodities and that we are not able to pass along to our customers could materially andadversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends to the holders of ourClass A common stock and Series A Preferred Stock.Our financial results may be adversely impacted by weather conditions.Weather conditions directly influence the demand for and availability of natural gas and electricity and affect the prices of energycommodities. Generally, on most utility systems, demand for natural gas peaks in the winter and demand for electricity peaks in thesummer. Typically, when winters are warmer or summers are cooler, demand for energy is lower than expected, resulting in less naturalgas and electricity consumption than forecasted. When demand is below anticipated levels due to weather patterns, we may be forced tosell excess supply at prices below our acquisition cost, which could result in reduced margins or even losses.Conversely, when winters are colder or summers are warmer, consumption may outpace the volumes of natural gas and electricityagainst which we have hedged, and we may be unable to meet increased demand with storage or swing supply. In these circumstances,we may experience reduced margins or even losses if we are required to purchase additional supply at higher prices. Our failure toaccurately anticipate demand due to fluctuations in weather or to effectively manage our supply in response to a fluctuating commodityprice environment could22Table of Contentsmaterially and adversely affect our business, financial condition, cash flows and results of operations and ability to pay dividends to theholders of our Class A common stock and Series A Preferred Stock.Our risk management policies and hedging procedures may not mitigate risk as planned, and we may fail to fully or effectively hedgeour commodity supply and price risk.To provide energy to our customers, we purchase commodities in the wholesale energy markets, which are often highly volatile. Ourcommodity risk management strategy is designed to hedge substantially all of our forecasted volumes on our fixed-price customercontracts, as well as a portion of the near-term volumes on our variable-price customer contracts. We use both physical and financialproducts to hedge our exposure. The efficacy of our risk management program may be adversely impacted by unanticipated events andcosts that we are not able to effectively hedge, including abnormal customer attrition and consumption, certain variable costs associatedwith electricity grid reliability, pricing differences in the local markets for local delivery of commodities, unanticipated events thatimpact supply and demand, such as extreme weather, and abrupt changes in the markets for, or availability or cost of, financialinstruments that help to hedge commodity price.We are exposed to basis risk in our operations when the commodities we hedge are sold at different delivery points from the exposurewe are seeking to hedge. For example, if we hedge our natural gas commodity price with Chicago basis but physical supply must bedelivered to the individual delivery points of specific utility systems around the Chicago metropolitan area, we are exposed to basis riskbetween the Chicago basis and the individual utility system delivery points. These differences can be significant from time to time,particularly during extreme, unforecasted cold weather conditions. Similarly, in certain of our electricity markets, customers pay theload zone price for electricity, so if we purchase supply to be delivered at a hub, we may have basis risk between the hub and the loadzone electricity prices due to local congestion that is not reflected in the hub price. We attempt to hedge basis risk where possible, buthedging instruments are sometimes not economically feasible or available in the smaller quantities that we require.Additionally, assumptions that we use in establishing our hedges may reduce the effectiveness of our hedging instruments.Considerations that may affect our hedging policies include, but are not limited to, human error, assumptions about customer attrition,the relationship of prices at different trading or delivery points, assumptions about future weather, and our load forecasting models.In addition, we incur costs monthly for ancillary charges such as reserves and capacity in the electricity sector by ISOs. For example,the ISOs will charge all retail electricity providers for monthly reserves that the ISO determines are necessary to protect the integrity ofthe grid. We attempt to estimate such amounts but they are difficult to estimate because they are charged in arrears by the ISOs and aresubject to fluctuations based on weather and other market conditions. We may be unable to fully pass the higher cost of ancillaryreserves and reliability services through to our customers, and increases in the cost of these ancillary reserves and reliability servicescould negatively impact our results of operations.Many of the natural gas utilities we serve allocate a share of transportation and storage capacity to us as a part of their competitivemarket operations. We are required to fill our allocated storage capacity with natural gas, which creates commodity supply and pricerisk. Sometimes we cannot hedge the volumes associated with these assets because they are too small compared to the much larger bulktransaction volumes required for trades in the wholesale market or it is not economically feasible to do so. In some regulatory programsor under some contracts, this capacity may be subject to recall by the utilities, which could have the effect of us being required toaccess the spot market to cover such recall.If we are unable to effectively manage our risk management policies and hedging procedures, it could materially and adversely affectour business, financial condition, cash flows, results of operations and ability to pay dividends to the holders of our Class A commonstock and Series A Preferred Stock.We face risks due to increasing regulation of the retail energy industry at the state level.23Table of ContentsSome states are beginning to increase their regulation of their retail electricity and natural gas markets in an effort to eliminate deceptivemarketing practices. For example, in 2015 the Connecticut Legislature passed legislation providing that licensed electric suppliers inConnecticut could no longer offer variable rate products.Additionally, the New York Public Service Commission (the “NYPSC”) began an aggressive campaign in 2016 to limit the types ofcompetitive products that ESCOs, such as us, can offer in New York. The NYPSC attempted to implement a market resetting orderrequiring that all new customer enrollments or expiring agreements for mass market (residential and certain small commercial)customers must enroll or re-enroll in a contract that offers either: (i) a guarantee that the customer will pay no more than what thecustomer would pay as a full service utility customer, or (ii) an electricity product that is at least 30% derived from specific renewablesources either in the State of New York or in adjacent market areas. Most of the original resetting order was vacated by a New Yorkstate court on July 22, 2016. However, the ESCOs lost an appeal on the matter of whether the NYPSC has jurisdiction over ESCOpricing of products. Currently, ESCOs and the NYPSC are involved in evidentiary proceedings that are addressing, among other things,whether the NYPSC has sufficient cause to implement another similar resetting order. In the event that all or significant components ofthe original resetting order are re-implemented, ESCOs, including us, could be obligated to drop customers to the utility or seekaffirmative consent from their fixed and variable rate customers upon renewal, which may be very difficult to obtain. As ofDecember 31, 2017, approximately 16% of our customers on an RCE basis were located in New York.The NYPSC has also successfully implemented a low-income order that requires ESCOs to return existing low-income customers toutility service and stop enrolling new low-income customers unless customers are enrolled in guaranteed savings arrangements (thatwere entered into prior to the effective date of the low-income order) or if the ESCO receives a waiver from the NYPSC to provide low-income customers with guaranteed savings. As a result of the low-income order, we are being required to drop low-income customersto the applicable utilities in the next twelve months, representing approximately less than 1% of our total customer count as ofDecember 31, 2017.There can be no assurance that the NYPSC or state regulatory agencies to which we are subject will not continue trying to implementrestrictive anti-competitive regulations on us. Any such regulations could materially and adversely affect our business, financialcondition, cash flows, results of operations and ability to pay dividends to the holders of our Class A common stock and Series APreferred Stock.The retail energy business is subject to a high level of federal, state and local regulations, which are subject to change.Our costs of doing business may fluctuate based on changing state, federal and local rules and regulations. For example, manyelectricity markets have rate caps, and changes to these rate caps by regulators can impact future price exposure. Similarly, regulatorychanges can result in new fees or charges that may not have been anticipated when existing retail contracts were drafted, which cancreate financial exposure. Our ability to manage cost increases that result from regulatory changes will depend, in part, on how the“change in law provisions” of our contracts are interpreted and enforced, among other factors. Accordingly, changing or additionalregulations or restrictions could materially and adversely affect our business, financial condition, cash flows, results of operations andability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Liability under the TCPA has increased significantly in recent years, and we face risks if we fail to comply.Our outbound telemarketing efforts and use of mobile messaging to communicate with our customers subjects us to regulation underthe TCPA. Over the last several years, companies have been subject to significant liabilities as a result of violations of the TCPA,including penalties, fines and damages under class action lawsuits. In addition, the increased use by us and other consumer retailers ofmobile messaging to communicate with our customers has created new issues of application of the TCPA to these communications. In2015, the Federal Communications Commission issued several rulings that made compliance with the TCPA more difficult and costly.Our failure to effectively monitor and comply with our activities that are subject to the TCPA could result in significant penalties and theadverse effects of having to defend and ultimately suffer liability in a class action lawsuit related to such non-compliance.24Table of ContentsWe are also subject to liability under the TCPA for actions of our third party vendors who are engaging in outbound telemarketingefforts on our behalf. The issue of vicarious liability for the actions of third parties in violation of the TCPA remains unclear and hasbeen the subject of conflicting precedent in the federal appellate courts. There can be no assurance that we may be subject to significantdamages as a result of a class action lawsuit for actions of our vendors that we may not be able to control. If any violation of the TCPAwere to occur, it could materially and adversely affect our business, financial condition, cash flows, results of operations and ability topay dividends to the holders of our Class A common stock and Series A Preferred Stock.We are subject to risks of significant liability resulting from class action lawsuits.In recent years, retail energy providers have been named as defendants in class action lawsuits relating to pricing and sales practices,among other matters. A number of these lawsuits have resulted in substantial jury awards or settlements. We are currently a defendantin several class action lawsuits involving sales practices or TCPA claims. A negative outcome could result in significant damagesdepending on whether a class is certified, and if so, the size of a such class. Future litigation relating to our pricing and sales practicesmay negatively impact us by requiring us to pay substantial awards or settlements, increasing our legal costs, diverting managementattention from other business issues or harming our reputation with customers, which could materially and adversely affect ourbusiness, financial condition, cash flows, results of operations and ability to pay dividends to the holders of our Class A common stockand Series A Preferred Stock.Our business is dependent on retaining licenses in the markets in which we operate.Our business model is dependent on continuing to be licensed in existing markets. If we have a license revoked or are not grantedrenewal of a license, or if our license is adversely conditioned or modified (e.g., by increased bond posting obligations), it couldmaterially and adversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends to theholders of our Class A common stock and Series A Preferred Stock.We may be subject to risks in connection with acquisitions, which could cause us to fail to realize many of the anticipated benefits ofsuch acquisitions.We intend to grow our business in part through strategic acquisition opportunities from third parties and potentially from affiliates ofour majority shareholder. Achieving the anticipated benefits of these transactions will depend in part upon our ability to identifyaccretive acquisition targets, accurately assess the benefits and risks of the acquisition prior to undertaking it, and our ability to integratethe acquired businesses in an efficient and effective manner.We intend to make acquisitions that are accretive to Adjusted EBITDA. We may be unable to identify attractive acquisition candidatesor negotiate commercially acceptable terms for such acquisitions. Even if we identify a target, the successful acquisition of a businessrequires assessing several factors, including anticipated cash flow and accretive value, regulatory challenges, our ability to retaincustomers and assumed liabilities. The accuracy of these assessments is inherently uncertain and our assessments may turn outincorrect.Furthermore, even if we make an acquisition, we may not be able to accomplish the integration process smoothly or successfully. Thedifficulties of integrating our acquisitions potentially will include, among other things:–coordinating geographically separate organizations and addressing possible differences in corporate cultures and managementphilosophies;–dedicating significant management resources to the integration of acquisitions, which may temporarily distract management'sattention from the day-to-day business of the combined company;–increased liquidity needs to support working capital for the purchase of natural gas and electricity supply to meet our customers’needs, for the credit requirements of forward physical supply and for generally higher operating expenses;–operating in states and markets where we have not previously conducted business;25Table of Contents–managing different and competing brands and retail strategies in the same markets;–coordinating customer information and billing systems and determining how to optimize those systems on a consolidated level;–ensuring our hedging strategy adequately covers a customer base that is managed through multiple systems; and–successfully recognizing expected cost savings and other synergies in overlapping functions.In many of our acquisition agreements, we are entitled to indemnification from the counter party for various matters, including breachesof representations, warranties and covenants, tax matters, and litigation proceedings. We generally obtain security to provide assurancesthat the counterparty could perform its indemnification obligations, which may be in the form of escrow accounts, payment withholdingor other methods. However, to the extent that we do not obtain security, or the security turns out to be inadequate, there is a risk that thecounter-party may fail to perform its indemnification obligations, which could result in the losses being incurred by us.If any of the risks above were to occur, it could materially and adversely affect our business, financial condition, cash flows, results ofoperations and ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Pursuant to our cash dividend policy, we distribute a significant portion of our cash through regular quarterly dividends, and ourability to grow and make acquisitions with cash on hand could be limited.Pursuant to our cash dividend policy, we have been distributing, and intend to distribute, a significant portion of our cash throughregular quarterly dividends to holders of our Class A common stock and dividends on our Series A Preferred Stock. As such, ourgrowth may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations, and we may have to relyupon external financing sources, including the issuance of debt, equity securities, convertible subordinated notes and borrowings underour Senior Credit Facility and Subordinated Facility. If these sources are not available, our ability to grow and maintain our businessmay be limited, which could materially and adversely affect our business, financial condition, cash flows, results of operations andability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.We may not be able to manage our growth successfully.The growth of our operations will depend upon our ability to expand our customer base in our existing markets and to enter newmarkets in a timely manner at reasonable costs, organically or through acquisitions. In order for us to recover expenses incurred inentering new markets and obtaining new customers, we must attract and retain customers on economic terms and for extended periods.We may experience difficulty managing our growth and implementing new product offerings, integrating new customers andemployees, and complying with applicable market rules and the infrastructure for product delivery.Expanding our operations also may require continued development of our operating and financial controls and may place additionalstress on our management and operational resources. If we are unable to manage our growth and development successfully, it couldmaterially and adversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends to theholders of our Class A common stock and Series A Preferred Stock.The termination of our Master Service Agreement subjects us to a variety of risks.A significant portion of our operations, including enrollment and renewal transaction services, customer billing and transaction services,electronic payment processing services, customer services and information technology infrastructure and application support services,is currently provided to us by our affiliate, Retailco Services, LLC, for a fixed fee under the Master Service Agreement. The MasterService Agreement will terminate effective April 1, 2018, and we will be reintegrating the services previously provided to us byRetailco Services, LLC under the Master Service Agreement back into our operations. We may experience costs integrating theseservices back into our operations. Additionally, following the integration of those services back into our operations, we may26Table of Contentsexperience fluctuations in general and administrative costs that we did not experience under the fixed-fee arrangement of the MasterService Agreement. If any of the risks above were to occur, it could materially and adversely affect our business, financial condition,cash flows, results of operations and ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Our financial results fluctuate on a seasonal, quarterly and annual basis.Our overall operating results fluctuate substantially on a seasonal, quarterly and annual basis depending on: (1) the geographic mix ofour customer base; (2) the concentration of our product mix; (3) the impact of weather conditions on commodity pricing and demand;(4) variability in market prices for natural gas and electricity, and (5) changes in the cost of delivery of commodities through energydelivery networks. These factors can have material short-term impacts on monthly and quarterly operating results, which may bemisleading when considered outside of the context of our annual operating cycle. In addition, our accounts payable and accountsreceivable are impacted by seasonality due to the timing differences between when we pay our suppliers for accounts payable versuswhen we collect from our customers on accounts receivable. We typically pay our suppliers for purchases of natural gas on a monthlybasis and electricity on a weekly basis. However, it takes approximately two months from the time we deliver the electricity or naturalgas to our customers before we collect from our customers on accounts receivable attributable to those supplies. This timing differencecould affect our cash flows, especially during peak cycles in the winter and summer months. Furthermore, as a result of the seasonalityof our business, we may reserve a portion of our excess cash available for distribution in the first and fourth quarters in order to fundour second and third quarter distributions.Additionally, we enter into a variety of financial derivative and physical contracts to manage commodity price risk, and we use mark-to-market accounting to account for this hedging activity. Under the mark-to-market accounting method, changes in the fair value ofour hedging instruments that are not qualifying or not designated as hedges under accounting rules are recognized immediately inearnings. As a result of this accounting treatment, changes in the forward prices of natural gas and electricity cause volatility in ourquarterly and annual earnings, which we are unable to fully anticipate.We could also incur volatility from quarter to quarter associated with gains and losses on settled hedges relating to natural gas held ininventory if we choose to hedge the summer-winter spread on our retail allocated storage capacity. We typically purchase natural gasinventory and store it from April to October for withdrawal from November through March. Since a portion of the inventory is used tosatisfy delivery obligations to our fixed-price customers over the winter months, we hedge the associated price risk using derivativecontracts. Any gains or losses associated with settled derivative contracts are reflected in the statement of operations as a component ofretail cost of sales and net asset optimization.Accordingly, we may experience seasonal, quarterly and annual fluctuations, which could materially and adversely affect our business,financial condition, cash flows, results of operations and ability to pay dividends to the holders of our Class A common stock and SeriesA Preferred Stock.We may have difficulty retaining our existing customers or obtaining a sufficient number of new customers, due to competition andfor other reasons.The markets in which we compete are highly competitive, and we may face difficulty retaining our existing customers or obtaining newcustomers due to competition. We encounter significant competition from local regulated utilities or their retail affiliates and traditionaland new retail energy providers. Many of these competitors or potential competitors are larger than us, have access to more significantcapital resources, have more well-established brand names and have larger existing installed customer bases.Additionally, existing customers may switch to other retail energy service providers during their contract terms in the event of asignificant decrease in the retail price of natural gas or electricity in order to obtain more favorable prices. Although we generally havea right to collect a termination fee from each customer on a fixed-price contract27Table of Contentswho terminates their contract early, we may not be able to collect the termination fees in full or at all. Our variable-price contracts cantypically be terminated by our customers at any time without penalty.If we are unable to obtain new customers or maintain our existing customers, due to competition or otherwise, it could materially andadversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends to the holders of ourClass A common stock and Series A Preferred Stock.Increased collateral requirements in connection with our supply activities may restrict our liquidity, which could limit our ability togrow our business or pay dividends.Our contractual agreements with certain local regulated utilities and our supplier counterparties require us to maintain restricted cashbalances or letters of credit as collateral for credit risk or the performance risk associated with the future delivery of natural gas orelectricity. These collateral requirements may increase as we grow our customer base. Collateral requirements will increase based on thevolume or cost of the commodity we purchase in any given month and the amount of capacity or service contracted for with the localregulated utility. Significant changes in market prices also can result in fluctuations in the collateral that local regulated utilities orsuppliers require.The effectiveness of our operations and future growth depend in part on the amount of cash and letters of credit available to enter intoor maintain these contracts. The cost of these arrangements may be affected by changes in credit markets, such as interest rate spreadsin the cost of financing between different levels of credit ratings. These liquidity requirements may be greater than we anticipate or areable to meet. If any of these risks were to occur, it could materially and adversely affect our business, financial condition, cash flows,results of operations and ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.We are subject to direct credit risk for certain customers who may fail to pay their bills as they become due.We bear direct credit risk related to our customers located in markets that have not implemented POR programs as well as indirect creditrisk in those POR markets that pass collection efforts along to us after a specified non-payment period. For the year endedDecember 31, 2017, customers in non-POR markets represented approximately 34% of our retail revenues. We generally have theability to terminate contracts with customers in the event of non-payment, but in most states in which we operate we cannot disconnecttheir natural gas or electricity service. In POR markets where the local regulated utility has the ability to return non-paying customers tous after specified periods, we may realize a loss for one to two billing periods until we can terminate these customers’ contracts. Wemay also realize a loss on fixed-price customers in this scenario due to the fact that we will have already fully hedged the customer’sexpected commodity usage for the life of the contract and we also remain liable to our suppliers of natural gas and electricity for thecost of our supply commodities. Furthermore, in the Texas market, we are responsible for billing the distribution charges for the localregulated utility and are at risk for these charges, in addition to the cost of the commodity, in the event customers fail to pay their bills.Changing economic factors, such as rising unemployment rates and energy prices also result in a higher risk of customers being unableto pay their bills when due.The failure of our customers to pay their bills or our failure to maintain adequate billing and collection procedures could adverselyaffect our financial results and our ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Our indebtedness could adversely affect our ability to raise additional capital to fund our operations or pay dividends. It could alsoexpose us to the risk of increased interest rates and limit our ability to react to changes in the economy or our industry as well asimpact our cash available for distribution.28Table of ContentsWe have $125.3 million of indebtedness outstanding and $47.2 million in issued letters of credit under our Senior Credit Facility, andno indebtedness outstanding under our Subordinated Facility as of December 31, 2017. Debt we incur under our Senior Credit Facility,Subordinated Facility or otherwise could have negative consequences, including:—increasing our vulnerability to general economic and industry conditions;—requiring cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, thereforereducing our ability to pay dividends to holders of our Class A common stock and Series A Preferred Stock, or to use ourcash flow to fund our operations, capital expenditures and future business opportunities;—limiting our ability to fund future acquisitions or engage in other activities that we view as in our long-term best interest;—restricting our ability to make certain distributions with respect to our capital stock and the ability of our subsidiaries to makecertain distributions to us, in light of restricted payment and other financial covenants, including requirements to maintaincertain financial ratios, in our credit facilities and other financing agreements;—exposing us to the risk of increased interest rates because borrowings under our Senior Credit Facility are at variable rates ofinterest; and—limiting our ability to obtain additional financing for working capital including collateral postings, capital expenditures, debtservice requirements, acquisitions and general corporate or other purposes.If we are unable to satisfy financial covenants in our debt instruments, it could result in an event of default that, if not cured or waived,may entitle the lenders to demand repayment or enforce their security interests. Our Senior Credit Facility will mature on May 19, 2019,and we cannot assure that we will be able to negotiate a new credit arrangement on commercially reasonable terms. The occurrence ofany of the events above could materially and adversely affect our business, financial condition, cash flows, results of operations andability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.We depend on the accuracy of data in our information management systems, which subjects us to risks.We depend on the accuracy and timeliness of our information management systems for billing, collections, consumption and otherimportant data. We rely on many internal and external sources for this information, including:—our marketing, pricing and customer operations functions; and—various local regulated utilities and ISOs for volume or meter read information, certain billing rates and billing types (e.g.,budget billing) and other fees and expenses.Inaccurate or untimely information, which may be outside of our direct control, could result in:—inaccurate and/or untimely bills sent to customers;—incorrect tax remittances;—reduced effectiveness and efficiency of our operations;—inability to adequately hedge our portfolio;—increased overhead costs;—inaccurate accounting and reporting of customer revenues, gross margin and accounts receivable activity;—inaccurate measurement of usage rates, throughput and imbalances;—customer complaints; and—increased regulatory scrutiny.We are also subject to disruptions in our information management systems arising out of events beyond our control, such as naturaldisasters, epidemics, failures in hardware or software, power fluctuations, telecommunications and29Table of Contentsother similar disruptions. In addition, our information management systems may be vulnerable to computer viruses, incursions byintruders or hackers and cyber terrorists and other similar disruptions. A successful cyber-attack on our information managementsystems could severely disrupt business operations, preventing us from billing and collecting revenues, and could result in significantexpenses to investigate and repair security breaches or system damage, lead to litigation, fines, other remedial action, heightenedregulatory scrutiny, diminished customer confidence and damage to our reputation. We do not maintain cyber-liability insurance thatcovers certain damage caused by cyber events.Inaccurate data and disruptions of our information management systems to perform as anticipated for any reason could materially andadversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends to the holders of ourClass A common stock and Series A Preferred Stock.Our success depends on key members of our management, the loss of whom could disrupt our business operations.We depend on the continued employment and performance of key management personnel. A number of our senior executives havesubstantial experience in consumer and energy markets that have undergone regulatory restructuring and have extensive riskmanagement and hedging expertise. We believe their experience is important to our continued success. We do not maintain key lifeinsurance policies for our executive officers. If our key executives do not continue in their present roles and are not adequatelyreplaced, it could materially and adversely affect our business, financial condition, cash flows, results of operations and ability to paydividends to the holders of our Class A common stock and Series A Preferred Stock.We rely on a third party vendor for our customer billing and transactions platform that exposes us to third party performance risk.We have outsourced our back office customer billing and transactions functions to a third party, and we rely heavily on the continuedperformance of that vendor under the outsourcing agreement. Failure of our vendor to operate in accordance with the terms of theoutsourcing agreement or the vendor’s bankruptcy or other event that prevents it from performing under our outsourcing agreementcould materially and adversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends tothe holders of our Class A common stock and Series A Preferred Stock.A large portion of our current customers are concentrated in a limited number of states, making us vulnerable to customerconcentration risks.As of December 31, 2017, approximately 60% of our RCEs were located in five states. Specifically, 16%, 12%, 12%, 11% and 9% ofour customers on an RCE basis were located in NY, PA, CT, MA, and NH, respectively. If we are unable to increase our market shareacross other competitive markets or enter into new competitive markets effectively, we may be subject to continued or greater customerconcentration risk. In addition, if any of the states that contain a large percentage of our customers were to reverse regulatoryrestructuring or change the regulatory environment in a manner that causes us to be unable to economically operate in that state, itcould materially and adversely affect our business, financial condition, cash flows, results of operations and ability to pay dividends tothe holders of our Class A common stock and Series A Preferred Stock.Increases in state renewable portfolio standards or an increase in the cost of renewable energy credit and carbon offsets mayadversely impact the price, availability and marketability of our products.Pursuant to state renewable portfolio standards, we must purchase a specified amount of renewable energy credits, or RECs, based onthe amount of electricity we sell in a state in a year. In addition, we have contracts with certain customers that require us to purchaseRECs or carbon offsets. If a state increases its renewable portfolio standards, the demand for RECs within that state will increase andtherefore the market price for RECs could increase. We attempt to forecast the price for the required RECs and carbon offsets at the endof each month and incorporate this forecast into our customer pricing models, but the price paid for RECs and carbon offsets may behigher than30Table of Contentsforecasted. We may be unable to fully pass the higher cost of RECs through to our customers, and increases in the price of RECs maydecrease our results of operations and affect our ability to compete with other energy retailers that have not contracted with customersto purchase RECs or carbon offsets. Further, a price increase for RECs or carbon offsets may require us to decrease the renewableportion of our energy products, which may result in a loss of customers. A further reduction in benefits received by local regulatedutilities from production tax credits in respect of renewable energy may adversely impact the availability to us, and marketability by us,of renewable energy under our brands. Accordingly, such decrease may result in reduced revenue and could materially and adverselyaffect our business, financial condition, cash flows, results of operations and ability to pay dividends to the holders of our Class Acommon stock and Series A Preferred Stock.Our access to marketing channels may be contingent upon the viability of our telemarketing and door-to-door agreements with ourvendors.Our vendors are essential to our telemarketing and door-to-door sales activities. Our ability to increase revenues in the future willdepend significantly on our access to high quality vendors. If we are unable to attract new vendors and retain existing vendors toachieve our marketing targets, our growth may be materially reduced. There can be no assurance that competitive conditions will allowthese vendors and their independent contractors to continue to successfully sign up new customers. Further, if our products are notattractive to, or do not generate sufficient revenue for our vendors, we may lose our existing relationships. In addition, the decline inlandlines reduces the number of potential customers that may be reached by our telemarketing efforts and as a result our telemarketingsales channel may become less viable and we may be required to use more door-to-door marketing. Door-to-door marketing iscontinually under scrutiny by state regulators and legislators, which may lead to new rules and regulations that impact our ability to usethese channels. If any of these risks were to occur, it could materially and adversely affect our business, financial condition, cash flows,results of operations and ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Our vendors may expose us to risks.We are subject to reputational risks that may arise from the actions of our vendors and their independent contractors that are wholly orpartially beyond our control, such as violations of our marketing policies and procedures as well as any failure to comply withapplicable laws and regulations. If our vendors engage in marketing practices that are not in compliance with local laws andregulations, we may be in breach of applicable laws and regulations that may result in regulatory proceedings, disadvantageousconditioning of our energy retailer license, or the revocation of our energy retailer license. Unauthorized activities in connection withsales efforts by agents of our vendors, including calling consumers in violation of the TCPA and predatory door-to-door sales tacticsand fraudulent misrepresentation could subject us to class action lawsuits against which we will be required to defend. Such defenseefforts will be costly and time consuming. In addition, the independent contractors of our vendors may consider us to be their employerand seek compensation.If any of these risks were to occur, it could materially and adversely affect our business, financial condition, cash flows, results ofoperations and ability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.Risks Related to Our Capital StockWe cannot assure you that we will be able to continue paying our targeted quarterly dividend to the holders of our Class A commonstock or dividends to the holders of our Series A Preferred Stock in the future.The amount of our cash available for distribution principally depends upon the amount of cash we generate from our operations, whichfluctuates from quarter to quarter based on, among other things:—changes in commodity prices, which may be driven by a variety of factors, including, but not limited to, weather conditions,seasonality and demand for energy commodities and general economic conditions;—the level and timing of customer acquisition costs we incur;31Table of Contents—the level of our operating and general and administrative expenses;—seasonal variations in revenues generated by our business;—our debt service requirements and other liabilities;—fluctuations in our working capital needs;—our ability to borrow funds and access capital markets;—restrictions contained in our debt agreements (including our Senior Credit Facility);— management of customer credit risk;—abrupt changes in regulatory policies; and,—other business risks affecting our cash flows.As a result of these and other factors, we cannot guarantee that we will have sufficient cash generated from operations to pay thedividends on our Series A Preferred Stock or to pay a specific level of cash dividends to holders of our Class A common stock.Due to the seasonality of our retail natural gas business, we generate the substantial majority of our cash available for distribution in thefirst and fourth quarters of each year. As a result of seasonality and our customer acquisition costs, we may not have sufficient cashavailable for distribution to cover quarterly dividends for certain quarters. The amount of cash available for distribution depends primarily on our cash flow, and is not solely a function of profitability, which isaffected by non-cash items. We may incur other expenses or liabilities during a period that could significantly reduce or eliminate ourcash available for distribution and, in turn, impair our ability to pay dividends to holders of our Class A common stock and Series APreferred Stock during the period. Additionally, the dividends paid on Series A Preferred Stock reduce the amount of cash we haveavailable to pay dividends on our Class A common stock.Each new share of Class A common stock and Series A Preferred Stock issued increases the cash required to continue to pay cashdividends. Any Class A common stock or preferred stock (whether Series A Preferred Stock or a new series of preferred stock) that mayin the future be issued to finance acquisitions, upon exercise of stock options or otherwise, would have a similar effect.Finally, dividends to holders of our Class A common stock are paid at the discretion of our board of directors. Our board of directorsmay decrease the level of or entirely discontinue payment of dividends.We could be prevented from paying cash dividends on the Class A common stock and Series A Preferred Stock.Holders of shares of Class A common stock and Series A Preferred Stock do not have a right to dividends on such shares unlessdeclared or set aside for payment by our board of directors. Under Delaware law, cash dividends on capital stock may only be paidfrom “surplus” or, if there is no “surplus,” from the corporation’s net profits for the then-current or the preceding fiscal year. Unless weoperate profitably, our ability to pay cash dividends on the Class A common stock and Series A Preferred Stock would require theavailability of adequate “surplus,” which is defined as the excess, if any, of net assets (total assets less total liabilities) over capital. Ourbusiness may not generate sufficient cash flow from operations to enable us to pay dividends on the Series A Preferred Stock whenpayable, and quarterly dividends on the Class A common stock. Further, even if adequate surplus is available to pay cash dividends onthe Class A common stock and Series A Preferred Stock, we may not have sufficient cash to pay dividends on the Class A commonstock or Series A Preferred Stock.Furthermore, no dividends on Class A common stock or Series A Preferred Stock shall be authorized by our board of directors or paid,declared or set aside for payment by us at any time when the authorization, payment, declaration or setting aside for payment would beunlawful under Delaware law or any other applicable law, or when the terms and provisions of any documents limiting the payment ofdividends prohibit the authorization, payment, declaration or setting aside for payment thereof or would constitute a breach or a defaultunder such document.32Table of ContentsWe are a holding company. Our sole material asset is our equity interest in Spark HoldCo and we are accordingly dependent upondistributions from Spark HoldCo to pay dividends on the Class A common stock and Series A Preferred Stock.We are a holding company and have no material assets other than our equity interest in Spark HoldCo, and have no independent meansof generating revenue. To the extent that we need funds and Spark HoldCo or its subsidiaries are restricted from making distributions tous under applicable law or regulation or under the terms of their financing arrangements, or are otherwise unable to provide such funds,it could materially and adversely affect our business, financial condition, cash flows, results of operations and ability to pay dividendsto the holders of our Class A common stock and Series A Preferred Stock.The Class A common stock and Series A Preferred Stock are subordinated to our existing and future debt obligations.The Class A common stock and Series A Preferred Stock are subordinated to all of our existing and future indebtedness (includingindebtedness outstanding under the Senior Credit Facility). Therefore, if we become bankrupt, liquidate our assets, reorganize or enterinto certain other transactions, assets will be available to pay our obligations with respect to the Series A Preferred Stock only after wehave paid all of our existing and future indebtedness in full. The Class A common stock will only receive assets to the extent all existingand future indebtedness and obligations under the Series A Preferred Stock is paid in full. If any of these events were to occur, theremay be insufficient assets remaining to make any payments to holders of the Series A Preferred Stock or Class A common stock.Additionally, none of our subsidiaries has guaranteed or otherwise become obligated with respect to the Class A common stock orSeries A Preferred Stock. As a result, the Class A common stock and Series A Preferred Stock effectively rank junior to all existing andfuture indebtedness and other liabilities of our subsidiaries, including our operating subsidiaries, and any capital stock of oursubsidiaries not held by us. Accordingly, our right to receive assets from any of our subsidiaries upon our bankruptcy, liquidation orreorganization, and the right of holders of shares of Class A common stock and Series A Preferred Stock to participate in those assets, isalso structurally subordinated to claims of that subsidiary’s creditors, including trade creditors. Even if we were a creditor of any of oursubsidiaries, our rights as a creditor would be subordinate to any security interest in the assets of that subsidiary and any indebtednessof that subsidiary senior to that held by us.Numerous factors may affect the trading price of the Class A common stock and Series A Preferred Stock.The trading price of the Class A common stock and Series A Preferred Stock may depend on many factors, some of which are beyondour control, including:—prevailing interest rates;—the market for similar securities;— general economic and financial market conditions;— our issuance of debt or other preferred equity securities; and—our financial condition, results of operations and prospects.One of the factors that will influence the price of the Class A common stock and Series A Preferred Stock will be the distribution yieldof the securities (as a percentage of the then market price of the securities) relative to market interest rates. An increase in marketinterest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of shares of Class A commonstock or Series A Preferred Stock to expect a higher distribution yield, and cause them to sell their Class A common stock or Series APreferred Stock. Accordingly, higher market interest rates could cause the market price of the Class A common stock and Series APreferred Stock to decrease.33Table of ContentsIn addition, over the last several years, prices of equity securities in the U.S. trading markets have been experiencing extreme pricefluctuations. As a result of these and other factors, investors holding our Class A common stock and Series A Preferred Stock mayexperience a decrease in the value of their securities, which could be substantial and rapid, and could be unrelated to our financialcondition, performance or prospects.There may not be an active trading market for the Class A common stock or Series A Preferred Stock, which may in turn reduce themarket value and your ability to transfer or sell your shares of Class A common stock or Series A Preferred Stock.There are no assurances that there will be an active trading market for our Class A common stock or Series A Preferred Stock. Theliquidity of any market for the Class A common stock and Series A Preferred Stock will depend upon the number of stockholders, ourresults of operations and financial condition, the market for similar securities, the interest of securities dealers in making a market in theClass A common stock and Series A Preferred Stock, and other factors. To the extent that an active trading market is not maintained, theliquidity and trading prices for the Class A common stock and Series A Preferred Stock may be harmed.Furthermore, because the Series A Preferred Stock does not have any stated maturity and is not subject to any sinking fund ormandatory redemption, stockholders seeking liquidity will be limited to selling their respective shares of Series A Preferred Stock in thesecondary market. Active trading markets for the Series A Preferred Stock may not exist at such times, in which case the trading priceof your shares of our Series A Preferred Stock could be reduced and your ability to transfer such shares could be limited.Our Founder holds a substantial majority of the voting power of our common stock.Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to ourstockholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation and bylaws.Our Founder controls 67.0% of the combined voting power of the Class A common stock and Class B common stock as ofDecember 31, 2017 through his direct and indirect ownership, including Retailco, LLC, which is the holder of approximately 63.3% ofthe combined voting power of the Class A common stock and Class B common stock.Retailco, LLC is entitled to act separately in its own interest with respect to its investment in us. Retailco, LLC has the ability to elect allof the members of our board of directors, and thereby to control our management and affairs. In addition, Retailco, LLC is able todetermine the outcome of all matters requiring Class A common stock and Class B common stock shareholder approval, includingmergers and other material transactions, and is able to cause or prevent a change in the composition of our board of directors or achange in control of our company that could deprive our stockholders of an opportunity to receive a premium for their Class Acommon stock as part of a sale of our company. The existence of a significant shareholder, such as our Founder, may also have theeffect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of ourother stockholders to approve transactions that they may deem to be in the best interests of our company.So long as Retailco, LLC continues to control a significant amount of our common stock, it will continue to be able to stronglyinfluence all matters requiring shareholder approval, regardless of whether other stockholders believe that a potential transaction is intheir own best interests. In any of these matters, the interests of Retailco, LLC may differ or conflict with the interests of our otherstockholders. Moreover, this concentration of stock ownership may also adversely affect the trading price of our Class A common stockor Series A Preferred Stock to the extent investors perceive a disadvantage in owning stock of a company with a controllingshareholder.As a holder of Series A Preferred Stock, you have extremely limited voting rights.Your voting rights as a holder of shares of Series A Preferred Stock are extremely limited. Our Class A common stock and our Class Bcommon stock are the only classes of our securities carrying full voting rights. Holders of the Series A Preferred Stock generally haveno voting rights.34Table of ContentsWe are a “controlled company” under NASDAQ Global Select Market rules, and as such we are entitled to an exemption from certaincorporate governance standards of the NASDAQ Global Select Market, and you may not have the same protections afforded toshareholders of companies that are subject to all of the NASDAQ Global Market corporate governance requirements.We qualify as a “controlled company” within the meaning of NASDAQ Global Select Market corporate governance standards becauseRetailco, LLC controls more than 50% of our voting power. Under NASDAQ Global Select Market rules, a company of which morethan 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not tocomply with certain corporate governance requirements.In light of our status as a controlled company, our board of directors has determined to take partial advantage of the controlledcompany exemption. Our board of directors has determined not to have a nominating and corporate governance committee and that ourcompensation committee will not consist entirely of independent directors. As a result, non-independent directors may among otherthings, appoint future members of our board of directors, resolve corporate governance issues, establish salaries, incentives and otherforms of compensation for officers and other employees and administer our incentive compensation and benefit plans.Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of NASDAQ GlobalSelect Market corporate governance requirements.We engage in transactions with our affiliates and expect to do so in the future. The terms of such transactions and the resolution ofany conflicts that may arise may not always be in our or our stockholders’ best interests.We have engaged in transactions and expect to continue to engage in transactions with affiliated companies. We have acquiredcompanies and books of customers from our affiliates and may do so in the future. We will continue to enter into back-to-backtransactions for purchases of commodities and derivatives on behalf of our affiliate. We will also continue to pay certain expenses onbehalf of several of our affiliates for which we will seek reimbursement. We will also continue to share our corporate headquarters withcertain affiliates. We cannot assure that our affiliates will reimburse us for the costs we have incurred on their behalf or perform theirobligations under any of these contracts.Our amended and restated certificate of incorporation and amended and restated bylaws, as well as Delaware law, contain provisionsthat could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A commonstock.Our amended and restated certificate of incorporation authorizes our board of directors to issue preferred stock without shareholderapproval. On October 7, 2016, we filed a registration statement under the Securities Act on Form S-3 allowing us to offer and sell, fromtime to time, shares of preferred stock. The registration statement was declared effective on October 20, 2016. The election by ourboard of directors to issue preferred stock with anti-takeover provisions could make it more difficult for a third party to acquire us.In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make itmore difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders. Amongother things, our amended and restated certificate of incorporation and amended and restated bylaws:—provide for our board of directors to be divided into three classes of directors, with each class as nearly equal in number aspossible, serving staggered three year terms. Our staggered board may tend to discourage a third party from making a tenderoffer or otherwise attempting to obtain control of us, because it generally makes it more difficult for shareholders to replace amajority of the directors;—provide that the authorized number of directors may be changed only by resolution of the board of directors;35Table of Contents—provide that all vacancies in our board, including newly created directorships, may, except as otherwise required by law or, ifapplicable, the rights of holders of a series of preferred stock, be filled by the affirmative vote of a majority of directors thenin office, even if less than a quorum;—provide our board of directors the ability to authorize undesignated preferred stock. This ability makes it possible for ourboard of directors to issue, without shareholder approval, preferred stock with voting or other rights or preferences that couldimpede the success of any attempt to change control of us. These and other provisions may have the effect of deferringhostile takeovers or delaying changes in control or management of our company;—provide that at any time after the first date upon which W. Keith Maxwell III no longer beneficially owns more than fiftypercent of the outstanding Class A common stock and Class B common stock, any action required or permitted to be takenby the shareholders must be effected at a duly called annual or special meeting of shareholders and may not be effected byany consent in writing in lieu of a meeting of such shareholders, subject to the rights of the holders of any series of preferredstock with respect to such series (prior to such time, such actions may be taken without a meeting by written consent ofholders of the outstanding stock having not less than the minimum number of votes that would be necessary to authorize ortake such action at a meeting);—provide that at any time after the first date upon which W. Keith Maxwell III no longer beneficially owns more than fiftypercent of the outstanding Class A common stock and Class B common stock, special meetings of our shareholders may onlybe called by the board of directors, the chief executive officer or the chairman of the board (prior to such time, specialmeetings may also be called by our Secretary at the request of holders of record of fifty percent of the outstanding Class Acommon stock and Class B common stock);—provide that our amended and restated certificate of incorporation and amended and restated bylaws may be amended by theaffirmative vote of the holders of at least two-thirds of our outstanding stock entitled to vote thereon;—provide that our amended and restated bylaws can be amended by the board of directors; and—establish advance notice procedures with regard to shareholder proposals relating to the nomination of candidates for electionas directors or new business to be brought before meetings of our shareholders. These procedures provide that notice ofshareholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is tobe taken. These requirements may preclude shareholders from bringing matters before the shareholders at an annual orspecial meeting.In addition, in our amended and restated certificate of incorporation, we have elected not to be subject to the provisions of Section 203of the Delaware General Corporation Law (the “DGCL”) regulating corporate takeovers until the date on which W. Keith Maxwell IIIno longer beneficially owns in the aggregate more than fifteen percent of the outstanding Class A common stock and Class B commonstock. On and after such date, we will be subject to the provisions of Section 203 of the DGCL.In addition, certain change of control events have the effect of accelerating the payment due under our Tax Receivable Agreement,which could be substantial and accordingly serve as a disincentive to a potential acquirer of our company.Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole andexclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit ourstockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternativeforum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusiveforum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary dutyowed by any of our directors, officers, employees or agents to us or our stockholders, (iii) any action asserting a claim against us or anydirector or officer or other employee of ours arising pursuant to any provision of the DGCL, our amended and restated certificate of36Table of Contentsincorporation or our bylaws, or (iv) any action asserting a claim against us or any director or officer or other employee of ours that isgoverned by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over theindispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of ourcapital stock will be deemed to have notice of, and consented to, the provisions of our amended and restated certificate of incorporationdescribed in the preceding sentence. This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicialforum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuitsagainst us and such persons. Alternatively, if a court were to find these provisions of our amended and restated certificate ofincorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we mayincur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financialcondition or results of operations.Future sales of our Class A common stock and Series A Preferred Stock in the public market could reduce the price of the Class Acommon stock and Series A Preferred Stock, and may dilute your ownership in us.On October 7, 2016, we filed a registration statement under the Securities Act on Form S-3 registering the primary offer and sale, fromtime to time, of Class A common stock, preferred stock, depositary shares and warrants. The registration statement also registers theClass A common stock held by Retailco and NuDevco (including Class A common stock that may be obtained upon conversion ofClass B common stock). All of the shares of Class A common stock held by Retailco and NuDevco and registered on the registrationstatement may be immediately resold. The registration statement was declared effective on October 20, 2016.We cannot predict the size of future issuances of our Class A common stock or securities convertible into Class A common stock or theeffect, if any, that future issuances or sales of shares of our Class A common stock will have on the market price of our Class Acommon stock. Sales of substantial amounts of our Class A common stock (including shares issued in connection with an acquisition),or the perception that such sales could occur, may adversely affect prevailing market prices of our Class A common stock.We may also in the future sell additional shares of preferred stock, including shares of Series A Preferred Stock, on terms that maydiffer from those we have previously issued. Such shares could rank on parity with or, subject to the voting rights referred to above(with respect to issuances of new series of preferred stock), senior to the Series A Preferred Stock as to distribution rights or rights uponliquidation, winding up or dissolution. The subsequent issuance of additional shares of Series A Preferred Stock, or the creation andsubsequent issuance of additional classes of preferred stock on parity with the Series A Preferred Stock, could dilute the interests of theholders of Series A Preferred Stock, and could affect our ability to pay distributions on, redeem or pay the liquidation preference on theSeries A Preferred Stock. Any issuance of preferred stock that is senior to the Series A Preferred Stock would not only dilute theinterests of the holders of Series A Preferred Stock, but also could affect our ability to pay distributions on, redeem or pay theliquidation preference on the Series A Preferred Stock.Furthermore, subject to compliance with the Securities Act or exemptions therefrom, employees who have received Class A commonstock as equity awards may also sell their shares into the public market.We will be required to make payments under the Tax Receivable Agreement for certain tax benefits we may claim, and the amounts ofsuch payments could be significant.We are party to a Tax Receivable Agreement with Spark HoldCo, NuDevco Retail Holdings and NuDevco Retail. This agreementgenerally provides for the payment by us to Retailco, LLC (as successor to NuDevco Retail Holdings) and NuDevco Retail of 85% ofthe net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize (or are deemed to realizein certain circumstances) in future periods as a result of (i) any tax basis increase resulting from the purchase by us of SparkHoldCounits from NuDevco Retail Holdings, (ii) any tax basis increases resulting from the exchange of Spark HoldCo units for shares ofClass A common stock pursuant to the Exchange Right (or resulting from an exchange of Spark HoldCo units for cash pursuant to theCash Option) and (iii) any imputed interest deemed to be paid by us as a result of, and additional tax basis arising from, any paymentswe make under the Tax Receivable Agreement. In addition, payments we make37Table of Contentsunder the Tax Receivable Agreement will be increased by any interest accrued from the due date (without extensions) of thecorresponding tax return. We retain the benefit of the remaining 15% of these tax savings. See Note 12 "Income Taxes" for furtherdiscussion.Spark Energy, Inc. may be required to defer or partially defer any payment due to holders of rights under the Tax ReceivableAgreement in certain circumstances during the five-year period commencing on October 1, 2014. Following the expiration of the five-year deferral period, Spark Energy, Inc. will be obligated to pay any outstanding deferred TRA Payments. While this paymentobligation is subject to certain limitations, the obligation may nevertheless be significant and could adversely affect our liquidity andability to pay dividends to the holders of our Class A common stock and Series A Preferred Stock.The payment obligations under the Tax Receivable Agreement are our obligations and not obligations of Spark HoldCo. For purposesof the Tax Receivable Agreement, cash savings in tax generally are calculated by comparing our actual tax liability to the amount wewould have been required to pay had we not been able to utilize any of the tax benefits subject to the Tax Receivable Agreement. Theterm of the Tax Receivable Agreement continues until all such tax benefits have been utilized or expired, unless we exercise our right toterminate the Tax Receivable Agreement by making the termination payment specified in the agreement.The actual increase in tax basis, as well as the amount and timing of any payments under the Tax Receivable Agreement, will varydepending upon a number of factors, including the timing of the exchanges of Spark HoldCo units, the price of Class A common stockat the time of each exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generatein the future and the tax rate then applicable, and the portion of our payments under the Tax Receivable Agreement constitutingimputed interest or depletable, depreciable or amortizable basis. We expect that the payments that we will be required to make under theTax Receivable Agreement could be substantial.The payments under the Tax Receivable Agreement will not be conditioned upon a holder of rights under the Tax ReceivableAgreement having a continued ownership interest in either Spark HoldCo or us.We did not meet the threshold coverage ratio required to fund the first payment to NuDevco Retail Holdings under the Tax ReceivableAgreement during the four-quarter period ending September 30, 2015. As such, the initial payment under the Tax ReceivableAgreement due in late 2015 was deferred pursuant to the terms thereof.We met the threshold coverage ratio required to fund the second TRA Payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2016, resulting in an initial TRA Payment of $1.4 millionbecoming due in December 2016. On November 6, 2016, Retailco and NuDevco Retail granted us the right to defer the TRA Paymentuntil May 2018. During the period of time when we have elected to defer the TRA Payment, the outstanding payment amount willaccrue interest at a rate calculated in the manner provided for under the Tax Receivable Agreement.We met the threshold coverage ratio required to fund the third TRA Payment to Retailco and NuDevco Retail under the Tax ReceivableAgreement during the four-quarter period ended September 30, 2017. As such, the third payment under the Tax Receivable Agreementdue in April 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.We expect to meet the threshold coverage ratio required to fund the fourth payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2018. The fourth payment under the Tax ReceivableAgreement would be due in late 2018.See also Note 14 "Transactions with Affiliates."38Table of ContentsIn certain cases, payments under the Tax Receivable Agreement may be accelerated and/or significantly exceed the actual benefits, ifany, we realize in respect of the tax attributes subject to the Tax Receivable Agreement.If we elect to terminate the Tax Receivable Agreement early or it is terminated early due to certain mergers or other changes of control,we would be required to make an immediate payment equal to the present value of the anticipated future tax benefits subject to the TaxReceivable Agreement, which calculation of anticipated future tax benefits will be based upon certain assumptions and deemed eventsset forth in the Tax Receivable Agreement, including the assumption that we have sufficient taxable income to fully utilize such benefitsand that any Spark HoldCo units that Retailco, LLC, NuDevco Retail, or their permitted transferees own on the termination date aredeemed to be exchanged on the termination date. Any early termination payment may be made significantly in advance of the actualrealization, if any, of such future benefits.In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity andcould have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or otherchanges of control due to the additional transaction cost a potential acquirer may attribute to satisfying such obligations. For example, ifthe Tax Receivable Agreement had been terminated as of December 31, 2017, the estimated contractual termination payment would beapproximately $52.4 million (calculated using a discount rate equal to the one-year London Inter-Bank Offered Rate ("LIBOR"), plus200 basis points). The foregoing number is merely an estimate and the actual payment could differ materially. There can be noassurance that we will be able to finance our obligations under the Tax Receivable Agreement.Payments under the Tax Receivable Agreement will be based on the tax reporting positions that we will determine. The holders of rightsunder the Tax Receivable Agreement will not reimburse us for any payments previously made under the Tax Receivable Agreement ifsuch basis increases or other benefits are subsequently disallowed, except that excess payments made to any such holder will be nettedagainst payments otherwise to be made, if any, to such holder after our determination of such excess. As a result, in suchcircumstances, we could make payments that are greater than our actual cash tax savings, if any, and may not be able to recoup thosepayments, which could adversely affect our liquidity.We have issued preferred stock and may continue to do so, and the terms of such preferred stock could adversely affect the votingpower or value of our Class A common stock.Our certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series ofpreferred stock having such designations, preferences, limitations and relative rights, including preferences over our Class A commonstock respecting dividends and distributions, as our board of directors may determine. During the year ended December 31, 2017, wedesignated a class of preferred stock as Series A Preferred Stock and issued an aggregate of 94,339 shares of Series A Preferred Stock.The terms of one or more classes or series of preferred stock we offer or sell could adversely impact the voting power or value of ourClass A common stock. For example, we might grant holders of preferred stock the right to elect some number of our directors in allevents or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rightsor liquidation preferences we might assign to holders of preferred stock, such as the Series A Preferred Stock, could affect the residualvalue of the Class A common stock.For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, includingthose relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.In April 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") was signed into law. We are classified as an “emerging growthcompany” under the JOBS Act. For as long as we are an emerging growth company, which may be up to five full fiscal years, unlikeother public companies, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’sassessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new39Table of Contentsrequirements adopted by the PCAOB requiring mandatory audit firm rotation or a supplement to the auditor’s report in which theauditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) providecertain disclosure regarding executive compensation required of larger public companies or (iv) hold nonbinding advisory votes onexecutive compensation. We will remain an "emerging growth company" until as late as the last day of our 2019 fiscal year, or until theearliest of (i) the last day of the fiscal year in which we have $1.07 billion or more in annual revenues; (ii) the date on which webecome a "large accelerated filer" (the fiscal year-end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which we issue more than $1.0 billion of non-convertible debt over athree-year period.As a result of our election to avail ourselves of certain provisions of the JOBS Act, the information that we provide may be differentthan what you may receive from other public companies in which you hold an equity interest. To the extent that we rely on any of theexemptions available to emerging growth companies, you will receive less information about our executive compensation and internalcontrol over financial reporting than issuers that are not emerging growth companies. If some investors find our securities to be lessattractive as a result, there may be a less active trading market for our securities and the price may be more volatile.Our amended and restated certificate of incorporation limits the fiduciary duties of one of our directors and certain of our affiliatesand restricts the remedies available to our stockholders for actions taken by our Founder or certain of our affiliates that mightotherwise constitute breaches of fiduciary duty.Our amended and restated certificate of incorporation contains provisions that we renounce any interest in existing and futureinvestments in other entities by, or the business opportunities of, NuDevco Partners, LLC, NuDevco Partners Holdings, LLC and W.Keith Maxwell III, or any of their officers, directors, agents, shareholders, members, affiliates and subsidiaries (other than a director orofficer who is presented an opportunity solely in his capacity as a director or officer). Because of this provision, these persons andentities have no obligation to offer us those investments or opportunities that are offered to them in any capacity other than solely as anofficer or director. If one of these persons or entities pursues a business opportunity instead of presenting the opportunity to us, we willnot have any recourse against such person or entity for a breach of fiduciary duty.The Series A Preferred Stock represent perpetual equity interests in us, and investors should not expect us to redeem the Series APreferred Stock on the date the Series A Preferred Stock become redeemable by us or on any particular date afterwards.The Series A Preferred Stock represent perpetual equity interests in us, and they have no maturity or mandatory redemption date and arenot redeemable at the option of investors under any circumstances. As a result, unlike our indebtedness, the Series A Preferred Stockwill not give rise to a claim for payment of a principal amount at a particular date. As a result, holders of the Series A Preferred Stockmay be required to bear the financial risks of an investment in the Series A Preferred Stock for an indefinite period of time. In addition,the Series A Preferred Stock will rank junior to all our current and future indebtedness (including indebtedness outstanding under theSenior Credit Facility) and other liabilities. The Series A Preferred Stock will also rank junior to any other preferred stock ranking seniorto the Series A Preferred Stock we may issue in the future with respect to assets available to satisfy claims against us.The Series A Preferred Stock have not been rated.We have not sought to obtain a rating for the Series A Preferred Stock, and the Series A Preferred Stock may never be rated. It ispossible, however, that one or more rating agencies might independently determine to assign a rating to the Series A Preferred Stock orthat we may elect to obtain a rating of the Series A Preferred Stock in the future. In addition, we may elect to issue other securities forwhich we may seek to obtain a rating. If any ratings are assigned to the Series A Preferred Stock in the future or if we issue othersecurities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, couldadversely affect the market for or the market value of the Series A Preferred Stock. Ratings only reflect the views of the issuing ratingagency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion40Table of Contentsof the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any particular security, including the Series APreferred Stock. Ratings do not reflect market prices or suitability of a security for a particular investor and any future rating of theSeries A Preferred Stock may not reflect all risks related to us and our business, or the structure or market value of the Series APreferred Stock.The Change of Control Conversion Right may make it more difficult for a party to acquire us or discourage a party from acquiringus.The Change of Control Conversion Right of the Series A Preferred Stock provided in the Certificate of Designation may have the effectof discouraging a third party from making an acquisition proposal for us or of delaying, deferring or preventing certain of our changeof control transactions under circumstances that otherwise could provide the holders of our Series A Preferred Stock with theopportunity to realize a premium over the then-current market price of such equity securities or that stockholders may otherwise believeis in their best interests.If we are unable to redeem the Series A Preferred Stock on or after April 15, 2022, a substantial increase in the Three-Month LIBORRate could negatively impact our ability to pay dividends on the Series A Preferred Stock and Class A common stock.If we do not repurchase or redeem our Series A Preferred Stock on or after April 15, 2022, a substantial increase in the Three-MonthLIBOR Rate could negatively impact our ability to pay dividends on the Series A Preferred Stock. An increase in the dividends payableon our Series A Preferred Stock would negatively impact dividends on our and Class A common stock. We cannot assure you that wewill have adequate sources of capital to repurchase or redeem the Series A Preferred Stock on or after April 15, 2022. If we are unableto repurchase or redeem the Series A Preferred Stock and our ability to pay dividends on the Series A Preferred Stock and Class Acommon stock is negatively impacted, the market value of the Series A Preferred Stock and Class A common stock could be materiallyadversely impacted.We may not have sufficient earnings and profits in order for dividends on the Series A Preferred Stock to be treated as dividends forU.S. federal income tax purposes.The dividends payable by us on the Series A Preferred Stock may exceed our current and accumulated earnings and profits, ascalculated for U.S. federal income tax purposes. If that occurs, it will result in the amount of the dividends that exceed such earningsand profits being treated for U.S. federal income tax purposes first as a return of capital to the extent of the beneficial owner’s adjustedtax basis in the Series A Preferred Stock, and the excess, if any, over such adjusted tax basis as capital gain. Such treatment willgenerally be unfavorable for corporate beneficial owners and may also be unfavorable to certain other beneficial owners.You may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the Series A Preferred Stock eventhough you do not receive a corresponding cash dividend.The Conversion Rate as defined in the Certificate of Designation for the Series A Preferred Stock is subject to adjustment in certaincircumstances. A failure to adjust (or to adjust adequately) the Conversion Rate after an event that increases your proportionate interestin us could be treated as a deemed taxable dividend to you. If you are a non-U.S. holder, any deemed dividend may be subject to U.S.federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable treaty, which may be set off againstsubsequent payments on the Series A Preferred Stock. In April 2016, the Internal Revenue Service issued new proposed income taxregulations in regard to the taxability of changes in conversion rights that will apply to the Series A Preferred Stock when published infinal form and may be applied to us before final publication in certain instances.Item 1B. Unresolved Staff CommentsNone.Item 3. Legal Proceedings41Table of ContentsWe are the subject of lawsuits and claims arising in the ordinary course of business from time to time. Management cannot predict theultimate outcome of such lawsuits and claims. While the lawsuits and claims are asserted for amounts that may be material, should anunfavorable outcome occur, management does not currently expect that any currently pending matters will have a material adverseeffect on our financial position or results of operations except as described below. See Note 13 "Commitment and Contingencies" to theaudited consolidated financial statements, which are incorporated herein by reference to Part II, Item 8 “Financial Statements andSupplementary Data” of this Form 10-K.The Company is the subject of the following lawsuits:John Melville et al v. Spark Energy Inc. and Spark Energy Gas, LLC is a purported class action filed on December 17, 2015 in theUnited States District Court for the District of New Jersey alleging, among other things, that (i) sales representatives engaged asindependent contractors for Spark Energy Gas, LLC engaged in deceptive acts in violation of the New Jersey Consumer Fraud Act, and(ii) Spark Energy Gas, LLC breached its contract with plaintiff, including a breach of the covenant of good faith and fair dealing. OnSeptember 5, 2017, the parties reached a confidential settlement in this matter, which the Company expensed and paid in the fourthquarter of 2017.Halifax-American Energy Company, LLC et al v. Provider Power, LLC, Electricity N.H., LLC, Electricity Maine, LLC, Emile Clavet andKevin Dean is a lawsuit initially filed on June 12, 2014, in the Rockingham County Superior Court, State of New Hampshire, allegingvarious claims related to the Provider Companies’ employment of a sales contractor formerly employed with one or more of theplaintiffs, including misappropriation of trade secrets and tortious interference with a contractual relationship. The relief sought includedcompensatory and punitive damages and attorney's fees. The dispute occurred prior to the Company's acquisition of the ProviderCompanies. Portions of the original claim proceeded to trial and on January 19, 2016, a jury found in favor of the plaintiffs. Damagestotaling approximately $0.6 million and attorneys' fees totaling approximately $0.3 million were awarded to the plaintiffs. On May 4,2016, following post-verdict motions, the defendants filed an appeal in the State of New Hampshire Supreme Court, appealing, amongother things the failure of the trial court to direct a verdict for the defendants, to set aside the verdict, or grant judgment for thedefendants, and the trial court's award of certain attorneys' fees. The appellate hearing was held on June 1, 2017. The New HampshireSupreme Court decided the appeal on February 9, 2018, upholding the jury's verdict and the trial court's rulings in all respects. As ofDecember 31, 2017, the Company has accrued approximately$1.0 million in contingent liabilities related to this litigation. Initialdamages and attorneys' fees have been factored into the purchase price for the Provider Companies, and the Company believes it hasfull indemnity coverage for any actual exposure in this appeal.Katherine Veilleux and Jennifer Chon, individually and on behalf of all other similarly situated v. Electricity Maine. LLC, ProviderPower, LLC, Spark HoldCo, LLC, Kevin Dean and Emile Clavet is a purported class action lawsuit filed on November 18, 2016 in theUnited States District Court of Maine, alleging that Electricity Maine, LLC, an entity acquired by Spark HoldCo, LLC in mid-2016,enrolled and re-enrolled customers through fraudulent and misleading advertising, promotions, and other communications prior to theacquisition. Plaintiffs further allege that some improper enrollment and re-enrollment practices have continued to the present date.Plaintiffs allege the following claims against all defendants: violation of the Maine Unfair Trade Practices Act, violation of RICO,negligence, negligent misrepresentation, fraudulent misrepresentation, unjust enrichment and breach of contract. Plaintiffs seekunspecified damages for themselves and the purported class, rescission of contracts with Electricity Maine, injunctive relief, restitution,and attorney’s fees. By order dated November 15, 2017, the Court, pursuant to Rule 12(b)(6), dismissed all claims against SparkHoldCo except the claims for violation of the Maine Unfair Trade Practices Act and for unjust enrichment. Discovery limited to issuesrelevant to class certification under Rule 23 of the Federal Rules of Civil Procedure has just begun. Spark HoldCo intends to vigorouslydefend this matter and the allegations asserted therein, including the request to certify a class. Given the early stages of this matter, wecannot predict the outcome or consequences of this case at this time. The Company believes it is fully indemnified for this litigationmatter, subject to certain limitations.42Table of ContentsGillis et al. v. Respond Power, LLC is a purported class action lawsuit that was originally filed on May 21, 2014 in the PhiladelphiaCourt of Common Pleas. On June 23, 2014, the case was removed to the United States District Court for the Eastern District ofPennsylvania. On September 15, 2014, the plaintiffs filed an amended class action complaint seeking a declaratory judgment that thedisclosure statement contained in Respond Power, LLC’s variable rate contracts with Pennsylvania consumers limited the variable ratethat could be charged to no more than the monthly rate charged by the consumers’ local utility company. The plaintiffs also allege thatRespond Power, LLC (i) breached its variable rate contract with Pennsylvania consumers, and the covenant of good faith and fairdealing therein, by charging rates in excess of the monthly rate charged by the consumers’ local utility company; (ii) engaged indeceptive conduct in violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law; and (iii) engaged in negligentmisrepresentation and fraudulent concealment in connection with purported promises of savings. The amount of damages sought is notspecified. By order dated August 31, 2015, the district court denied class certification. The plaintiffs appealed the district court’s denialof class certification to the United States Court of Appeals for the Third Circuit. The United States Court of Appeals for the Third Circuitvacated the district court’s denial of class certification and remanded the matter to the district court for further proceedings. The districtcourt ordered briefing on defendant’s motion to dismiss. Respond Power LLC filed a motion to dismiss the plaintiffs’ declaratoryjudgment and breach of contract claims (the class claims) on June 30, 2017. The motion is fully briefed and submitted, and the partiesare awaiting a decision from the Court. The Company currently cannot predict the outcome or consequences of this case at this time.The Company believes it is fully indemnified for this litigation matter, subject to certain limitations.Jurich v. Verde Energy USA, Inc., is a purported class action originally filed on March 3, 2015 in the United States District Court for theDistrict of Connecticut and subsequently re-filed on October 8, 2015 in the Superior Court of Judicial District of Hartford, State ofConnecticut. The Amended Complaint asserts that the Verde Companies charged rates in violation of its contracts with Connecticutcustomers and alleges (i) violation of the Connecticut Unfair Trade Practices Act and (ii) breach of the covenant of good faith and fairdealing. Plaintiffs are seeking unspecified actual and punitive damages for the purported class and injunctive relief. The parties haveexchanged initial discovery. Plaintiffs’ motion for class certification was briefed and the Verde Companies filed its opposition toplaintiffs’ motion for class certification on October 17, 2017. On December 6, 2017, the Court granted the plaintiffs’ class certificationmotion. However, the Court opted not to send out class notices, and instead directed the parties to submit briefing on legal issues thatcould result in a modification or decertification of the class. The parties have proposed to the Court that initial briefing on such motionswould be due March 16, 2018. As part of an agreement in connection with the acquisition of the Verde Companies, the original ownersof the Verde Companies are handling this matter. Given the early stage of this matter, we cannot predict the outcome or consequencesof this case at this time. The Company believes it is fully indemnified for this litigation matter by the original owners of the VerdeCompanies, subject to certain limitations.Richardson et al v. Verde Energy USA, Inc. is a purported class action filed on November 25, 2015 in the United States District Courtfor the Eastern District of Pennsylvania alleging that the Verde Companies violated the Telephone Consumer Protection Act by placingmarketing calls using an automatic telephone dialing system or a prerecorded voice to the purported class members’ cellular phoneswithout prior express consent and by continuing to make such calls after receiving requests for the calls to cease. Plaintiffs are seekingstatutory damages for the purported class and injunctive relief prohibiting Verde Companies' alleged conduct. Discovery on the claimsof the named plaintiffs closed on November 10, 2017, and dispositive motions on the named plaintiffs’ claims was filed on November24, 2017. Plaintiffs’ response to dispositive motions’ pleadings was filed on December 22, 2017 and Verde Companies’ reply briefswere filed on January 5, 2018. To date, no hearing has been set on these motions. As part of an agreement in connection with theacquisition of the Verde Companies, the original owners of the Verde Companies is handling this matter. Given the early stages of thismatter, we cannot predict the outcome or consequences of this case at this time. The Company believes it is fully indemnified for thislitigation matter by the original owners of the Verde Companies, subject to certain limitations.Coleman v. Verde Energy USA Illinois, LLC is a purported class action filed on January 23, 2017 in the United States District Court forthe Southern District of Illinois alleging that the Verde Companies violated the Telephone Consumer Protection Act by placingmarketing calls using an automatic telephone dialing system or a prerecorded43Table of Contentsvoice to the purported class members’ cellular phones without prior express consent. The parties have reached a confidential settlementin this matter that was paid in the fourth quarter of 2017.Saul Horowitz, as Sellers’ Representative for the former owners of the Major Energy Companies v. National Gas & Electric, LLC(NG&E) and Spark Energy, Inc. (Spark), has filed a lawsuit asserting claims of fraudulent inducement against NG&E, breach ofcontract against NG&E and the Company, and tortious interference with contract against the Company related to the membershipinterest purchase, subsequent transfer, and associated earnout agreements with the Major Energy Companies' former owners. The reliefsought includes unspecified compensatory and punitive damages, prejudgment and post judgment interest, and attorneys’ fees. Thelawsuit was filed on October 10, 2017 in the United States District Court for the Southern District of New York, and after the Companyand NG&E filed a motion to dismiss, Horowitz filed an Amended Complaint, asserting the same four claims. The Company and NG&Efiled a motion to dismiss the fraud and tortious interference claims on January 15, 2018. Briefing on the motion to dismiss concludedon March 1, 2018, and the Court's decision to rule or schedule oral argument is pending as of the date these financial statements areissued. The Company and NG&E deny the allegations asserted and intend to vigorously defend this matter. Given the early stages ofthis matter, we cannot predict the outcome or consequences of this case at this time.Item 4. Mine Safety Disclosures.Not applicable.44Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur Class A common stock is traded on the NASDAQ Global Select Market under the symbol “SPKE." There is no public market forour Class B common stock. On March 7, 2018, the closing price of our stock was $8.85, and we had one holder of record of our ClassA common stock and two holders of record of our Class B common stock, excluding stockholders for whom shares are held in“nominee” or “street name.” The following table presents the high and low sales prices as reported on the NASDAQ for the periodspresented. 20172016Quarter EndedLowHighLowHighMarch 31$12.25$16.83$8.85$13.81June 30$14.18$23.65$8.91$17.82September 30$14.50$21.40$11.29$17.35December 31$10.70$15.30$11.53$16.23DividendsWe intend to pay a cash dividend each quarter to holders of our Class A common stock to the extent we have cash available fordistribution and are permitted to do so under the terms of our Senior Credit Facility. Below is a summary of dividends paid on our ClassA common stock for 2017 and 2016. 2017 Per Share AmountRecord DatePayment DateFirst Quarter$0.181253/1/20173/16/2017Second Quarter$0.181255/30/20176/14/2017Third Quarter$0.181258/29/20179/14/2017Fourth Quarter$0.1812511/29/201712/14/2017 2016 Per Share AmountRecord DatePayment DateFirst Quarter$0.181252/29/20163/14/2016Second Quarter$0.181255/31/20166/14/2016Third Quarter$0.181258/29/20169/13/2016Fourth Quarter$0.1812512/1/201612/14/2016 Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and CapitalResources —Sources of Liquidity —Senior Credit Facility" for a description of certain terms of our Senior Credit Facility that mayimpact our ability to pay dividends.Issuer Purchases of Equity Securities45Table of ContentsPeriodTotal Number ofClass ACommon StockPurchasedAverage PricePaid Per Share ofClass A CommonStockTotal Number of Shares ofClass A Common StockPurchased as Part of PubliclyAnnounced Program (1)Approximate Dollar Value ofClass A Common Stock That MayYet Be Purchased Under theProgram (in thousands) (1)October 1, 2017 through October 31, 2017 $48,112November 1, 2017 through November 30, 2017 $48,112December 1, 2017 through December 31, 2017 (2)10,000$12.2810,000$47,989Total10,000$12.2810,000$47,989(1) On May 24, 2017, the Company announced that the Board of Directors authorized a share repurchase program of up to $50.0 million of Class A common stock throughDecember 31, 2017. The share repurchase program expired on December 31, 2017.(2) During December 2017, the Company acquired 10,000 shares of Class A common stock at a weighted-average price of $12.28 for a total purchase price of $0.1 million(including fees, commissions and expenses). The number of shares of Class A common stock purchased reflects trades that were settled in December 2017.Recent Sales of Unregistered Equity SecuritiesWe have not sold any unregistered equity securities since our IPO other than as previously reported.Stock Performance GraphThe following graph compares, since the IPO, the quarterly performance of our Class A common stock to the NASDAQ CompositeIndex (NASDAQ Composite) and the Dow Jones U.S. Utilities Index (IDU). The chart assumes that the value of the investment in ourClass A common stock and each index was $100 at July 29, 2014 (the date our Class A common stock began trading on the NASDAQGlobal Select Market), and that all dividends were reinvested. The stock performance shown on the graph below is not indicative offuture price performance.46Table of ContentsThe performance graph above and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shallsuch information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extentthat we specifically incorporate it by reference.47Table of ContentsItem 6. Selected Financial DataThe following table sets forth selected historical financial information for each of the years in the five year period ended December 31,2017.This information is derived from our consolidated financial statements and should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements and Supplementary Data."(in thousands, except per share and volumetric data)Year Ended December 31,20172016201520142013Statement of Operations Data: Total Revenues$798,055$546,697$358,153$322,876$317,090Operating income102,42084,00129,905(3,841)32,829Net income76,28165,67325,975(4,265)31,412Net Income (Loss) Attributable to Non-Controlling Interests57,42751,22922,110(4,211)—Net income attributable to Spark Energy, Inc. stockholders18,85414,4443,865(54)31,412Net income attributable to stockholders of Class A common stock 15,816 14,444 3,865(54)31,412 Net income (loss) attributable to Spark Energy, Inc. per share of Class A commonstock Basic$1.20$1.27$0.63$(0.01)N/A (1) Diluted$1.19$1.11$0.53$(0.01)N/A (1) Weighted average common shares outstanding Basic13,14311,4026,1296,000N/A (1) Diluted13,34612,6906,6556,000N/A (1) Balance Sheet Data: Current assets$296,738$197,983$102,680$105,989$101,291Current liabilities$151,027$184,056$84,188$92,816$73,142Total assets$505,949$375,230$162,234$138,397$109,073Long-term liabilities$152,446$67,438$44,727$21,463$18 Cash Flow Data: Cash flows from operating activities$63,912$67,793$45,931$5,874$44,480Cash flows used in investing activities$(97,757)$(36,344)$(41,943)$(3,040)$(1,481)Cash flows provided by (used in) financing activities$44,304$(16,963)$(3,873)$(5,664)$(42,369) Other Financial Data: Adjusted EBITDA (2)$102,884$81,892$36,869$11,324$33,533Retail gross margin (2)$224,509$182,369$113,615$76,944$81,668Distributions paid to Class B non-controlling unit holders and dividends paid toClass A common shareholders$(43,319)$(43,297)$(20,043)$(3,305)$— Other Operating Data: RCEs (thousands)1,042774415326310Electricity volumes (MWh)6,755,6634,170,5932,075,4791,526,6521,829,657Natural gas volumes (MMBtu)18,203,68416,819,71314,786,68115,724,70816,598,751 (1) EPS and other per share data is not meaningful prior to the Company's IPO, effective August 1, 2014, as the Company operated under a sole-member ownership structure.(2) Adjusted EBITDA and retail gross margin are non-GAAP financial measures. For a definition and reconciliation of each of Adjusted EBITDA and retail gross margin to theirmost directly comparable financial measures calculated and presented in accordance with GAAP, please see “Management's Discussion and Analysis of Financial Conditionand Results of Operations—How We Evaluate Our Operations."48Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONSThe following discussion and analysis of our financial condition and results of operations should be read in conjunction with theconsolidated financial statements and the related notes thereto included elsewhere in this Annual Report. In this Annual Report, theterms “Spark Energy,” “Company,” “we,” “us” and “our” refer collectively to Spark Energy, Inc. and its subsidiaries.OverviewWe are a growing independent retail energy services company founded in 1999 that provides residential and commercial customers incompetitive markets across the United States with an alternative choice for their natural gas and electricity. We purchase our natural gasand electricity supply from a variety of wholesale providers and bill our customers monthly for the delivery of natural gas andelectricity based on their consumption at either a fixed or variable-price. Natural gas and electricity are then distributed to our customersby local regulated utility companies through their existing infrastructure. As of December 31, 2017, we operated in 94 utility serviceterritories across 19 states and the District of Columbia.Our business consists of two operating segments:•Retail Electricity Segment. We purchase electricity supply through physical and financial transactions with market counterpartsand ISOs and supply electricity to residential and commercial consumers pursuant to fixed-price and variable-price contracts.For the years ended December 31, 2017, 2016 and 2015, approximately 82%, 76% and 64%, respectively, of our retailrevenues were derived from the sale of electricity. •Retail Natural Gas Segment. We purchase natural gas supply through physical and financial transactions with marketcounterparts and supply natural gas to residential and commercial consumers pursuant to fixed-price and variable-pricecontracts. For the years ended December 31, 2017, 2016 and 2015, approximately 18%, 24% and 36%, respectively, of ourretail revenues were derived from the sale of natural gas. We also identify wholesale natural gas arbitrage opportunities inconjunction with our retail procurement and hedging activities, which we refer to as asset optimization.Recent DevelopmentsAcquisition of HIKOOn March 1, 2018, we entered into a Membership Interest Purchase Agreement pursuant to which we acquired all of the issued andoutstanding membership interests of HIKO Energy, LLC, a New York limited liability company, for a total purchase price of $6.0million in cash, plus working capital. HIKO Energy, LLC has a total of approximately 29,000 RCEs located in 42 markets in 7 states.Acquisition of Customers from NG&EOn March 7, 2018, we entered into an asset purchase agreement with NG&E pursuant to which we will acquire approximately 50,000RCEs from NG&E for a cash purchase price of $250 for each RCE, or approximately $12.5 million in the aggregate. These customersare expected to begin transferring after April 1, 2018 and are located in 24 markets in 8 states. Please see “Item 9B—Other Information—Acquisition of Customers from NG&E” for a more detailed description.Termination of Master Service Agreement49Table of ContentsOn March 7, 2018, we, Retailco Services and NuDevco Retail mutually agreed to terminate the Master Services Agreement, effectiveApril 1, 2018. We believe that Retailco Services was able to recognize cost savings and stabilize operating costs related to theoperational support services in 2016 and 2017. Under the terms of the termination agreement, operational support services will betransferred back to the Company, which may allow us to extract further savings by eliminating overhead attributable to managing andaccounting for Retailco Services as a stand-alone business. Please see “Item 9B—Other Information—Termination of Master ServiceAgreement” for a more detailed description.Series A Preferred Stock OfferingOn January 26, 2018, we issued 2,000,000 shares of Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock("Series A Preferred Stock") and received net proceeds from the offering of approximately $48.9 million (net of underwriting discounts,commissions and a structuring fee).Termination of Verde EarnoutOn January 12, 2018, we entered into an Agreement to Terminate Earnout Payments (the “Earnout Termination Agreement”) thatterminated our obligation to make any required earnout payments under the agreement for our acquisition of the Verde Companies.Under the Earnout Termination Agreement, we issued a new promissory note to the prior owner of the Verde Companies in the amountof $5.9 million and amended the promissory note entered into at the closing of our acquisition of the Verde Companies to increase theinterest rate. Please see “—Liquidity and Capital Resources—Verde Earnout Termination Notes.”Expansion of Credit FacilityOn January 11, 2018 and January 23, 2018, we exercised the accordion feature in the Senior Credit Facility, which when combinedwith prior exercises in 2017, increased the total commitments under the Senior Credit Facility from $150.0 million to $200.0 million.Please see “—Liquidity and Capital Resources—Senior Credit Facility.”Residential Customer EquivalentsThe following table shows our residential customer equivalents ("RCEs") as of December 31, 2017, 2016 and 2015:RCEs: December 31, December 31, (In thousands)20172016% Increase (Decrease)20162015% Increase (Decrease)Retail Electricity86857152%571257122%Retail Natural Gas174203(14)%20315828%Total Retail1,04277435%77441587%The following table details our count of RCEs by geographical location as of December 31, 2017:RCEs by Geographic Location: (In thousands)Electricity % of TotalNatural Gas % of TotalTotal % of TotalNew England39446%3218%42641%Mid-Atlantic32437%7242%39638%Midwest708%4526%11511%Southwest809%2514%10510%Total868100%174100%1,042100%50Table of ContentsThe geographical regions noted above include the following states:•New England - Connecticut, Maine, Massachusetts, New Hampshire;•Mid-Atlantic - Delaware, Maryland (including the District of Columbia), New Jersey, New York and Pennsylvania;•Midwest - Illinois, Indiana, Michigan and Ohio; and•Southwest - Arizona, California, Colorado, Nevada, Texas and Florida.Drivers of Our BusinessCustomer GrowthCustomer growth is a key driver of our operations. Our customer growth strategy includes acquiring customers through acquisitions aswell as organically.Organic GrowthOur organic sales strategies are used to both maintain and grow our customer base by offering competitive pricing, price certainty,and/or green product offerings. We manage growth on a market-by-market basis by developing price curves in each of the markets weserve and comparing the market prices to the price the local regulated utility is offering. We then determine if there is an opportunity ina particular market based on our ability to create a competitive product on economic terms that satisfies our profitability objectives andprovides customer value. We develop marketing campaigns using a combination of sales channels, with an emphasis on door-to-doormarketing and outbound telemarketing given their flexibility and historical effectiveness. We identify and acquire customers through avariety of additional sales channels, including our inbound customer care call center, online marketing, email, direct mail, affinityprograms, direct sales, brokers and consultants. Our marketing team continuously evaluates the effectiveness of each customeracquisition channel and makes adjustments in order to achieve desired growth and profitability targets.In 2017, we emphasized growing our commercial and industrial (“C&I”) customer base. After significant growth in our C&I customercount in 2017, management is rebalancing our mix of customers in the first part of 2018 to focus on higher margin residentialcustomers.We believe we can continue to grow organically, however achieving significant organic growth rates has become increasingly moredifficult given our size, much of which is attributable to recent acquisitions. Additionally, increasing regulatory pressure on marketingchannels such as door-to-door and outbound telemarketing and the ability to manage customer acquisition costs are significant factorsin our ability to grow organically.AcquisitionsWe independently acquire companies and portfolios of companies through some combination of cash, borrowings under the SeniorCredit Facility, the issuance of common or preferred stock or other financing arrangements with our Founder and his affiliates.Additionally, our Founder formed National Gas & Electric, LLC, an affiliate of the Company ("NG&E"), in 2015 for the purpose ofpurchasing retail energy companies and retail customer books that could ultimately be resold to us. We currently expect that we wouldfund any future transaction with NG&E using some combination of cash, subordinated debt, or the issuance of Class A common stockor Class B common stock (and corresponding Spark HoldCo units) to NG&E. However, actual consideration will depend, among otherthings, on our capital structure and liquidity at the time of any transaction. There is no guarantee that NG&E will continue to offer usacquisition opportunities. Additionally, as we grow and our access to capital and opportunities improves, we may rely less upon NG&Eas a source of acquisitions and seek to enter into more transactions directly with third parties. See “Business and Properties—Relationship with our Founder and Majority Shareholder” for further discussion.51Table of ContentsPlease see “—Recent Developments—Acquisition of HIKO” and “—Recent Developments—Acquisition of Customers from NG&E”for a description of our recent acquisitions of HIKO Energy, LLC and additional customers from NG&E. For a summary of otherhistorical acquisitions, including those with our Founder and NG&E, please see “Business and Properties—Customer Acquisition andRetention—Acquisitions.”We are actively monitoring acquisition opportunities that may arise in the domestic acquisition market as smaller retailers facedifficulties in managing risk and liquidity issues caused by the recent extreme weather patterns.Our ability to grow at historic levels may be constrained if the market for acquisition candidates is limited and we are unable to makeacquisitions of portfolios of customers and retail energy companies on commercially reasonable terms.Integration of AcquisitionsEffective integration of our acquisitions is a key driver of our business. We integrated both CenStar and Oasis and began recognizingsynergies in 2015. We were able to integrate the Provider Companies and begin recognizing synergies in 2016. The integration of thePerigee acquisition is progressing well and synergies are being recognized as of December 31, 2017. As the Major Energy CompaniesEarnout extends over multiple years, the Company is not able to achieve full synergies at this time. We were able to terminate theearnout related to our acquisition of the Verde Companies, allowing us to begin integrating the Verde Companies in early 2018. See “—Recent Developments” above. For a summary of historical acquisitions, please see “Business and Properties—Customer Acquisitionand Retention—Acquisitions.”RCE ActivityThe following table shows our RCE activity during the years ended December 31, 2017, 2016 and 2015.(In thousands)Retail ElectricityRetail Natural GasTotal% AnnualIncrease(Decrease)December 31, 2014157169326 Additions (1)208100308 Attrition(108)(111)(219) December 31, 201525715841527% Additions (2)550131681 Attrition(236)(86)(322) December 31, 201657120377487% Additions (3)65961720 Attrition(362)(90)(452) December 31, 20178681741,04235%(1) Includes 40,000 RCEs from the acquisition of Oasis and 65,000 RCEs from the acquisition of CenStar.(2) Includes 121,000 RCEs from the acquisition of Provider Companies and 220,000 RCEs from the acquisition of Major Energy Companies.(3) Includes approximately 17,000 RCEs from the acquisition of Perigee and 145,000 RCEs from the acquisition of the Verde Companies.Our 35% net RCE growth in 2017 reflects our acquisition of Verde Companies and Perigee, which added approximately 162,000 RCEs,or 21% net growth. The remaining 14% net RCE growth in 2017 was the result of organic additions and customer portfolioacquisitions.Our 87% net RCE growth in 2016 reflects our acquisitions of Major and Provider, which added approximately 341,000 RCEs, or 82%net growth. The remaining 5% net RCE growth in 2016 was the result of organic additions.52Table of ContentsOur 27% net RCE growth in 2015 reflects our acquisitions of CenStar and Oasis, which resulted in an increase in the overall size ofindividual customers. This growth was partially offset by the slowing of organic additions as we shifted our focus to acquisitions andrenegotiated our mass market vendor commission structure in the third quarter of 2015, which correlated commission payments withcustomer value. These efforts had the effect of resetting our vendor relationships, which in turn slowed organic growth as vendorsadapted to the new structure.Customer Acquisition Costs Incurred (In thousands)201720162015Customer Acquisition Costs Incurred$25,874$24,934$19,869Management of customer acquisition costs is a key component to our profitability. Customer acquisition costs are spending for organiccustomer acquisitions and does not include customer acquisitions through acquisitions of businesses or portfolios of customer contracts,which are recorded as customer relationships.We attempt to maintain a disciplined approach to recovery of our customer acquisition costs within defined periods. We capitalize andamortize our customer acquisition costs over a two year period, which is based on the expected average length of a customerrelationship. We factor in the recovery of customer acquisition costs in determining which markets we enter and the pricing of ourproducts in those markets. Accordingly, our results are significantly influenced by our customer acquisition spending.Customer acquisition costs incurred for the year ended December 31, 2017 was approximately $25.9 million, inclusive of costsattributable to Perigee and the Verde Companies incurred subsequent to their respective acquisition dates.Customer acquisition costs incurred for the year ended December 31, 2016 was approximately $24.9 million, inclusive of costsattributable to the Provider Companies and Major Energy Companies incurred subsequent to their respective acquisition dates. Duringthe first half of 2016, we reduced the amount we spent on organic customer acquisition costs in order to maintain, rather than grow, ourcurrent level of RCEs, and shifted our resources to acquiring companies and entire books of customers. During the second half of 2016,we increased our spending on organic customer acquisitions as we refocused on organic growth.Our customer acquisition spending in the second half of 2015 slowed, resulting in customer acquisition costs of $19.9 million in 2015as we shifted our focus to acquisitions and due to changes to our residential vendor commission payment structure to better align themwith lifetime customer value.Our Ability to Manage Customer Attrition Attrition on RCE basis Year EndedQuarter Ended December 31December 31September 30June 30March 3120155.1%4.5%5.0%5.2%5.7%20164.3%4.8%3.8%4.1%4.4%20174.3%4.9%4.2%4.1%3.8%Customer attrition is primarily due to: (i) customer initiated switches; (ii) residential moves and (iii) disconnection for customer paymentdefaults.Customer attrition during the year ended December 31, 2017 was in line with the previous year as we continued our focus on theacquisition of higher lifetime value customers. We also continued our customer win-back efforts, and53Table of Contentsmore aggressively pursued proactive renewals and other customer relationship strategies to maintain a low level of customer attrition.Customer Credit Risk Year Ended December 31 201720162015Total Non-POR Bad Debt as Percent of Revenue2.5%0.6%5.0%During the year ended December 31, 2017, we experienced increased bad debt expense due to Hurricane Harvey.An increased focus on collection efforts and timely billing along with tighter credit requirements for new enrollments in non-PORmarkets have led to a reduction in the bad debt expense in 2016 as compared to 2015. We have also been able to collect on debt thatwe had previously written off, which further reduced our bad debt expense during 2016.Bad debt expense as a percentage of non-POR market retail revenues remained high in 2015 due to the negative impact of higherattrition in the Midwest natural gas markets and continued disconnections for non-payment from our Southern California portfolio,where we stopped selling in January 2015. In early 2016, we introduced upfront credit screening to many of our natural gas salescampaigns in order to proactively identify potential at-risk customers.For the years ended December 31, 2017, 2016 and 2015, approximately 66%, 67% and 56%, respectively, of our retail revenues werederived from territories in which substantially all of our credit risk was directly linked to local regulated utility companies. As ofDecember 31, 2017, 2016 and 2015, respectively, all of these local regulated utility companies had investment grade ratings. Duringthe same periods, we paid these local regulated utilities a weighted average discount of approximately 1.1%, 1.3% and 1.4%,respectively, of total revenues for customer credit risk protection, respectively.Weather ConditionsWeather conditions directly influence the demand for natural gas and electricity and affect the prices of energy commodities. Ourhedging strategy is based on forecasted customer energy usage, which can vary substantially as a result of weather patterns deviatingfrom historical norms. We are particularly sensitive to this variability because of our current substantial concentration and focus ongrowth in the residential customer segment in which energy usage is highly sensitive to weather conditions that impact heating andcooling demand. In the first three quarters of 2017, we experienced milder than anticipated weather conditions, which negativelyimpacted overall customer usage, but allowed us to optimize our costs of revenues as commodity prices fell. In the third quarter of2017, Hurricane Harvey caused historic flooding, extensive damage and widespread power outages across the Gulf Coast of Texas.Although we did not suffer physical damage to our Houston offices, the hurricane negatively impacted our ability to serve ourcustomers and deliver electricity in this region during the hurricane and for the following weeks. We recorded losses of approximately$0.7 million for the year ended December 31, 2017, directly attributable to Hurricane Harvey, primarily related to bad debt expense.In late 2017 and early 2018, the Northeastern and Great Lake regions experienced extreme weather patterns. We expect excessivecustomer usage from this cold weather may negatively impact our results of operations.In the first half of 2016, we experienced milder than anticipated weather conditions, which negatively impacted overall customer usage,but allowed us to optimize our costs of revenues as commodity prices fell. In the second half of 2016, we experienced marginallywarmer than normal weather conditions.54Table of ContentsIn the early part of 2015, colder than anticipated weather increased volumes and thus positively impacted our first quarter earnings.Warmer than normal weather in the fourth quarter of 2015 in the Northeast negatively impacted natural gas volumes, while we alsooptimized our costs of revenues as commodity prices fell.Asset OptimizationOur natural gas business includes opportunistic transactions in the natural gas wholesale marketplace in conjunction with our retailprocurement and hedging activities. Asset optimization opportunities primarily arise during the winter heating season when demand fornatural gas is the highest. As such, the majority of our asset optimization profits are made in the winter. Given the opportunistic natureof these activities we experience variability in our earnings from our asset optimization activities from year to year. As these activitiesare accounted for using mark-to-market accounting, the timing of our revenue recognition often differs from the actual cash settlement.During each of the years ended December 31, 2017 and 2016, we were obligated to pay demand charges of approximately $2.6 millionunder certain long-term legacy transportation assets that our predecessor entity acquired prior to 2013. Although these demandpayments will decrease over time, a portion of the related capacity agreements extend through 2028. Net asset optimization results werea loss of $0.7 million, a loss of $0.6 million and a gain of $1.5 million for the year ended December 31, 2017, 2016 and 2015,respectively.55Table of ContentsFactors Affecting Comparability of Historical Financial ResultsTax Receivable Agreement. We entered into the Tax Receivable Agreement between us and Spark Holdco, NuDevco Retail Holdingsand NuDevco Retail concurrently with the IPO, which provides for the payment by us to Retailco, LLC (as successor to NuDevco RetailHoldings) and NuDevco Retail of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax thatwe actually realize (or are deemed to realize in certain circumstances) in future periods as a result of certain events. On December 22,2017, the President signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes to the U.S. Corporateincome tax system, including a reduction in the U.S. corporate tax rate to 21% effective in 2018. The revised corporate income tax ratereduces the amount of net cash savings to be realized in future periods. Therefore, we have reduced the Tax Receivable Agreementliability ("TRA liability") as of December 31, 2017 by $22.3 million to reflect the effect of the U.S. Tax Reform and recorded thisadjustment through Other Income. In addition, payments we make under the Tax Receivable Agreement are increased by any interestaccrued from the due date (without extensions) of the corresponding tax return. We have recorded 85% of the estimated tax benefit asan increase to amounts payable under the Tax Receivable Agreement as a liability. We retain the benefit of the remaining 15% of thesetax savings. As a result of new federal tax laws going into effect in 2018, the Company has re-valued its deferred tax asset and deferredtax liability relating to the Tax Receivable Agreement on its balance sheet as of December 31, 2017. The effect of these downwardadjustments is a net increase in income tax expense for the year ended December 31, 2017. See Note 12 "Income Taxes" for furtherdiscussion.Executive Compensation Programs. Periodically the Company grants restricted stock units to our officers, employees, non-employeedirectors and certain employees of our affiliates who perform services for the Company. The restricted stock unit awards vest overapproximately one year for non-employee directors and ratably over approximately three or four years for officers, employees andemployees of affiliates, with the initial vesting date occurring in May of the subsequent year, and include tandem dividend equivalentrights that will vest upon the same schedule as the underlying restricted stock unit.Financing. We are party to the Senior Credit Facility. Historical borrowings under the Senior Credit Facility may not provide anaccurate indication of what we need to operate our natural gas and electricity business. For a description of our current Senior CreditFacility, please see "—Liquidity and Capital Resources—Sources of Liquidity."How We Evaluate Our Operations Year Ended December 31,(in thousands)2017 2016 2015Adjusted EBITDA$102,884 $81,892 $36,869Retail Gross Margin$224,509 $182,369 $113,615Adjusted EBITDA. We define “Adjusted EBITDA” as EBITDA less (i) customer acquisition costs incurred in the current period, (ii) netgain (loss) on derivative instruments, and (iii) net current period cash settlements on derivative instruments, plus (iv) non-cashcompensation expense, and (v) other non-cash and non-recurring operating items. EBITDA is defined as net income (loss) beforeprovision for income taxes, interest expense and depreciation and amortization.We deduct all current period customer acquisition costs (representing spending for organic customer acquisitions) in the AdjustedEBITDA calculation because such costs reflect a cash outlay in the year in which they are incurred, even though we capitalize suchcosts and amortize them over two years in accordance with our accounting policies. The deduction of current period customeracquisition costs is consistent with how we manage our business, but the comparability of Adjusted EBITDA between periods may beaffected by varying levels of customer acquisition costs. For example, our Adjusted EBITDA is lower in periods of organic customergrowth reflecting larger customer acquisition spending.56Table of ContentsWe do not deduct the cost of customer acquisitions through acquisitions of businesses or portfolios of customers in calculating AdjustedEBITDA.We deduct our net gains (losses) on derivative instruments, excluding current period cash settlements, from the Adjusted EBITDAcalculation in order to remove the non-cash impact of net gains and losses on derivative instruments. We also deduct non-cashcompensation expense as a result of restricted stock units that are issued under our long-term incentive plan.We believe that the presentation of Adjusted EBITDA provides information useful to investors in assessing our liquidity and financialcondition and results of operations and that Adjusted EBITDA is also useful to investors as a financial indicator of our ability to incurand service debt, pay dividends and fund capital expenditures. Adjusted EBITDA is a supplemental financial measure that managementand external users of our consolidated financial statements, such as industry analysts, investors, commercial banks and rating agencies,use to assess the following: •our operating performance as compared to other publicly traded companies in the retail energy industry, without regard tofinancing methods, capital structure or historical cost basis;•the ability of our assets to generate earnings sufficient to support our proposed cash dividends; and•our ability to fund capital expenditures (including customer acquisition costs) and incur and service debt.Retail Gross Margin. We define retail gross margin as operating income plus (i) depreciation and amortization expenses and (ii) generaland administrative expenses, less (iii) net asset optimization revenues, (iv) net gains (losses) on non-trading derivative instruments, and(v) net current period cash settlements on non-trading derivative instruments. Retail gross margin is included as a supplementaldisclosure because it is a primary performance measure used by our management to determine the performance of our retail natural gasand electricity business by removing the impacts of our asset optimization activities and net non-cash income (loss) impact of oureconomic hedging activities. As an indicator of our retail energy business’ operating performance, retail gross margin should not beconsidered an alternative to, or more meaningful than, operating income, its most directly comparable financial measure calculated andpresented in accordance with GAAP.We believe retail gross margin provides information useful to investors as an indicator of our retail energy business's operatingperformance.The GAAP measures most directly comparable to Adjusted EBITDA are net income and net cash provided by operating activities. TheGAAP measure most directly comparable to Retail Gross Margin is operating income (loss). Our non-GAAP financial measures ofAdjusted EBITDA and Retail Gross Margin should not be considered as alternatives to net income (loss), net cash provided byoperating activities, or operating income (loss). Adjusted EBITDA and Retail Gross Margin are not presentations made in accordancewith GAAP and have important limitations as analytical tools. You should not consider Adjusted EBITDA or Retail Gross Margin inisolation or as a substitute for analysis of our results as reported under GAAP. Because Adjusted EBITDA and Retail Gross Marginexclude some, but not all, items that affect net income (loss), net cash provided by operating activities, and operating income (loss), andare defined differently by different companies in our industry, our definition of Adjusted EBITDA and Retail Gross Margin may not becomparable to similarly titled measures of other companies.Management compensates for the limitations of Adjusted EBITDA and Retail Gross Margin as analytical tools by reviewing thecomparable GAAP measures, understanding the differences between the measures and incorporating these data points intomanagement’s decision-making process.The following table presents a reconciliation of Adjusted EBITDA to net income for each of the periods indicated.57Table of Contents Year Ended December 31,(in thousands)2017 2016 2015Reconciliation of Adjusted EBITDA to Net Income: Net income$76,281$65,673 $25,975Depreciation and amortization42,34132,788 25,378Interest expense11,1348,859 2,280Income tax expense37,52810,426 1,974EBITDA (1) 167,284117,746 55,607Less: Net, Gains (losses) on derivative instruments5,00822,407 (18,497)Net, Cash settlements on derivative instruments16,309(2,146) 20,547Customer acquisition costs25,87424,934 19,869 Plus: Non-cash compensation expense5,0585,242 3,181 Contract termination charge related to Major EnergyCompanies change of control—4,099 — Change in Tax Receivable Agreement liability (1)(22,267)— —Adjusted EBITDA (2)$102,884$81,892 $36,869(1) Represents the change in the value of the Tax Receivable Agreement liability due to U.S. Tax Reform. See discussion in Note 12 "Income Taxes."(2) Includes $9.6 million and $1.1 million related to the change in fair value as the result of the revaluation of the Major Earnout liability at December 31, 2017 and 2016. Refer toNote 9 "Fair Value Measurements" for further discussion of the revaluation of the Major Earnout.58Table of ContentsThe following table presents a reconciliation of Adjusted EBITDA to net cash provided by (used in) operating activities for each of theperiods indicated. Year Ended December 31,(in thousands)2017 2016 2015Reconciliation of Adjusted EBITDA to net cash provided by operating activities: Net cash provided by operating activities$63,912$67,793 $45,931Amortization of deferred financing costs(1,035)(668) (412)Allowance for doubtful accounts and bad debt expense(6,550)(1,261) (7,908)Interest expense11,1348,859 2,280Income tax expense37,52810,426 1,974Change in Tax Receivable Agreement liability (1)(22,267)— —Changes in operating working capital Accounts receivable, prepaids, current assets31,90512,135 (18,820)Inventory718542 4,544Accounts payable and accrued liabilities(13,672)(17,653) 13,008Other1,2111,719 (3,728)Adjusted EBITDA$102,884$81,892 $36,869Cash Flow Data: Cash flows provided by operating activity$63,912$67,793 $45,931Cash flows used in investing activity$(97,757)$(36,344) $(41,943)Cash flows provided by (used in) financing activity$44,304$(16,963) $(3,873)(1) Represents the change in the value of the Tax Receivable Agreement liability due to U.S. Tax Reform. See discussion in Note 12 "Income Taxes."The following table presents a reconciliation of Retail Gross Margin to operating income for each of the periods indicated. Year Ended December 31,(in thousands)2017 2016 2015Reconciliation of Retail Gross Margin to Operating Income (Loss): Operating income$102,420$84,001 $29,905Depreciation and amortization42,34132,788 25,378General and administrative101,12784,964 61,682Less: Net asset optimization (expenses) revenues(717)(586) 1,494Net, Gains (losses) on non-trading derivative instruments5,58822,254 (18,423)Net, Cash settlements on non-trading derivative instruments16,508(2,284) 20,279Retail Gross Margin$224,509$182,369 $113,615Retail Gross Margin - Retail Electricity Segment$158,468$118,136 $60,255Retail Gross Margin - Retail Natural Gas Segment$66,041$64,233 $53,36059Table of ContentsConsolidated Results of OperationsYear Ended December 31, 2017 Compared to Year Ended December 31, 2016In ThousandsYear Ended December 31, 2017 2016 ChangeRevenues: Retail revenues$798,772 $547,283 $251,489Net asset optimization revenues(717) (586) (131)Total Revenues798,055 546,697 251,358Operating Expenses: Retail cost of revenues552,167 344,944 207,223General and administrative101,127 84,964 16,163Depreciation and amortization42,341 32,788 9,553Total Operating Expenses695,635 462,696 232,939Operating income102,420 84,001 18,419Other (expense)/income: Interest expense(11,134) (8,859) (2,275)Change in Tax Receivable Agreement liability (1)22,267— 22,267Interest and other income256 957 (701)Total other (expenses)/income11,389 (7,902) 19,291Income before income tax expense113,809 76,099 37,710Income tax expense37,528 10,426 27,102Net income$76,281 $65,673 $10,608Adjusted EBITDA (2)$102,884 $81,892 $20,992Retail Gross Margin (2)224,509 182,369 42,140Customer Acquisition Costs25,874 24,934 940RCE Attrition4.3% 4.3% —Distributions paid to Class B non-controlling unit holders and dividends paid to Class Acommon shareholders$(43,319) $(43,297) $(22)(1) Represents the change in the value of the Tax Receivable Agreement liability due to U.S. Tax Reform. See discussion in Note 12 "Income Taxes."(2) Adjusted EBITDA and Retail Gross Margin are non-GAAP financial measures. See “—How We Evaluate Our Operations” for a reconciliation of Adjusted EBITDA andRetail Gross Margin to their most directly comparable financial measures presented in accordance with GAAP.Total Revenues. Total revenues for the year ended December 31, 2017 were approximately $798.1 million, an increase ofapproximately $251.4 million, or 46%, from approximately $546.7 million for the year ended December 31, 2016. This increase wasprimarily due to an increase in electricity and natural gas volumes driven by full year results of the Major Energy Companies and theProvider Companies, and the acquisition of the Verde Companies, partially offset by decreased electricity pricing.Change in electricity volumes sold$258.6Change in natural gas volumes sold10.7Change in electricity unit revenue per MWh(18.2)Change in natural gas unit revenue per MMBtu0.4Change in net asset optimization revenue (expense)(0.1)Change in total revenues$251.460Table of ContentsRetail Cost of Revenues. Total retail cost of revenues for the year ended December 31, 2017 was approximately $552.2 million, anincrease of approximately $207.3 million, or 60%, from approximately $344.9 million for the year ended December 31, 2016. Thisincrease was primarily due to additional volumes driven by full year results of the Major Energy Companies and the ProviderCompanies, and the acquisition of the Verde Companies, which resulted in higher electricity and natural gas supply costs, offset by adecrease in the value of our retail derivative portfolio.Change in electricity volumes sold$185.4Change in natural gas volumes sold5.4Change in electricity unit cost per MWh14.6Change in natural gas unit cost per MMBtu4.0Change in value of retail derivative portfolio(2.1)Change in retail cost of revenues$207.3General and Administrative Expense. General and administrative expense for the year ended December 31, 2017 was approximately$101.1 million, an increase of approximately $16.1 million, or 19%, as compared to $85.0 million for the year ended December 31,2016. This increase was primarily due to increased billing and other variable costs associated with increased RCEs, including thoseadded as a result of full year results of the Major Energy Companies and the Provider Companies and the acquisition of the VerdeCompanies, as well as costs related to the acquisition of customers by the Verde Companies that we cannot capitalize, partially offset bya net decrease in fair value of earnout liabilities, which decreased general and administrative expenses.Depreciation and Amortization Expense. Depreciation and amortization expense for the year ended December 31, 2017 wasapproximately $42.3 million, an increase of approximately $9.5 million, or 29%, from approximately $32.8 million for the year endedDecember 31, 2016. This increase was primarily due to the increased amortization expense associated with customer intangibles fromfull year results of the Major Energy Companies and the Provider Companies and the acquisition of the Verde Companies.Customer Acquisition Cost. Customer acquisition cost for the year ended December 31, 2017 was approximately $25.9 million, anincrease of approximately $1.0 million, or 4% from approximately $24.9 million for the year ended December 31, 2016. This increasewas primarily due to customer acquisition costs of the Major Energy Companies, the Provider Companies and Verde Companies offsetby decreased organic sales in the second half of the year as we devoted resources to the acquisition of the Verde Companies.61Table of ContentsYear Ended December 31, 2016 Compared to Year Ended December 31, 2015In ThousandsYear Ended December 31, 2016 2015 ChangeRevenues: Retail revenues$547,283 $356,659 $190,624Net asset optimization revenues(586) 1,494 (2,080)Total Revenues546,697 358,153 188,544Operating Expenses: Retail cost of revenues344,944 241,188 103,756General and administrative84,964 61,682 23,282Depreciation and amortization32,788 25,378 7,410Total Operating Expenses462,696 328,248 134,448Operating income84,001 29,905 54,096Other (expense)/income: Interest expense(8,859) (2,280) (6,579)Interest and other income957 324 633Total other (expenses)/income(7,902) (1,956) (5,946)Income before income tax expense76,099 27,949 48,150Income tax expense10,426 1,974 8,452Net income$65,673 $25,975 $39,698Adjusted EBITDA (1)$81,892 $36,869 $45,023Retail Gross Margin (1)$182,369 $113,615 $68,754Customer Acquisition Costs$24,934 $19,869 $5,065RCE Attrition4.3% 5.1% (0.8)%Distributions paid to Class B non-controlling unit holders and dividends paid to Class Acommon shareholders$(43,297) $(20,043) $(23,254)(1) Adjusted EBITDA and Retail Gross Margin are non-GAAP financial measures. See “—How We Evaluate Our Operations” for a reconciliation of Adjusted EBITDA andRetail Gross Margin to their most directly comparable financial measures presented in accordance with GAAP.Total Revenues. Total revenues for the year ended December 31, 2016 were approximately $546.7 million, an increase ofapproximately $188.5 million, or 53%, from approximately $358.2 million for the year ended December 31, 2015. This increase wasprimarily due to an increase in electricity and natural gas volumes driven by acquisitions of the Provider Companies and Major EnergyCompanies, partially offset by decreased electricity pricing and natural gas pricing.Change in electricity volumes sold$231.7Change in natural gas volumes sold17.5Change in electricity unit revenue per MWh(44)Change in natural gas unit revenue per MMBtu(14.6)Change in net asset optimization revenue (expense)(2.1)Change in total revenues$188.5Retail Cost of Revenues. Total retail cost of revenues for the year ended December 31, 2016 was approximately $344.9 million, anincrease of approximately $103.7 million, or 43%, from approximately $241.2 million for the year ended December 31, 2015. Thisincrease was primarily due to additional volumes driven by the acquisitions of the Provider Companies and Major Energy Companies,partially offset by lower electricity and natural gas supply costs and decrease in the value of our retail derivative portfolio.62Table of ContentsChange in electricity volumes sold$170.8Change in natural gas volumes sold10.1Change in electricity unit cost per MWh(41.0)Change in natural gas unit cost per MMBtu(18.1)Change in value of retail derivative portfolio(18.1)Change in retail cost of revenues$103.7General and Administrative Expense. General and administrative expense for the year ended December 31, 2016 was approximately$85.0 million, an increase of approximately $23.3 million or 38%, as compared to $61.7 million for the year ended December 31,2015. This increase was primarily due to increased billing and other variable costs associated with increased RCEs, including thoseadded as a result of the acquisitions of Provider Companies and Major Energy Companies, increased stock-based compensationassociated with higher stock prices and additional equity awards, and additional litigation expense. This increase was partially offset bycost reductions from the Master Service Agreement with Retailco Services and lower bad debt expense as we had better than anticipatedcollections as a result of new collection initiatives, and as the impact of attrition in the Southern California market was limited to 2015.Depreciation and Amortization Expense. Depreciation and amortization expense for the year ended December 31, 2016 wasapproximately $32.8 million, an increase of approximately $7.4 million, or 29%, from approximately $25.4 million for the year endedDecember 31, 2015. This increase was primarily due to the increased amortization expense associated with customer intangibles fromthe acquisitions of Provider Companies and Major Energy Companies.Customer Acquisition Cost. Customer acquisition cost for the year ended December 31, 2016 was approximately $24.9 million, anincrease of approximately $5.0 million, or 25% from approximately $19.9 million for the year ended December 31, 2015. This increasewas primarily due to customer acquisition costs of the Major Energy Companies of $7.0 million. The increase was partially offset bydecreased organic sales in the first half of 2016 as we shifted our focus to growth through acquisitions.63Table of ContentsOperating Segment Results Year Ended December 31, 20172016 2015 (in thousands, except volume and per unit operating data)Retail Electricity Segment Total Revenues$657,561$417,229 $229,490Retail Cost of Revenues477,012286,795 170,684Less: Net Asset Optimization Revenues(5)— —Less: Net Gains (Losses) on non-trading derivatives, net of cashsettlements22,08612,298 (1,449)Retail Gross Margin (1) —Electricity$158,468$118,136 $60,255Volumes—Electricity (MWhs)6,755,6634,170,593 2,075,479Retail Gross Margin (2) —Electricity per MWh$23.46$28.33 $29.03 Retail Natural Gas Segment Total Revenues$140,494$129,468 $128,663Retail Cost of Revenues75,15558,149 70,504Less: Net Asset Optimization Revenues(712)(586) 1,494Less: Net Gains (Losses) on non-trading derivatives, net of cashsettlements107,672 3,305Retail Gross Margin (1) —Gas$66,041$64,233 $53,360Volumes—Gas (MMBtus)18,203,68416,819,713 14,786,681Retail Gross Margin (2) —Gas per MMBtu$3.63$3.82 $3.61(1) Reflects the Retail Gross Margin attributable to our Retail Natural Gas Segment or Retail Electricity Segment, as applicable. Retail Gross Margin is a non-GAAP financialmeasure. See “—How We Evaluate Our Operations” for a reconciliation of Adjusted EBITDA and Retail Gross Margin to their most directly comparable financial measurespresented in accordance with GAAP.(2) Reflects the Retail Gross Margin for the Retail Natural Gas Segment or Retail Electricity Segment, as applicable, divided by the total volumes in MMBtu or MWh, respectively.Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016Retail Electricity SegmentTotal revenues for the Retail Electricity Segment for the year ended December 31, 2017 were approximately $657.6 million, an increaseof approximately $240.4 million, or 58%, from approximately $417.2 million for the year ended December 31, 2016. This increase wasprimarily due to an increase in volume from the acquisitions of the Major Energy Companies, the Provider Companies and the VerdeCompanies and the addition of several higher volume commercial customers in the East, which resulted in an increase in revenues of$258.6 million. This increase was partially offset by a decrease in electricity pricing, driven by the lower electricity pricing environmentfrom milder than anticipated weather, which resulted in a decrease of $18.2 million.Retail cost of revenues for the Retail Electricity Segment for the year ended December 31, 2017 was approximately $477.0 million, anincrease of approximately $190.2 million, or 66%, from approximately $286.8 million for the year ended December 31, 2016. Thisincrease was primarily due to an increase in volume as a result of the acquisitions of the Major Energy Companies, the ProviderCompanies and the Verde Companies and the addition of higher volume commercial customers in the East, which resulted in anincrease of $185.4 million, increased electricity prices, which resulted in an increase in retail cost of revenues of $14.6 million.Additionally, there was a decrease of $9.8 million due to a change in the value of our retail derivative portfolio used in hedging.64Table of ContentsRetail gross margin for the Retail Electricity Segment for the year ended December 31, 2017 was approximately $158.5 million, anincrease of approximately $40.4 million, or 34%, as compared to $118.1 million for the year ended December 31, 2016 as indicated inthe table below (in millions).Change in volumes sold$73.2Change in unit margin per MWh(32.8)Change in retail electricity segment retail gross margin$40.4Unit margins were negatively impacted as a result of the higher volumes from our commercial customers.The volumes of electricity sold increased from 4,170,593 MWh for the year ended December 31, 2016 to 6,755,663 MWh for the yearended December 31, 2017. This increase was primarily due to full year results of the Major Energy Companies and the ProviderCompanies, the addition of customers through the acquisition of the Verde Companies, and an increased number of higher volume C&Icustomers.Retail Natural Gas SegmentTotal revenues for the Retail Natural Gas Segment for the year ended December 31, 2017 were approximately $140.5 million, anincrease of approximately $11.0 million, or 9%, from approximately $129.5 million for the year ended December 31, 2016. Thisincrease was attributable to an increase in customer sales volume resulting from full year results of the Major Energy Companies andthe acquisition of the Verde Companies, which increased total revenues by $10.7 million.Retail cost of revenues for the Retail Natural Gas Segment for the year ended December 31, 2017 were approximately $75.2 million, anincrease of approximately $17.1 million, or 29%, from approximately $58.1 million for the year ended December 31, 2016. Thisincrease was due to a $7.7 million change in the fair value of our retail derivative portfolio used for hedging, an increase of $5.4 millionrelated to increased volume resulting from full year results of the Major Energy Companies, the acquisition of the Verde Companies,and increased supply costs of $4.0 million.Retail gross margin for the Retail Natural Gas Segment for the year ended December 31, 2017 was approximately $66.0 million, anincrease of approximately $1.8 million, or 3% from approximately $64.2 million for the year ended December 31, 2016, as indicated inthe table below (in millions).Change in volumes sold$5.3Change in unit margin per MMBtu(3.5)Change in retail natural gas segment retail gross margin$1.8Unit margins were negatively impacted as a result of increase in higher volume commercial customers.The volumes of natural gas sold increased from 16,819,713 MMBtu for the year ended December 31, 2016 to 18,203,684 MMBtu forthe year ended December 31, 2017. This increase was primarily due to our full year results of the Major Energy Companies and anincreased number of higher volume C&I customers.Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015Retail Electricity SegmentRetail revenues for the Retail Electricity Segment for the year ended December 31, 2016 was approximately $417.2 million, an increaseof approximately $187.7 million, or 82%, from approximately $229.5 million for the year ended December 31, 2015. This increase wasprimarily due to an increase in volume from the acquisitions of the Major Energy Companies and the Provider Companies and theaddition of several higher volume commercial65Table of Contentscustomers in the East, which resulted in an increase in revenues of $231.7 million. This increase was partially offset by a decrease inelectricity pricing, driven by the lower commodity pricing environment from milder than anticipated weather, which resulted in adecrease of $44.0 million.Retail cost of revenues for the Retail Electricity Segment for the year ended December 31, 2016 was approximately $286.8 million, anincrease of approximately $116.1 million, or 68%, from approximately $170.7 million for the year ended December 31, 2015. Thisincrease was primarily due to an increase in volume as a result of the acquisitions of the Major Energy Companies and the ProviderCompanies, as well as organic growth in the East, resulting in an increase of $170.8 million. This increase was partially offset by adecrease of $13.7 million due to a change in the value of our retail derivative portfolio used for hedging and decreased commodityprices, resulting in a decrease in retail cost of revenues of $41.0 million.Retail gross margin for the Retail Electricity Segment for the year ended December 31, 2016 was approximately $118.1 million, anincrease of approximately $57.8 million, or 96%, as compared to $60.3 million for the year ended December 31, 2015 as indicated inthe table below (in millions).Change in volumes sold$60.8Change in unit margin per MWh(3.0)Change in retail electricity segment retail gross margin$57.8Gross margins were positively impacted by an increase in volume as a result of the acquisitions of the Major Energy Companies and theProvider Companies.The volumes of electricity sold increased from 2,075,479 MWh for the year ended December 31, 2015 to 4,170,593 MWh for the yearended December 31, 2016. This increase was primarily due to addition of customers through the acquisitions of Major EnergyCompanies and Provider Companies and organic growth in the East.Retail Natural Gas SegmentTotal revenues for the Retail Natural Gas Segment for the year ended December 31, 2016 were approximately $129.5 million, anincrease of approximately $0.8 million, or 1%, from approximately $128.7 million for the year ended December 31, 2015. Thisincrease was primarily attributable to an increase in customer sales volumes resulting from the acquisition of Major Energy Companies,which increased total revenues by $17.5 million. This increase was largely offset by lower rates driven by the lower commodity pricingenvironment, which resulted in a decrease in total revenues of $14.6 million, and a decrease of $2.1 million in net optimizationrevenues.Retail cost of revenues for the Retail Natural Gas Segment for the year ended December 31, 2016 were approximately $58.1 million, adecrease of approximately $12.4 million, or 18%, from approximately $70.5 million for the year ended December 31, 2015. Thisdecrease was due to decreased supply costs, which resulted in a decrease of $18.1 million, and a decrease of $4.4 million in the valueof our retail derivative portfolio used for hedging. These decreases were partially offset by an increase of $10.1 million related toincreased volume resulting from the acquisition of the Major Energy Companies.Retail gross margin for the Retail Natural Gas Segment for the year ended December 31, 2016 was approximately $64.2 million, anincrease of approximately $10.8 million, or 20% from approximately $53.4 million for the year ended December 31, 2015, as indicatedin the table below (in millions).Change in volumes sold$7.3Change in unit margin per MMBtu3.5Change in retail natural gas segment retail gross margin$10.8Unit margins were positively impacted by the overall lower commodity price environment.66Table of ContentsThe volumes of natural gas sold increased from 14,786,681 MMBtu for the year ended December 31, 2015 to 16,819,713 MMBtu forthe year ended December 31, 2016. This increase was primarily due to our acquisition of Major Energy Companies.Liquidity and Capital ResourcesOverviewOur principal liquidity requirements are to meet our financial commitments, finance current operations, fund organic growth andacquisitions, service debt and pay dividends. Our liquidity requirements fluctuate with our customer acquisition costs, acquisitions,collateral posting requirements on our derivative instruments portfolio, distributions, the effects of the timing between payments ofpayables and receipts of receivables, including bad debt receivables, weather conditions, and our general working capital needs forongoing operations.Our primary sources of liquidity are cash generated from operations and borrowings under our Senior Credit Facility. We believe thatcash generated from these sources will be sufficient to sustain current operations and to pay required taxes and quarterly cashdistributions including the quarterly dividends to the holders of the Class A common stock and the Series A Preferred Stock for the nexttwelve months. We believe that the financing of any additional growth through acquisitions of businesses in 2018, other than thosetransactions described in “—Recent Developments,” may require further equity financing and/or further expansion of our Senior CreditFacility. Estimating our liquidity requirements is highly dependent on then-current market conditions, including forward prices fornatural gas and electricity, and market volatility.Liquidity PositionThe following table details our total liquidity as of the date presented:December 31,($ in thousands)2017Cash and cash equivalents$29,419Senior Credit Facility Availability (1)12,501Subordinated Debt Availability (2)25,000Total Liquidity$66,920(1) Subject to Senior Credit Facility borrowing base and covenant restrictions. See " __ Sources of Liquidity__Senior Credit Facility."(2) The availability of the Subordinated Facility is dependent on our Founder's financial position and liquidity. See " __ Subordinated Debt Facility."In order to finance the acquisition of the Verde Companies during the year ended December 31, 2017, we borrowed $44.0 millionunder our Senior Credit Facility and $15.0 million under the Subordinated Facility. During the year ended December 31, 2017, we paiddown the outstanding debt under our Subordinated Facility. Remaining availability under the Senior Credit Facility and theSubordinated Facility as of December 31, 2017 is $12.5 million and $25.0 million, respectively.Our borrowings under the Senior Credit Facility are subject to material variations on a seasonal basis due to the timing of commoditypurchases to satisfy natural gas inventory purchases and to meet customer demands during periods of peak usage. Please see "—Sources of Liquidity—Senior Credit Facility" for a description of our Senior Credit Facility, and "—Sources of Liquidity—SubordinatedDebt Facility" for a description of the Subordinated Facility.In the third quarter of 2017, Hurricane Harvey caused historic flooding, extensive damage and widespread power outages across theGulf Coast of Texas. Additionally, during the first quarter of 2018, the northeast experienced colder than normal weather conditions.This weather event created increased collateral requirements in the Northeast for us. As a result, we took steps to increase our liquidityduring late 2017 and early 2018, including67Table of Contentsexercising the accordion feature under our Senior Credit Facility. See “—Recent Developments—Expansion of Credit Facility” above.On March 7, 2018, we and Retailco Services mutually agreed to terminate the Master Services Agreement, effective April 1, 2018. Wemay incur capital resources integrating the operational support services back into our operations. See “—Recent Developments—Termination of Master Services Agreement” and “Risk Factors—Risks Related to Our Business and Our Industry—The termination ofthe Master Service Agreement subjects us to a variety of risks.”Cash FlowsYear Ended December 31, 2017 Compared to the Year Ended December 31, 2016Our cash flows were as follows for the respective periods (in thousands): Year Ended December 31, 2017 2016 ChangeNet cash provided by operating activities$63,912 $67,793 $(3,881)Net cash used in investing activities$(97,757) $(36,344) $(61,413)Net cash provided by (used in) financing activities$44,304 $(16,963) $61,267Cash Flows Provided by Operating Activities. Cash flows provided by operating activities for the year ended December 31, 2017decreased by $3.9 million compared to the year ended December 31, 2016. The decrease was primarily the result of a decrease in thechanges in working capital, offset by an increase in retail gross margin for the year ended December 31, 2017.Cash Flows Used in Investing Activities. Cash flows used in investing activities increased by $61.4 million for the year endedDecember 31, 2017, which was primarily due to the funding of the acquisition of the Verde Companies and the acquisitions of Perigeeand other customers during the year ended December 31, 2017, as well as earnout payments made during the year ended December 31,2017 related to the Provider Companies and Major Energy Companies.Cash Flows Provided by Financing Activities. Cash flows provided by financing activities increased by $61.3 million for the year endedDecember 31, 2017 primarily due to increased net utilization of our Senior Credit Facility and proceeds from the issuance of Series APreferred Stock, offset by additional dividends and distributions, respectively, made to holders of our Class A common stock, holders ofour Series A Preferred Stock, and holders of the Class B units of Spark HoldCo.Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015Our cash flows were as follows for the respective periods (in thousands): Year Ended December 31, 2016 2015 Change Net cash provided by operating activities$67,793 $45,931 $21,862Net cash used in investing activities$(36,344) $(41,943) $5,599Net cash used in financing activities$(16,963) $(3,873) $(13,090)Cash Flows Provided by Operating Activities. Cash flows provided by operating activities for the year ended December 31, 2016increased by $21.9 million compared to the year ended December 31, 2015. The increase was primarily due to an increase in retailgross margin in 2016 as a result of the acquisitions of the Provider Companies and the Major Energy Companies.68Table of ContentsCash Flows Used in Investing Activities. Cash flows used in investing activities decreased by $5.6 million for the year endedDecember 31, 2016, primarily driven by the decrease in cash used for acquisitions in 2016 compared to 2015.Cash Flows Used in Financing Activities. Cash flows used in financing activities increased by $13.1 million for the year endedDecember 31, 2016 primarily due to additional dividends and distributions, respectively, made to holders of our Class A common stockand holders of the class B units of Spark HoldCo, partially offset by increased net utilization of our Senior Credit Facility and equityissuance to our affiliates of our Founder.Sources of Liquidity and Capital ResourcesSenior Credit FacilityOn May 19, 2017 (the “Closing Date”), the Company, as guarantor, and Spark HoldCo (the “Borrower” and, together with SE, SEG,CenStar, CenStar Operating Company, LLC, Oasis, Oasis Power, LLC, the Provider Companies, the Major Energy Companies andPerigee Energy, LLC, each subsidiaries of Spark HoldCo, the “Co-Borrowers”), entered into a senior secured borrowing base creditfacility (the “Senior Credit Facility”) in an aggregate amount of $120.0 million. The Verde Companies became Co-Borrowers upon thecompletion of our acquisition of the Verde Companies. On November 2, 2017, the Company and Co-Borrowers entered into anamendment to the Senior Credit Facility, which entitles the Co-Borrowers to elect to increase total commitments under the Senior CreditFacility to $200.0 million. In connection with any such increase in commitments, the various limits on advances for Working CapitalLoans, Letters of Credit and Bridge Loans increased accordingly. On November 30, 2017, we exercised the accordion feature in theSenior Credit Facility, expanding commitments to an aggregate amount of $185.0 million.As of December 31, 2017, there was $125.3 million outstanding under the Senior Credit Facility, and there was approximately $12.5million available borrowing capacity (which includes a $47.2 million reduction for outstanding letters of credit).The Senior Credit Facility will mature on May 19, 2019, and all amounts outstanding thereunder will be payable on the maturity date.Borrowings under the Bridge Loan sublimit will be repaid 25% per year on a quarterly basis (or 6.25% per quarter), with the remainderdue at maturity.On January 11, 2018 and January 23, 2018, we exercised the accordion feature in the Senior Credit Facility for an additional $10.0million and $5.0 million, respectively, in commitments by existing lenders. These exercises of the accordion feature of the Senior CreditFacility brought total commitments under the Senior Credit Facility to $200.0 million.Subject to applicable sublimits and terms of the Senior Credit Facility, borrowings are available for the issuance of letters of credit(“Letters of Credit”), working capital and general purpose revolving credit loans up to $200.0 million (“Working Capital Loans”), andbridge loans up to $50.0 million (“Bridge Loans”) for the purpose of partial funding for acquisitions. Borrowings under the SeniorCredit Facility may be used to refinance loans outstanding under the previous Senior Credit Facility, pay fees and expenses inconnection with the current Senior Credit Facility, finance ongoing working capital requirements and general corporate purposerequirements of the Co-Borrowers, to provide partial funding for acquisitions, as allowed under terms of the Senior Credit Facility, andto make open market purchases of the Company’s Class A common stock.At our election, the interest rate for Working Capital Loans and Letters of Credit under the Senior Credit Facility is generally determinedby reference to:•the Eurodollar rate plus an applicable margin of up to 3.00% per annum (based on the prevailing utilization); or69Table of Contents•the alternate base rate plus an applicable margin of up to 2.00% per annum (based on the prevailing utilization). The alternatebase rate is equal to the highest of (i) the prime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus0.50% per annum, or (iii) the reference Eurodollar rate plus 1.00%.Bridge Loan borrowings, if any, under the Senior Credit Facility are generally determined by reference to:•the Eurodollar rate plus an applicable margin of 3.75% per annum; or•the alternate base rate plus an applicable margin of 2.75% per annum. The alternate base rate is equal to the highest of (i) theprime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus 0.50% per annum, or (iii) the referenceEurodollar rate plus 1.00%.The Co-Borrowers will pay a commitment fee of 0.50% quarterly in arrears on the unused portion of the Senior Credit Facility. Inaddition, the Co-Borrowers will be subject to additional fees including an upfront fee, an annual agency fee, and letter of credit feesbased on a percentage of the face amount of letters of credit payable to any syndicate member that issues a letter of credit.The Senior Credit Facility contains covenants that, among other things, require the maintenance of specified ratios or conditions asfollows:•Minimum Fixed Charge Coverage Ratio. Spark Energy, Inc. must maintain a minimum fixed charge coverage ratio of not lessthan 1.25 to 1.00. The Fixed Charge Coverage Ratio is defined as the ratio of (a) Adjusted EBITDA to (b) the sum ofconsolidated (with respect to the Company and the Co-Borrowers) interest expense (other than interest paid-in-kind in respect ofany Subordinated Debt but including interest in respect of that certain promissory note made by Censtar Energy Corp inconnection with the permitted acquisition from Verde Energy USA Holdings, LLC), letter of credit fees, commitment fees,acquisition earn-out payments (excluding earnout payments funded with proceeds from newly issued preferred or commonequity of the Company), distributions, the aggregate amount of repurchases of the Company’s Class A common stock orcommitments for such purchases, taxes and scheduled amortization payments.•Maximum Total Leverage Ratio. Spark Energy, Inc. must maintain a ratio of total indebtedness (excluding eligible subordinateddebt) to Adjusted EBITDA of no more than 2.00 to 1.00.As of December 31, 2017, the Company was in compliance with these ratios.The Senior Credit Facility contains various negative covenants that limit the Company’s ability to, among other things, do any of thefollowing:•incur certain additional indebtedness;•grant certain liens;•engage in certain asset dispositions;•merge or consolidate;•make certain payments, distributions, investments, acquisitions or loans;•materially modify certain agreements; or•enter into transactions with affiliatesThe Senior Credit Facility is secured by pledges of the equity of the portion of Spark HoldCo owned by the Company, the equity ofSpark HoldCo’s subsidiaries, the Co-Borrowers’ present and future subsidiaries, and substantially all of the Co-Borrowers’ and theirsubsidiaries’ present and future property and assets, including accounts receivable, inventory and liquid investments, and controlagreements relating to bank accounts.Spark Energy, Inc. is entitled to pay cash dividends to the holders of the Series A Preferred Stock and Class A common stock and willbe entitled to repurchase up to an aggregate amount of 10,000,000 shares of the Company’s70Table of ContentsClass A common stock through one or more normal course open market purchases through NASDAQ so long as: (a) no default existsor would result therefrom; (b) the Co-Borrowers are in pro forma compliance with all financial covenants before and after giving effectthereto; and (c) the outstanding amount of all loans and letters of credit does not exceed the borrowing base limits.The Senior Credit Facility contains certain customary representations and warranties and events of default. Events of default include,among other things, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments in excess of $5.0million, certain events with respect to material contracts, actual or asserted failure of any guaranty or security document supporting theSenior Credit Facility to be in full force and effect, failure of Nathan Kroeker to retain his position as President and Chief ExecutiveOfficer of the Company, and failure of W. Keith Maxwell III to retain his position as chairman of the board of directors. A default willalso occur if at any time W. Keith Maxwell III ceases to, directly or indirectly, own at least 13,600,000 Class A and Class B shares on acombined basis (to be adjusted for any stock split, subdivisions or other stock reclassification or recapitalization), and a controllingpercentage of the voting equity interest of the Company, and certain other changes in control. If such an event of default occurs, thelenders under the Senior Credit Facility would be entitled to take various actions, including the acceleration of amounts due under thefacility and all actions permitted to be taken by a secured creditor.In addition, the Senior Credit Facility contains affirmative covenants that are customary for credit facilities of this type. The covenantsinclude delivery of financial statements, including any filings made with the SEC, maintenance of property and insurance, payment oftaxes and obligations, material compliance with laws, inspection of property, books and records and audits, use of proceeds, paymentsto bank blocked accounts, notice of defaults and certain other customary matters.Shelf Registration StatementOn October 7, 2016, we filed a registration statement under the Securities Act on Form S-3 covering offers and sales, from time to time,by us of up to $200,000,000 of Class A common stock, preferred stock, depositary shares and warrants, and by the selling stockholdersnamed therein of up to 22,679,126 shares of Class A common stock (the "Shelf Registration Statement"). The Shelf RegistrationStatement was declared effective on October 20, 2016.Series A Preferred Stock IssuancesOn January 26, 2018, the Company issued 2,000,000 shares of Series A Preferred Stock from the Shelf Registration Statement andreceived net proceeds from the offering of approximately $48.9 million (net of underwriting discounts, commissions and a structuringfee).At-the-Market Sales AgreementOn July 21, 2017, the Company entered into an at-the-market sales agreement (the "ATM Agreement") to sell the Company’s Series APreferred Stock, from time to time, having an aggregate offering price of up to $50.0 million under the Shelf Registration Statement.The Company intends to use the proceeds from any sales pursuant to the ATM Agreement, after deducting the sales agent’scommissions and the Company’s offering expenses, for general corporate purposes, which may include, among other things, fundingworking capital, capital expenditures, liquidity for operational contingencies, debt repayments and acquisitions.Subordinated Debt FacilityOn December 27, 2016, the Company and Spark HoldCo jointly issued to Retailco, an entity owned by our Founder, a 5%subordinated note in the principal amount of up to $25.0 million. The subordinated note allows us and Spark HoldCo to draw advancesin increments of no less than $1.0 million per advance up to the maximum principal amount of the subordinated note (the"Subordinated Facility"). The subordinated note matures approximately 3 ½ years following the date of issuance, and advancesthereunder accrue interest at 5% per annum71Table of Contentsfrom the date of the advance. We have the right to capitalize interest payments under the subordinated note. The subordinated note issubordinated in certain respects to our Senior Credit Facility pursuant to a subordination agreement. We may pay interest and prepayprincipal on the subordinated note so long as we are in compliance with our covenants under the Senior Credit Facility, are not indefault under the Senior Credit Facility and have minimum availability of $5.0 million under our borrowing base under the SeniorCredit Facility. Payment of principal and interest under the subordinated note is accelerated upon the occurrence of certain change ofcontrol transactions.We may use the Subordinated Facility from time to time to enhance short term liquidity, but we do not view the Subordinated Facility asa material source of liquidity. Further, any availability under the Subordinated Facility is dependent on the Founder’s financial positionand liquidity. As of December 31, 2017, there were no outstanding borrowings under the Subordinated Facility.Uses of Liquidity and Capital ResourcesRepayment of Current Portion of Senior Credit FacilityRepayment of the $7.5 million current portion of our Senior Credit Facility that is due to be repaid in 2018 has been repaid withproceeds of the offering of our Series A Preferred Stock in January 2018. Please see "—Sources of Liquidity and Capital Resources—Series A Preferred Stock Issuances."Customer AcquisitionsOur customer acquisition strategy consists of customer growth obtained through opportunistic acquisitions complemented by traditionalorganic customer acquisitions. Our customer acquisition strategy requires significant capital resources. We fund our acquisition strategywith some combination of cash on hand and borrowings under our Senior Credit Facility. Please see “Business and Properties—Customer Acquisition and Retention—Acquisitions” for a summary of financing sources in our recent acquisitions.Capital ExpendituresCapital expenditures for the year ended December 31, 2017 included approximately $25.9 million for customer acquisitions andapproximately $1.7 million related to information systems improvements.Share Repurchase ProgramOn May 24, 2017, the Company authorized a share repurchase program of up to $50.0 million of Class A common stock throughDecember 31, 2017. The share repurchase program expired on December 31, 2017, and the Board has not renewed the sharerepurchase program for 2018 as of the date of this Annual Report. Since inception of the share repurchase program in May 2017, theCompany repurchased 99,446 shares of its Class A common stock for a total cost of approximately $2.0 million. The Company fundedthe program through availability under its Senior Credit Facility and cash balances, as well as future operating cash flows.Dividends to InvestorsThe Spark HoldCo, LLC Agreement provides, to the extent cash is available, for distributions pro rata to the holders of Spark HoldCounits such that we receive an amount of cash sufficient to cover the estimated taxes payable by us, the targeted quarterly dividend weintend to pay to holders of our Class A common stock, the quarterly dividends on our Series A Preferred Stock, and payments under theTax Receivable Agreement we have entered into with Spark HoldCo, Retailco and NuDevco Retail.We paid dividends to holders of our Class A common stock for the year ended December 31, 2017 of approximately $0.725 per shareor $9.5 million in the aggregate. On January 18, 2018, our Board of Directors declared a quarterly72Table of Contentsdividend of $0.18125 per share to holders of the Class A common stock as of March 2, 2018. This dividend will be paid on March 16,2018. Our ability to pay dividends in the future will depend on many factors, including the performance of our business in the futureand restrictions under our Senior Credit Facility. The financial covenants included in the Senior Credit Facility require the Company toretain increasing amounts of working capital over time, which may have the effect of restricting our ability to pay dividends.Management does not currently believe that the financial covenants in the Senior Credit Facility will cause any such restrictions.As of December 31, 2017, in order to pay our stated dividends to holders of our Class A common stock and corresponding distributionsto holders of our non-controlling interest, Spark HoldCo generally is required to distribute approximately $15.6 million on anannualized basis to holders of its Spark HoldCo units. If our business does not generate enough cash for Spark HoldCo to make suchdistributions, we may have to borrow to pay our dividend. If our business generates cash in excess of the amounts required to pay anannual dividend of $0.725 per share of Class A common stock, we currently expect to reinvest any such excess cash flows in ourbusiness and not increase the dividends payable to holders of our Class A common stock. However, our future dividend policy is withinthe discretion of our Board of Directors and will depend upon various factors, including the results of our operations, our financialcondition, capital requirements and investment opportunities.For the year ended December 31, 2017, the Company paid $2.1 million related to dividends to holders of Series A Preferred Stock. Asof December 31, 2017, the Company had accrued $0.9 million related to dividends to holders of our Series A Preferred Stock. Thisdividend was paid on January 15, 2018. In accordance with the terms of the Series A Preferred Stock on January 18, 2018, our Boardof Directors declared a quarterly cash dividend in the amount of $0.546875 per share for the Series A Preferred Stock. The dividendwill be paid on April 16, 2018 to holders of record on April 2, 2018 of the Series A Preferred Stock. For the year ended December 31,2017, the Company declared dividends of $1.73 per share or $3.0 million in the aggregate based on the Series A Preferred Stockoutstanding as of December 31, 2017.Tax Receivable AgreementWe expect to make payments pursuant to the Tax Receivable Agreement that we have entered into with Retailco LLC (as assignee ofNuDevco Retail Holdings), NuDevco Retail and Spark HoldCo in connection with our IPO. Except in cases where we elect to terminatethe Tax Receivable Agreement early (or the Tax Receivable Agreement is terminated early due to certain mergers or other changes ofcontrol) or we have available cash but fail to make payments when due, generally we may elect to defer payments due under the TaxReceivable Agreement for up to five years if we do not have available cash to satisfy our payment obligations under the Tax ReceivableAgreement or if our contractual obligations limit our ability to make these payments. Any such deferred payments under the TaxReceivable Agreement generally will accrue interest. If we were to defer substantial payment obligations under the Tax ReceivableAgreement on an ongoing basis, the accrual of those obligations would reduce the availability of cash for other purposes, but we wouldnot be prohibited from paying dividends on our Class A common stock.We did not meet the threshold coverage ratio required to fund the first payment to NuDevco Retail Holdings under the Tax ReceivableAgreement during the four-quarter period ending September 30, 2015. As such, the initial payment under the Tax ReceivableAgreement due in late 2015 was deferred pursuant to the terms thereof.We met the threshold coverage ratio required to fund the second TRA Payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2016, resulting in an initial TRA Payment of $1.4 millionbecoming due in December 2016. On November 6, 2016, Retailco and NuDevco Retail granted us the right to defer the TRA Paymentuntil May 2018. During the period of time when we have elected to defer the TRA Payment, the outstanding payment amount willaccrue interest at a rate calculated in the manner provided for under the Tax Receivable Agreement. The initial payment of $1.4 millionunder the Tax Receivable Agreement due in May 2018 was classified as a current liability in our consolidated balance sheet atDecember 31, 2017.73Table of ContentsWe met the threshold coverage ratio required to fund the third TRA Payment to Retailco and NuDevco Retail under the Tax ReceivableAgreement during the four-quarter periods ending September 30, 2017. As such, the third payment under the Tax ReceivableAgreement due in April 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.We expect to meet the threshold coverage ratio required to fund the fourth payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2018. As such, the fourth payment under the TaxReceivable Agreement due in late 2018 has been classified as current in our consolidated balance sheet at December 31, 2017. SeeNote 14 "Transactions with Affiliates" in the notes to our consolidated financial statements for additional details on the Tax ReceivableAgreement. See also “Risk Factors—Risks Related to our Class A Common Stock” for risks related to the Tax Receivable Agreement.On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes tothe U.S. Corporate income tax system. The impact of U.S. Tax Reform primarily represents our estimates of revaluing our U.S. deferredtax assets and liabilities based on the rates at which they are expected to be recognized in the future. For U.S. federal purposes thecorporate statutory income tax rate was reduced from 35% to 21%, effective for the 2018 tax year. Based on our historical financialperformance, at December 31, 2017 we have a significant net deferred tax asset position that we have remeasured at the lowercorporate rate of 21% and recognized a tax expense to adjust net deferred tax assets to the reduced value.Verde Companies Promissory NoteIn connection with the financing of the Verde Companies acquisition, on July 1, 2017, CenStar issued a promissory note in theaggregate principal amount of $20.0 million (the "Verde Promissory Note") for a portion of the purchase price. The Verde PromissoryNote required 18 monthly installments beginning on August 1, 2017, and accrued interest at 5% per annum from the date of issuance.The Verde Promissory Note, including principal and interest, was unsecured, but is guaranteed by the Company. Payment of principaland interest under the Verde Promissory Note was accelerated upon the occurrence of certain events of default. As of December 31,2017, there was $14.6 million outstanding under the Verde Promissory Note, of which $13.4 million is due in 2018.On January 12, 2018, CenStar issued to the Seller an amended and restated promissory note (the “Amended and Restated VerdePromissory Note”), which amended and restated the Verde Promissory Note in connection with the termination of our earnoutobligations under the purchase agreement for the Verde Companies. The Amended and Restated Verde Promissory Note, effectiveJanuary 12, 2018, retains the same maturity date as the Verde Promissory Note. The Amended and Restated Verde Promissory Notebears interest at a rate of 9% per annum beginning January 1, 2018. Principal and interest remain payable monthly on the first day ofeach month in which the Amended and Restated Verde Promissory Note is outstanding. CenStar will continue to deposit a portion ofeach payment under the Amended and Restated Verde Promissory Note into an escrow account, which serves as security for certainindemnification claims and obligations under the purchase agreement. The amount deposited into the escrow account has beenincreased from the Verde Promissory Note. All principal and interest payable under the Amended and Restated Verde Promissory Noteremains subject to acceleration upon the occurrence of certain events of default, including the failure to pay any principal or interestwhen due under the Amended and Restated Verde Promissory Note.Verde Earnout Termination NoteOn January 12, 2018, we entered into an Agreement to Terminate Earnout Payments (the “Earnout Termination Agreement”) thatterminates our obligation to make any required earnout payments under the purchase agreement for our acquisition of the VerdeCompanies in exchange for CenStar’s issuance to the Seller of a promissory note in the principal amount of $5.9 million (the “VerdeEarnout Termination Note”). The Verde Earnout Termination Note, effective January 12, 2018, matures on June 30, 2019 (subject toearly maturity upon certain events) and bears interest at a rate of 9% per annum. CenStar is permitted to withhold amounts otherwisedue at maturity related to certain indemnifiable matters under the purchase agreement for our acquisition of the Verde Companies.Interest is74Table of Contentspayable monthly on the first day of each month in which the Verde Earnout Termination Note is outstanding, beginning on its issuancedate. The principal and any outstanding interest is due on June 30, 2019. All principal and interest payable under the Verde EarnoutTermination Note is accelerated upon the occurrence of certain events of default, including the failure to pay any principal or interestwhen due under the Verde Earnout Termination Note. The Company recorded the Verde Earnout Termination Note of $5.9 million aslong-term debt as of December 31, 2017.Ongoing Obligations in Connection with AcquisitionsThe Company is obligated to make earnout and installment payments in connection with the acquisitions of the Major EnergyCompanies as more fully described in this Annual Report. In the case of the Major Energy Companies acquisition, these maximumpayments under the original agreement could have been as much as $35 million depending upon operating results and the customercounts through 2019; however, given the results, payments are expected to be significantly less than the maximum. See furtherdiscussion related to the valuation of the earnouts in Note 9 "Fair Value Measurements" to the Company's annual financial statementsincluded herein.Summary of Contractual ObligationsThe following table discloses aggregate information about our contractual obligations and commercial commitments as ofDecember 31, 2017 (in millions): Total20182019202020212022> 5 yearsOperating leases (1)$4.6$1.8$1.5$1.0$0.2$0.1$—Purchase obligations:Natural gas and electricity related purchase obligations (2)4.34.3—————Pipeline transportation agreements12.56.70.80.60.60.63.2Other purchase obligations (3)13.45.63.62.61.6——Total purchase obligations$34.8$18.4$5.9$4.2$2.4$0.7$3.2Senior Credit Facility$125.3$7.5$117.8$—$—$—$—Note payable20.513.47.1————Debt$145.8$20.9$124.9$—$—$—$—(1)Included in the total amount are future minimum payments for leases for services and equipment to support our operations and office rent.(2)The amounts represent the notional value of capacity purchase contracts (electricity related) that are not accounted for as derivative financial instruments recorded at fair marketvalue as capacity contracts do not meet the definition of a derivative, and therefore are not recognized as liabilities on the consolidated balance sheet.(3)The amounts presented here include contracts for billing services and other software agreements.Tax Receivable AgreementConcurrently with the closing of the IPO, the Company entered into a Tax Receivable Agreement with Spark HoldCo, NuDevco RetailHoldings and NuDevco Retail. This agreement generally provides for the payment by the Company to Retailco, LLC (as the successorto NuDevco Retail Holdings) and NuDevco Retail of 85% of the net cash savings, if any, in U.S. federal, state and local income tax orfranchise tax that the Company actually realizes (or is deemed to realize in certain circumstances) in future periods. The Companyretains the benefit of the remaining 15% of these tax savings. See Note 12 "Income Taxes" and Note 14 "Transactions with Affiliates"for further discussion.As of December 31, 2017, the Company has recorded a Tax Receivable Liability of $32.3 million. Estimated timing of payments madeunder the Tax Receivable Agreement is imprecise by nature, uncertain, and dependent upon a variety of factors, as described in Note14 "Transactions with Affiliates."75Table of ContentsOff-Balance Sheet ArrangementsAs of December 31, 2017 we had no material off-balance sheet arrangements.Related Party TransactionsFor a discussion of related party transactions see Note 14 "Transactions with Affiliates" in the Company’s audited consolidated financialstatements.Critical Accounting Policies and EstimatesOur significant accounting policies are described in Note 2 "Basis of Presentation and Summary of Significant Accounting Policies" toour audited consolidated financial statements. We prepare our financial statements in conformity with accounting principles generallyaccepted in the United States of America and pursuant to the rules and regulations of the SEC, which require us to make estimates andassumptions that affect the amounts reported in the financial statements and accompanying footnotes. Actual results could differ fromthose estimates. We consider the following policies to be the most critical in understanding the judgments that are involved in preparingour financial statements and the uncertainties that could impact our financial condition and results of operations.Revenue Recognition and Retail Cost of RevenuesOur revenues are derived primarily from the sale of natural gas and electricity to retail customers. We also record revenues from sales ofnatural gas and electricity to wholesale counterparties, including affiliates. Revenues are recognized by using the following criteria:(1) persuasive evidence of an exchange arrangement exists, (2) delivery has occurred or services have been rendered, (3) the buyer’sprice is fixed or determinable and (4) collection is reasonably assured. Utilizing these criteria, revenue is recognized when the naturalgas or electricity is delivered. Similarly, cost of revenues is recognized when the commodity is delivered.Revenues for natural gas and electricity sales are recognized upon delivery under the accrual method. Natural gas and electricity salesthat have been delivered but not billed by period end are estimated. Accrued unbilled revenues are based on estimates of customerusage since the date of the last meter read provided by the utility. Volume estimates are based on forecasted volumes and estimatedcustomer usage by class. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customerclass. Estimated amounts are adjusted when actual usage is known and billed.The cost of natural gas and electricity for sale to retail customers is based on estimated supply volumes for the applicable reportingperiod. In estimating supply volumes, we consider the effects of historical customer volumes, weather factors and usage by customerclass. Transmission and distribution delivery fees, where applicable, are estimated using the same method used for sales to retailcustomers. In addition, other load related costs, such as ISO fees, ancillary services and renewable energy credits are estimated basedon historical trends, estimated supply volumes and initial utility data. Volume estimates are then multiplied by the supply rate andrecorded as retail cost of revenues in the applicable reporting period. Estimated amounts are adjusted when actual usage is known andbilled.Our asset optimization activities, which primarily include natural gas physical arbitrage and other short term storage and transportationopportunities, meet the definition of trading activities and are recorded on a net basis in the consolidated statements of operations in netasset optimization revenues as required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification(“ASC”) Topic 815, Derivatives and Hedging.Accounts Receivable76Table of ContentsWe accrue an allowance for doubtful accounts based upon estimated uncollectible accounts receivable considering historicalcollections, accounts receivable aging analysis, credit risk and other factors. We write off accounts receivable balances against theallowance for doubtful accounts when the accounts receivable is deemed to be uncollectible.We conduct business in many utility service markets where the local regulated utility purchases our receivables, and then becomesresponsible for billing the customer and collecting payment from the customer (“POR programs”). This POR service results insubstantially all of our credit risk being linked to the applicable utility in these territories, which generally has an investment-graderating, and not to the end-use customer. We monitor the financial condition of each utility and currently believe that our susceptibility toan individually significant write-off as a result of concentrations of customer accounts receivable with those utilities is remote.In markets that do not offer POR services or when we choose to directly bill our customers, certain accounts receivable are billed andcollected by us. We bear the credit risk on these accounts and record an appropriate allowance for doubtful accounts to reflect anylosses due to non-payment by customers. Our customers are individually insignificant and geographically dispersed in these markets.We write off customer balances when we believe that amounts are no longer collectible and when we have exhausted all means tocollect these receivables.Capitalized Customer Acquisition CostsCapitalized customer acquisition costs consist primarily of hourly and commission based telemarketing costs, door-to-door agentcommissions and other direct advertising costs associated with proven customer generation, and are capitalized and amortized over theestimated two-year average life of a customer in accordance with the provisions of FASB ASC 340-20, Capitalized Advertising Costs.Recoverability of customer acquisition costs is evaluated based on a comparison of the carrying amount of the customer acquisitioncosts to the future net cash flows expected to be generated by the customers acquired, considering specific assumptions for customerattrition, per unit gross profit, and operating costs. These assumptions are based on forecasts and historical experience.Business CombinationsAccounting Standards Codification (“ASC”) 815, Business Combinations requires that the purchase price for a business combination beassigned and allocated to the identifiable assets acquired and liabilities assumed based upon their fair value. Generally, the amountrecorded in the financial statements for an acquisition’s assets and liabilities is equal to the purchase price (the fair value of theconsideration paid); however, a purchase price that exceeds the fair value of the net assets acquired will result in the recognition ofgoodwill. Conversely, a purchase price that is below the fair value of the net assets acquired will result in the recognition of a bargainpurchase in the income statement.In addition to the potential for the recognition of goodwill or a bargain purchase, differing fair values will impact the allocation of thepurchase price to the individual assets and liabilities and can impact the gross amount and classification of assets and liabilities recordedin our consolidated balance sheets, which can impact the timing and amount of depreciation and amortization expense recorded in anygiven period.In estimating fair value, we use discounted cash flow (“DCF”) projections, recent comparable market transactions, if available, orquoted prices. We consider assumptions that third parties would make in estimating fair value, including, but not limited to, the highestand best use of the asset. There is a significant amount of judgment involved in cash-flow estimates, including assumptions regardingmarket convergence, discount rates, commodity prices, customer attrition, useful lives and growth factors. The assumptions used byanother party could differ significantly from our assumptions.We utilize our best effort to make our determinations and review all information available, including estimated future cash flows andprices of similar assets when making our best estimate. We also may hire independent77Table of Contentsappraisers or valuation specialists to help us make this determination as we deem appropriate under the circumstances. Refer to Note 3"Acquisitions" for further discussion of assumptions used in acquisitions.There is a significant amount of judgment in determining the fair value of acquisitions and in allocating the purchase price to individualassets and liabilities. Had different assumptions been used, the fair value of the assets acquired and liabilities assumed could have beensignificantly higher or lower with a corresponding increase or reduction in recognized goodwill, or could have required recognition of abargain purchase.In the case of acquisitions that involve potential future contingent consideration, we record on the date of acquisition a liability equal tothe fair value of the estimated additional consideration we may be obligated to make in the future. We re-measure this liability eachreporting period and record changes in the fair value as general and administrative expense. Increase or decreases in the fair value ofthe contingent consideration can result from changes in in the timing or likelihood of achieving revenue or customer count thresholds.The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows and discount rates andalternative estimated probabilities surrounding revenue or customer count thresholds could result in different expense related tocontingent consideration.GoodwillAs noted above, Goodwill represents the excess of cost over fair value of the assets of businesses acquired in accordance with FASBASC Topic 350 Intangibles-Goodwill and Other ("ASC 350"). The goodwill on our consolidated balance sheet as of December 31,2017 is associated with both our Retail Natural Gas and Retail Electricity reporting units. We determine our reporting units byidentifying each unit that engaged in business activities from which it may earn revenues and incur expenses, had operating resultsregularly reviewed by the segment manager for purposes of resource allocation and performance assessment, and had discrete financialinformation.Goodwill is assessed for impairment whenever events or circumstances indicate that impairment of the carrying value of goodwill islikely, but no less often than annually as of October 31. On October 31, 2017, we elected to by-pass the option to perform a qualitativeassessment of goodwill and performed a quantitative assessment of goodwill in accordance with guidance from ASC 350. Thisguidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of areporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwillimpairment test. If we fail the qualitative test or if we elect to by-pass the qualitative assessment, then we must compare our estimate ofthe fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fairvalue, we perform the second step of the goodwill impairment test to measure the amount of goodwill impairment loss to be recorded,as necessary. The second step compares the implied fair value of the reporting unit’s goodwill to the carrying value, if any, of thatgoodwill. We determine the implied fair value of the goodwill in the same manner as determining the amount of goodwill to berecognized in a business combination.We completed our annual assessment of goodwill impairment at October 31, 2017, and the test indicated no impairment.Deferred tax assets and liabilitiesThe Company recognizes the amount of taxes payable or refundable for the year. In addition, the Company follows the asset andliability method of accounting for income taxes where deferred tax assets and liabilities are recognized for the expected future taxconsequences of events that have been recognized in the financial statements or tax returns and operating loss carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in those years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the taxrates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets ifit is more likely than not that these items will not be realized.78Table of ContentsIn assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which those temporary differences become deductible. Management considers the projected futuretaxable income and tax planning strategies in making this assessment.Recent Accounting PronouncementsAdopted StandardsIn March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) ("ASU 2016-09"). ASU 2016-09includes provisions intended to simplify various aspects of accounting for shared-based payments, including income tax consequences,classification of awards as either equity or liability and classification on the statement of cash flows. This guidance is effective forannual and interim reporting periods of public entities beginning after December 15, 2016, with early adoption permitted. TheCompany adopted ASU 2016-09 on January 1, 2017.The new standard requires prospective recognition of excess tax benefits resulting from stock-based compensation vesting andexercises to be recognized as a reduction of income taxes and reflected in operating cash flows. Previously, these amounts wererecognized in additional paid-in capital and presented as a financing activity on the statement of cash flows. Net excess tax benefits of$0.2 million were recognized as a reduction of income taxes for the year ended December 31, 2017. Prior periods have not beenadjusted.The Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09,rather than electing to account for forfeitures as they occur.ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes to be reported asfinancing activities in the statement of cash flows. Previously, these cash flows were included in operating activities. The Company haselected to adopt this prospectively, as permitted by ASU 2016-09. This change resulted in a $1.1 million impact on the statement ofcash flow for the year ended December 31, 2017.In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties that Are underCommon Control ("ASU 2016-17"). ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the singledecision maker of a variable interest entity ("VIE") should treat indirect interests in the entity held through related parties that are undercommon control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under ASU 2016-17, asingle decision maker of a VIE is required to consider indirect economic interests in the entity held through related parties on aproportionate basis when determining whether it is the primary beneficiary of that VIE. If a single decision maker and its related partyare under common control, the single decision maker is required to consider indirect interests in the entity held through those relatedparties to be the equivalent of direct interests in their entirety. The amendments are effective for public business entities for fiscal yearsbeginning after December 15, 2016 (the Company's first quarter of fiscal 2017), including interim periods within those fiscal years.Early adoption is permitted. The standard may be applied retrospectively or through a cumulative effect adjustment to retained earningsas of the beginning of the fiscal year of adoption. The Company adopted ASU 2016-17 effective January 1, 2017, and the adoption hadno impact on the Company's consolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU2016-18 is intended to add and clarify guidance on the classification and presentation of restricted cash on the statement of cash flows.ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cashand restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments are effective for public business entities for fiscal79Table of Contentsyears beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoptionin an interim period. The Company adopted ASU 2016-18 effective April 1, 2017, and has included restricted cash with cash and cashequivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows.Standards adopted in 2018In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize theamount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard permitsthe use of either the retrospective or cumulative effect transition method. In December 2016, the FASB further issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to increase stakeholders'awareness of the proposals and to expedite improvements to ASU 2014-09.The FASB issued additional amendments to ASU No. 2014-09, as amended by ASU No. 2015-14:•March 2016 - ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations(Reporting Revenue Gross versus Net) ("ASU 2016-08"). ASU 2016-08 clarifies the implementation guidance on principalversus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specifiedgood or service before it is transferred to customers.•April 2016 - ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations andLicensing ("ASU 2016-10"). ASU 2016-10 covers two specific topics: performance obligations and licensing. This amendmentincludes guidance on immaterial promised goods or services, shipping or handling activities, separately identifiableperformance obligations, functional or symbolic intellectual property licenses, sales-based and usage-based royalties, licenserestrictions (time, use, geographical) and licensing renewals.•May 2016 - ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements andPractical Expedients ("ASU 2016-12"). ASU 2016-12 clarifies certain core recognition principles including collectability, salestax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longerrequired if the full retrospective transition method is adopted.•September 2017 - ASU No. 2017-13, Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments ("ASU 2017-13"). ASU 2017-13provides additional implementation guidance related to ASC Topic 606 and is effective for annual reporting periods beginningafter December 15, 2017.•November 2017 - ASU No. 2017-14, Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SECRelease No. 33-10403 ("ASU 2017-14"). ASU 2017-14 amends various paragraphs in ASC 605, Revenue Recognition; andASC 606, Revenue from Contracts With Customers, that contain SEC guidance. The amendments include superseding ASC 605-10-S25-1 (SAB Topic 13) as a result of SEC Staff Accounting Bulletin No. 116 and adding ASC 606-10-S25-1 as a result ofSEC Release No. 33-10403.In 2017, we collaborated with an external professional services firm to analyze the impact of the standard on our contract portfolio byreviewing our current accounting policies and practices to identify potential differences that would result from applying therequirements of the new standard to our revenue contracts. In addition, we identified and implemented appropriate changes to ourbusiness processes, systems and controls to support recognition and disclosure under the new standard.80Table of ContentsThe Company adopted the new standard effective January 1, 2018 utilizing the full retrospective approach. The adoption of the newstandard will result in an immaterial impact to our total revenues and operating income for the years ended December 31, 2017 and2016, since our contracts with customers identify the delivery of products and services that are individually distinct performanceobligations and revenue is recognized when performance obligations are satisfied. As a result, receivable balances related to revenue,including amounts related to unbilled revenue, are reflected as accounts receivable in the consolidated balance sheets. No other revenuerelated contract assets or liabilities are recorded.The standard requires expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timingand uncertainty of revenue and cash flows arising from contracts with customers.Note, the Company’s asset optimization activities meet the definition of trading activities per FASB ASC Topic 815, Derivatives andHedging, and are therefore excluded from the scope of Revenue from Contracts with Customers (Topic 606).In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts andCash Payments ("ASU 2016-15"). ASU 2016-15 provides guidance on the presentation and classification of eight specific cash flowissues in the statement of cash flows. Those issues are cash payment for debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instrument or other debt instrument with coupon interest rates that are insignificant in relation to the effective interestrate of the borrowing; contingent consideration payments made after a business combination; cash proceeds from the settlement ofinsurance claims, cash received from settlement of corporate-owned life insurance policies; distribution received from equity methodinvestees; beneficial interest in securitization transactions; and classification of cash receipts and payments that have aspects of morethan one class of cash flows. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017.This ASU is to be applied using a retrospective transition method for each period presented. The Company adopted ASU 2016-15effective January 1, 2018 and will classify contingent consideration payments made after a business combination as cash outflows foroperating and financing activities on a retrospective basis. Because of the change in accounting guidance, we expect to reclassifyacquisition related payments of approximately $1.8 million and $0.8 million from cash flows from investing activities to cash flowsfrom operating activities for the years ended December 31, 2017 and December 31, 2016, respectively. We expect to reclassifyacquisition related payments of approximately $18.4 million and $2.0 million from cash flows from investing activities to cash flowsfrom financing activities for the years ended December 31, 2017 and December 31, 2016, respectively.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory(“ASU 2016-16”). ASU 2016-16 requires immediate recognition of the current and deferred income tax consequences of intercompanyasset transfers other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This guidance is effective for annual and interim reporting periodsof public entities beginning after December 15, 2017. This ASU is to be applied using a modified retrospective basis through acumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted ASU2016-16 effective January 1, 2018 and the adoption of this standard will not have an impact on the Company's consolidated financialstatements.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities withevaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of abusiness affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective forannual periods beginning after December 15, 2017, including interim periods within those periods and is to be applied prospectively totransactions on or after the adoption date. The Company adopted ASU 2017-01 effective January 1, 2018, and the adoption will nothave an impact on the Company's historical consolidated financial statements.81Table of ContentsIn May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). ASU 2017-09provides guidance on when changes to the terms or conditions of a share-based payment award require an entity to apply modificationaccounting. An entity should account for the effects of a modification unless all of the following are met:•The fair value of the modified award is the same as the fair value of the original award immediately before the original award ismodified•The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately beforethe original award is modified•The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of theoriginal award immediately before the original award is modified.The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods,beginning after December 15, 2017. The amendments are to be applied prospectively to an award modified on or after the adoptiondate. The Company adopted ASU 2017-09 effective January 1, 2018, and the adoption will not have an impact on the Company'sconsolidated financial statements.Standards Being Evaluated/Standards Not Yet AdoptedIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 amends the existingaccounting standards for lease accounting by requiring entities to include substantially all leases on the balance sheet by requiring therecognition of right-of-use assets and lease liabilities for all leases. Entities may elect to not recognize leases with a maximum possibleterm of less than 12 months. For lessees, a lease is classified as finance or operating and the asset and liability are initially measured atthe present value of the lease payments. For lessors, accounting for leases is largely unchanged from previous guidance. ASU 2016-02also requires qualitative disclosures along with certain specific quantitative disclosures for both lessees and lessors. The amendments inthis ASU are effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and are effective for interimperiods in the year of adoption. The ASU should be applied using a modified retrospective approach, which requires lessees and lessorsto recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact ofadopting this guidance on its consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for GoodwillImpairment ("ASU 2017-04"). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from thegoodwill impairment test. Under the amendments in this update, an entity should perform its annual or interim, goodwill impairment testby comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for theamount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized should not exceed the totalamount of goodwill allocated to that reporting unit. ASU 2017-04 should be applied on a prospective basis and is effective for annualor any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim orannual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact ofadopting this guidance on its consolidated financial statements.ContingenciesIn the ordinary course of business, we may become party to lawsuits, administrative proceedings and governmental investigations,including regulatory and other matters. As of December 31, 2017, management does not believe that any of our outstanding lawsuits,administrative proceedings or investigations could result in a material adverse effect.Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it isprobable that a liability has been incurred and the amount can be reasonably estimated.82Table of ContentsFor a discussion of the status of current litigation and governmental investigations, see Note 13 "Commitment and Contingencies" in theCompany’s audited consolidated financial statements.Emerging Growth Company StatusWe are an “emerging growth company” within the meaning of the federal securities laws. For as long as we are an emerging growthcompany, we will not be required to comply with certain requirements that are applicable to other public companies that are not“emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements ofSection 404 of the Sarbanes-Oxley Act, the reduced disclosure obligations regarding executive compensation in our periodic reportsand proxy statements and the exemptions from the requirements of holding a nonbinding advisory vote on executive compensation andshareholder approval of any golden parachute payments not previously approved. In addition, Section 107 of the JOBS Act providesthat an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the SecuritiesAct for complying with new or revised accounting standards, but we have irrevocably opted out of the extended transition period and,as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required forother public companies.We intend to take advantage of these exemptions until we are no longer an emerging growth company. We will cease to be an“emerging growth company” upon the earliest of: (i) the last day of the fiscal year in which we have $1.07 billion or more in annualrevenues; (ii) the date on which we become a “large accelerated filer” (the fiscal year-end on which the total market value of ourcommon equity securities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which we issue more than $1.0billion of non-convertible debt over a three-year period; or (iv) the last day of 2019.83Table of ContentsITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risks relating to our operations result primarily from changes in commodity prices and interest rates, as well as counterpartycredit risk. We employ established policies and procedures to manage our exposure to these risks.Commodity Price RiskWe hedge and procure our energy requirements from various wholesale energy markets, including both physical and financial marketsand through short and long term contracts. Our financial results are largely dependent on the margin we are able to realize between thewholesale purchase price of natural gas and electricity plus related costs and the retail sales price we charge our customers. We activelymanage our commodity price risk by entering into various derivative or non-derivative instruments to hedge the variability in futurecash flows from fixed-price forecasted sales and purchases of natural gas and electricity in connection with our retail energy operations.These instruments include forwards, futures, swaps, and option contracts traded on various exchanges, such as NYMEX andIntercontinental Exchange, or ICE, as well as over-the-counter markets. These contracts have varying terms and durations, which rangefrom a few days to a few years, depending on the instrument. Our asset optimization group utilizes similar derivative contracts inconnection with its trading activities to attempt to generate incremental gross margin by effecting transactions in markets where we havea retail presence. Generally, any of such instruments that are entered into to support our retail electricity and natural gas business arecategorized as having been entered into for non-trading purposes, and instruments entered into for any other purpose are categorized ashaving been entered into for trading purposes. Our net gain on non-trading derivative instruments, net of cash settlements, was $22.1million for the year ended December 31, 2017.We have adopted risk management policies to measure and limit market risk associated with our fixed-price portfolio and our hedgingactivities. For additional information regarding our commodity price risk and our risk management policies, see “Item 1A—RiskFactors."We measure the commodity risk of our non-trading energy derivatives using a sensitivity analysis on our net open position. As ofDecember 31, 2017, our Gas Non-Trading Fixed Price Open Position (hedges net of retail load) was a long position of 103,603 MMBtu.An increase in 10% in the market prices (NYMEX) from their December 31, 2017 levels would have increased the fair market value ofour net non-trading energy portfolio by $0.1 million. Likewise, a decrease in 10% in the market prices (NYMEX) from theirDecember 31, 2017 levels would have decreased the fair market value of our non-trading energy derivatives by $0.1 million. As ofDecember 31, 2017, our Electricity Non-Trading Fixed Price Open Position (hedges net of retail load) was a long position of 280,424MWhs. An increase in 10% in the forward market prices from their December 31, 2017 levels would have increased the fair marketvalue of our net non-trading energy portfolio by $0.7 million. Likewise, a decrease in 10% in the forward market prices from theirDecember 31, 2017 levels would have decreased the fair market value of our non-trading energy derivatives by $0.7 million.Credit RiskIn many of the utility services territories where we conduct business, POR programs have been established, whereby the local regulatedutility purchases our receivables, and becomes responsible for billing the customer and collecting payment from the customer. Thisservice results in substantially all of our credit risk being linked to the applicable utility and not to our end-use customer in theseterritories. Approximately 66%, 67% and 56% of our retail revenues were derived from territories in which substantially all of our creditrisk was directly linked to local regulated utility companies as of December 31, 2017, 2016 and 2015, respectively, all of which hadinvestment grade ratings as of such date. During the same period, we paid these local regulated utilities a weighted average discount ofapproximately 1.1%, 1.3% and 1.4%, respectively, of total revenues for customer credit risk protection. In certain of the POR marketsin which we operate, the utilities limit their collections exposure by retaining the ability to transfer a delinquent account back to us forcollection when collections are past due for a specified period.If our collection efforts are unsuccessful, we return the account to the local regulated utility for termination of service. Under theseservice programs, we are exposed to credit risk related to payment for services rendered during84Table of Contentsthe time between when the customer is transferred to us by the local regulated utility and the time we return the customer to the utilityfor termination of service, which is generally one to two billing periods. We may also realize a loss on fixed-price customers in thisscenario due to the fact that we will have already fully hedged the customer's expected commodity usage for the life of the contract.In non-POR markets (and in POR markets where we may choose to direct bill our customers), we manage customer credit risk throughformal credit review in the case of commercial customers, and credit score screening, deposits and disconnection for non-payment, inthe case of residential customers. Economic conditions may affect our customers' ability to pay bills in a timely manner, which couldincrease customer delinquencies and may lead to an increase in bad debt expense. Our bad debt expense for the year endedDecember 31, 2017, 2016 and 2015 was approximately 2.5%, 0.6% and 5.0% of non-POR market retail revenues, respectively. See“Management's Discussion and Analysis of Financial Condition and Results of Operations—Drivers of Our Business—Customer CreditRisk” for an analysis of our bad debt expense related to non-POR markets during 2017.We are exposed to wholesale counterparty credit risk in our retail and asset optimization activities. We manage this risk at acounterparty level and secure our exposure with collateral or guarantees when needed. At December 31, 2017 and 2016, approximately84% and 96% of our total exposure of $34.2 million and $14.6 million, respectively, was either with an investment grade customer orotherwise secured with collateral or a guarantee. The credit worthiness of the remaining exposure with other customers was evaluatedwith no material allowance recorded at December 31, 2017 and 2016.Interest Rate RiskWe are exposed to fluctuations in interest rates under our variable-price debt obligations. At December 31, 2017, we were co-borrowersunder the Senior Credit Facility, under which $125.3 million of variable rate indebtedness was outstanding. Based on the averageamount of our variable rate indebtedness outstanding during the year ended December 31, 2017, a 1% percent increase in interest rateswould have resulted in additional annual interest expense of approximately $1.3 million. We do not currently employ interest ratehedges, although we may choose to do so in the future.85Table of ContentsItem 8. Financial Statements and Supplementary DataITEM 8. FINANCIAL STATEMENTS MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING 87 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 88 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND DECEMBER 31, 2016 90 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARSENDED DECEMBER 31, 2017, 2016 AND 2015 93 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017, 2016AND 2015 94 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 98 86Table of ContentsMANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGIt is the responsibility of the management of Spark Energy, Inc. to establish and maintain adequate internal control over financialreporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities ExchangeAct of 1934, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officersand effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples and includes those policies and procedures that:•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositionsof the assets;•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles, and the receipts and expenditures are being made only inaccordance with authorizations of our management and directors; and•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofour assets that could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or procedures may deteriorate.Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,utilizing the criteria in the Committee of Sponsoring Organizations of the Treadway Commission’s Internal Control-IntegratedFramework (2013). Based on its assessment, our management concluded the Company’s internal control over financial reporting waseffective as of December 31, 2017.As permitted, the business of Verde Energy USA, Inc.; Verde Energy USA Commodities, LLC; Verde Energy USA Connecticut, LLC;Verde Energy USA DC, LLC; Verde Energy USA Illinois, LLC; Verde Energy USA Maryland, LLC; Verde Energy USA Massachusetts,LLC; Verde Energy USA New Jersey, LLC; Verde Energy USA New York, LLC; Verde Energy USA Ohio, LLC; Verde Energy USAPennsylvania, LLC; Verde Energy USA Texas Holdings, LLC; Verde Energy USA Trading, LLC; and Verde Energy Solutions, LLC(collectively, the “Verde Companies”), which the Company purchased on July 1, 2017, was excluded from the scope of management’sassessment of the effectiveness of our internal control over financial reporting as of December 31, 2017. The business constituted 21%of the Company’s total assets as of December 31, 2017 and 10% of the Company’s consolidated revenues for the year endedDecember 31, 2017.87Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the stockholders and board of directorsSpark Energy, Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Spark Energy, Inc. and subsidiaries (the “Company”) as ofDecember 31, 2017 and 2016, the related consolidated statements of operations and comprehensive income, changes in equity, andcash flows for each of the years in the three‑year period ended December 31, 2017, and the related notes (collectively, the“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of theyears in the three‑year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.Change in Accounting PrincipleAs discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for employee taxespaid for shares withheld for tax withholding purposes in the year ended December 31, 2017 due to the adoption of AccountingStandards Update No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PublicCompany Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company inaccordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commissionand the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to erroror fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no suchopinion.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whetherdue to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating theaccounting principles used and significant estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements. We believe that our audits provide a reasonable basis for our opinion./s/ KPMG LLPWe have served as the Company’s auditor since 2011.Houston, TexasMarch 9, 201888Table of Contents89Table of ContentsAUDITED CONSOLIDATED FINANCIAL STATEMENTSSPARK ENERGY, INC.90Table of ContentsCONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2017 AND DECEMBER 31, 2016 (in thousands) December 31, 2017 December 31, 2016Assets Current assets: Cash and cash equivalents$29,419 $18,960Accounts receivable, net of allowance for doubtful accounts of $4.0 million and $2.3 million as of December 31,2017 and 2016, respectively158,814 112,491Accounts receivable—affiliates3,661 2,624Inventory4,470 3,752Fair value of derivative assets31,191 8,344Customer acquisition costs, net22,123 18,834Customer relationships, net18,653 12,113Prepaid assets1,028 1,361Deposits7,701 7,329Other current assets19,678 12,175Total current assets296,738 197,983Property and equipment, net8,275 4,706Fair value of derivative assets3,309 3,083Customer acquisition costs, net6,949 6,134Customer relationships, net34,839 21,410Deferred tax assets24,185 54,109Goodwill120,154 79,147Other assets11,500 8,658Total Assets$505,949 $375,230Liabilities, Series A Preferred Stock and Stockholders' Equity Current liabilities: Accounts payable$77,510 $52,309Accounts payable—affiliates4,622 3,775Accrued liabilities33,679 36,619Fair value of derivative liabilities1,637 680Current portion of Senior Credit Facility7,500 51,287Current payable pursuant to tax receivable agreement—affiliates5,937 —Current contingent consideration for acquisitions4,024 11,827Current portion of note payable13,443 15,501Convertible subordinated notes to affiliates— 6,582Other current liabilities2,675 5,476Total current liabilities151,027 184,056Long-term liabilities: Fair value of derivative liabilities492 68Payable pursuant to tax receivable agreement—affiliates26,355 49,886Long-term portion of Senior Credit Facility117,750 —Subordinated debt—affiliate— 5,000Contingent consideration for acquisitions626 10,826Other long-term liabilities172 1,658Long-term portion of note payable7,051 —Total liabilities303,473 251,494Commitments and contingencies (Note 13) Series A Preferred Stock, par value $0.01 per share, 20,000,000 shares authorized, 1,704,339 shares issued and outstandingat December 31, 2017 and zero shares issued and outstanding at December 31, 201641,173 —Stockholders' equity: Common Stock (1) : Class A common stock, par value $0.01 per share, 120,000,000 shares authorized, 13,235,082 issued and13,135,636 outstanding at December 31, 2017 and 12,993,118 issued and outstanding at December 31, 2016132 130Class B common stock, par value $0.01 per share, 60,000,000 shares authorized, 21,485,126 issued andoutstanding at December 31, 2017 and 20,449,484 issued and outstanding at December 31, 2016216 206 Additional paid-in capital (1)26,914 25,272 Accumulated other comprehensive (loss)/income(11) 11 Retained earnings11,008 4,711Treasury stock, at cost, 99,446 shares at December 31, 2017 and zero shares at December 31, 2016(2,011) — Total stockholders' equity36,248 30,330Non-controlling interest in Spark HoldCo, LLC (1)125,055 93,406 Total equity161,303 123,736Total Liabilities, Series A Preferred Stock and stockholders' equity$505,949 $375,230further discussion.91Table of Contents(1) Outstanding shares of common stock, additional paid-in capital and non-controlling interest reflect the two-for-one stock split, which took effect on June 16, 2017. See Note 4"Equity" for further discussion.(2) See Note 4 "Equity" for disclosure of our variable interest entity in Spark HoldCo, LLC.The accompanying notes are an integral part of the consolidated financial statements.92Table of ContentsSPARK ENERGY, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015(in thousands, except per share data)Year Ended December 31,2017 (1) 2016 (2) 2015 (3)Revenues: Retail revenues$798,772$547,283$356,659Net asset optimization (expense)/revenues (4)(717)(586)1,494Total Revenues798,055546,697358,153Operating Expenses: Retail cost of revenues (5)552,167344,944241,188General and administrative (6)101,12784,96461,682Depreciation and amortization42,34132,78825,378Total Operating Expenses695,635462,696328,248Operating income102,42084,00129,905Other (expense)/income: Interest expense(11,134)(8,859)(2,280)Change in tax receivable agreement liability22,267——Interest and other income256957324Total other expenses11,389(7,902)(1,956)Income before income tax expense113,80976,09927,949Income tax expense37,52810,4261,974Net income76,28165,67325,975Less: Net income attributable to non-controlling interests57,42751,22922,110Net income attributable to Spark Energy, Inc. stockholders$18,854$14,444$3,865Less: Dividend on Series A preferred stock3,038——Net income attributable to stockholders of Class A common stock15,81614,4443,865Other comprehensive (loss) income, net of tax: Currency translation (loss) gain(59)41—Other comprehensive (loss) income(59)41—Comprehensive income76,22265,71425,975Less: Comprehensive income attributable to non-controlling interests57,39051,25922,110Comprehensive income attributable to Spark Energy, Inc. stockholders18,83214,4553,865 Net income attributable to Spark Energy, Inc. per share of Class A common stock Basic$1.20 $1.27 $0.63 Diluted$1.19 $1.11 $0.53 Weighted average shares of Class A common stock outstanding Basic13,143 11,402 6,129 Diluted13,346 12,690 6,655(1) Financial information includes results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017. See Notes 2 and 3 "Basis of Presentation andSummary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(2) Financial information includes results attributable to the acquisition of Major Energy Companies from an affiliate on April 15, 2016. See Notes 2 and 3 "Basis of Presentation andSummary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(3) Financial information includes results attributable to the acquisition of Oasis Power Holdings LLC from an affiliate on May 12, 2015. See Notes 2 and 3 "Basis of Presentation andSummary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(4) Net asset optimization revenues includes asset optimization (expense)/revenues—affiliates of $1,334, $154 and $1,101 for the years ended December 31, 2017, 2016 and 2015,respectively, and asset optimization revenues—affiliates cost of revenues of $53, $1,633 and $11,285 for the years ended December 31, 2017, 2016 and 2015, respectively.(5) Retail cost of revenues includes retail cost of revenues—affiliates of $0, $9 and $17 for the years December 31, 2017, 2016 and 2015, respectively.(6) General and administrative includes general and administrative expense—affiliates of $24,700, $15,700 and $0 for the years ended December 31, 2017, 2016 and 2015,respectively.The accompanying notes are an integral part of the consolidated financial statements.93Table of ContentsSPARK ENERGY, INC.CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015(in thousands)IssuedShares ofClass ACommonStock (1) Issued Sharesof Class BCommonStock (1)TreasuryStockClass ACommonStock (1)Class BCommonStock (1)TreasuryStockAccumulated OtherComprehensive Income(Loss)AdditionalPaid-InCapital (1)RetainedEarnings(Deficit)TotalStockholders'EquityNon-controllingInterest (1)TotalEquityBalance at12/31/2014:6,00021,500—$60$216$—$—$9,158$(775)$8,659$15,458$24,117Stock basedcompensation———————2,165—2,165—2,165Restricted stock unitvesting238——2———185—187—187Contribution fromNuDevco———————129—129—129Consolidated netincome (2)————————3,8653,86522,11025,975Beneficialconversion feature———————789—789—789Distributions paid toClass B non-controlling unitholders——————————(15,587)(15,587)Dividends paid toClass A commonshareholders————————(4,456)(4,456)—(4,456)Balance at12/31/2015:6,23821,500—$62$216$—$—$12,426$(1,366)$11,338$21,981$33,319Stock basedcompensation——————2,270—2,270—2,270Restricted stock unitvesting305——4———1,058—1,062—1,062Excess tax benefitrelated to restrictedstock vesting———————186—186—186Consolidated netincome (3)————————14,44414,44451,22965,673Foreign currencytranslationadjustment forequity methodinvestee——————11——113041Beneficialconversion feature———————243—243—243Distributions paid tonon-controlling unitholders——————————(34,931)(34,931)Net contribution ofthe Major EnergyCompanies——————————3,8733,873Dividends paid toClass A commonstockholders————————(8,367)(8,367)—(8,367)Proceeds fromdisgorgement ofstockholder short-swing profits———————1,605—1,605—1,605Tax impact from taxreceivable agreementupon exchange ofunits of SparkHoldCo, LLC toshares of Class ACommon Stock———————4,768—4,768—4,76894Table of ContentsExchange of shares ofClass B common stockto shares of Class Acommon stock6,450(6,450)—64(64)——2,716—2,716(2,716)—Issuance of Class BCommon Stock—5,400——54————5453,94053,994Balance at12/31/2016:12,99320,450—$130$206$—$11$25,272$4,711$30,330$93,406$123,736Stock basedcompensation———————2,754—2,754—2,754Restricted stock unitvesting242——2———1,052—1,054—1,054Consolidated netincome (4)————————18,85418,85457,42776,281Foreign currencytranslation adjustmentfor equity methodinvestee——————(22)——(22)(37)(59)Distributions paid tonon-controlling unitholders——————————(33,800)(33,800)Net contribution byNG&E——————————274274Dividends paid toClass A commonstockholders————————(9,519)(9,519)—(9,519)Dividends to PreferredStock————————(3,038)(3,038)—(3,038)Proceeds fromdisgorgement ofstockholder short-swing profits———————708—708—708Tax receivableagreement liabilitytrue-up———————(2,872)—(2,872)—(2,872)Conversion ofConvertibleSubordinated Notes toClass B Common Stock—1,035——10————107,7857,795Treasury Stock——(99)——(2,011)———(2,011)—(2,011)Balance at12/31/2017:13,23521,485(99)$132$216$(2,011)$(11)$26,914$11,008$36,248$125,055$161,303(1) Outstanding shares of common stock, additional paid-in capital and non-controlling interest have been retrospectively adjusted to reflect the two-for-one stock split, which tookeffect on June 16, 2017. See Note 4 "Equity" for further discussion.(2) Financial information includes results attributable to the acquisition of Oasis Power Holdings LLC from an affiliate on May 12, 2015. See Notes 2 and 3 "Basis of Presentationand Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(3) Financial information includes results attributable to the acquisition of Major Energy Companies from an affiliate on April 15, 2016. See Notes 2 and 3 "Basis of Presentationand Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(4) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017. See Notes 2 and 3 "Basis ofPresentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.The accompanying notes are an integral part of the consolidated financial statements.95Table of ContentsSPARK ENERGY, INC.CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015(in thousands) Year Ended December 31, 2017 (1) 2016 (2) 2015 (3)Cash flows from operating activities:Net income$76,281$65,673$25,975Adjustments to reconcile net income to net cash flows provided by operating activities:Depreciation and amortization expense42,66648,52625,378Deferred income taxes28,5843,3821,340Change in Tax Receivable Agreement liability(22,267)——Stock based compensation5,0585,2423,181Amortization of deferred financing costs1,035668412Change in fair value of Earnout liabilities(7,898)(297)—Accretion on fair value of Earnout liabilities4,1085,060—Excess tax benefit related to restricted stock vesting179——Bad debt expense6,5501,2617,908(Gain) loss on derivatives, net(5,008)(22,407)18,497Current period cash settlements on derivatives, net(19,598)(24,427)(23,948)Accretion of discount to convertible subordinated notes to affiliate1,004——Other(5)(407)(1,320)Changes in assets and liabilities:Decrease in restricted cash——707(Increase) decrease in accounts receivable(32,361)(12,088)7,876Increase in accounts receivable—affiliates(1,459)(118)(608)(Increase) decrease in inventory(718)5424,544Increase in customer acquisition costs(25,874)(21,907)(19,869)Decrease in prepaid and other current assets1,9157110,845(Increase) decrease in other assets(465)1,321(1,101)Increase in customer relationships and trademarks——(2,776)Increase (decrease) in accounts payable and accrued liabilities14,83114,831(13,307)Increase in accounts payable—affiliates51458944(Decrease) increase in other current liabilities(1,210)2,364(645)(Decrease) increase in other non-current liabilities(1,487)451,898Net cash provided by operating activities63,912 67,793 45,931Cash flows from investing activities: Purchases of property and equipment(1,704)(2,258)(1,766)Acquisitions of CenStar and Oasis— — (39,847)Acquisition of Major Energy Companies and Provider Companies(1,853) (31,641) —Acquisitions of Perigee and other customers(11,759)——Acquisition of the Verde Companies(69,538)——Payment of CenStar Earnout— (1,343) —Payment of the Major Energy Companies Earnout(7,403)——Payment of the Provider Companies Earnout(5,500)——Contribution to equity method investment— (1,102) (330)Net cash used in investing activities(97,757) (36,344) (41,943)Cash flows from financing activities: Proceeds from issuance of Series A Preferred Stock, net of issuance costs paid40,241——Borrowings on notes payable206,40079,04859,224Payments on notes payable(152,939)(66,652)(49,826)Issuance of convertible subordinated notes to affiliate——7,075Restricted stock vesting(3,091)(1,183)(432)Contributions from NuDevco——129Proceeds from issuance of Class B common stock—13,995—Proceeds from disgorgement of stockholders short-swing profits1,129941—Excess tax benefit related to restricted stock vesting—185—Payment of dividends to Class A common shareholders(9,519)(8,367)(4,456)Payment of distributions to non-controlling unitholders(33,800)(34,930)(15,587)Payment of dividends to Preferred Stock(2,106)——Purchase of Treasury Stock(2,011)——Net cash provided by (used in) financing activities44,304(16,963)(3,873)Increase in Cash and cash equivalents and Restricted Cash10,45914,486115Cash and cash equivalents and Restricted cash—beginning of period18,9604,4744,359Cash and cash equivalents and Restricted cash—end of period$29,419$18,960$4,474Supplemental Disclosure of Cash Flow Information:Non-cash items:96Table of ContentsIssuance of Class B common stock to affiliates for Major Energy Companies acquisition$—$40,000$—Contingent consideration—earnout obligations incurred in connection with the Provider Companies and MajorEnergy Companies acquisitions$—$18,936$—Assumption of legal liability in connection with the Major Energy Companies acquisition$—$5,000$—Net contribution of the Major Energy Companies$—$3,873$—Net contribution by NG&E in excess of cash$274$—$—Installment consideration incurred in connection with the Provider Companies acquisition$—$1,890$—Installment consideration incurred in connection with the Verde Companies acquisition and Verde EarnoutTermination Note$19,994$—$—Tax benefit from tax receivable agreement$(1,802)$31,490$(64)Liability due to tax receivable agreement$4,674$(26,722)$(55)Property and equipment purchase accrual$91$(32)$45CenStar Earnout accrual$—$—$500Cash paid during the period for:Interest$5,715$2,280$1,661Taxes$11,205$7,326$216(1) Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017. See Notes 2 and 3 "Basis ofPresentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(2) Financial information has been recast to include results attributable to the acquisition of the Major Energy Companies from an affiliate on April 15, 2016. See Notes 2 and 3"Basis of Presentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.(3) Financial information has been recast to include results attributable to the acquisition of Oasis Power Holdings LLC by an affiliate on May 12, 2015. See Note 2 "Basis ofPresentation and Summary of Significant Accounting Policies" for further discussion.The accompanying notes are an integral part of the consolidated financial statements.97Table of ContentsSPARK ENERGY, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Formation and OrganizationOrganizationSpark Energy, Inc. ("Spark Energy," “Company,” "we" or "us") is an independent retail energy services company that providesresidential and commercial customers in competitive markets across the United States with an alternative choice for natural gas andelectricity. The Company is a holding company whose sole material asset consists of units in Spark HoldCo, LLC (“Spark HoldCo”).Spark HoldCo owns all of the outstanding membership interests or common stock in each of Spark Energy, LLC (“SE”), Spark EnergyGas, LLC (“SEG”), Oasis Power Holdings, LLC ("Oasis"), CenStar Energy Corp. ("CenStar"), Electricity Maine, LLC, Electricity N.H.,LLC and Provider Power Mass, LLC (collectively, the "Provider Companies"); Major Energy Services, LLC, Major Energy ElectricServices, LLC, and Respond Power, LLC (collectively, the "Major Energy Companies"), Perigee Energy, LLC ("Perigee"), and theVerde Companies (as defined below) the operating subsidiaries through which the Company operates. The Company is the solemanaging member of Spark HoldCo, is responsible for all operational, management and administrative decisions relating to SparkHoldCo’s business and consolidates the financial results of Spark HoldCo and its subsidiaries.Relationship with our Founder and Majority ShareholderW. Keith Maxwell, III (our "Founder") is the owner of a majority in voting power of our common stock through his ownership ofNuDevco Retail, LLC ("NuDevco Retail") and Retailco, LLC ("Retailco"). Retailco is a wholly owned subsidiary of TxEx EnergyInvestments, LLC ("TxEx"), which is wholly owned by Mr. Maxwell. NuDevco Retail is a wholly owned subsidiary of NuDevco RetailHoldings LLC ("NuDevco Retail Holdings"), which is a wholly owned subsidiary of Electric HoldCo, LLC, which is also a whollyowned subsidiary of TxEx.We entered into a Master Service Agreement effective January 1, 2016 with Retailco Services, LLC, which is wholly owned by W.Keith Maxwell III. See Note 14 "Transactions with Affiliates" for further discussion.Emerging Growth Company StatusAs a company with less than $1.07 billion in revenues during its last fiscal year, the Company qualifies as an “emerging growthcompany” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may takeadvantage of specified reduced reporting and other regulatory requirements.The Company will remain an “emerging growth company” until as late as the last day of the Company's 2019 fiscal year, or until theearliest of (i) the last day of the fiscal year in which the Company has $1.07 billion or more in annual revenues; (ii) the date on whichthe Company becomes a “large accelerated filer” (the fiscal year-end on which the total market value of the Company’s common equitysecurities held by non-affiliates is $700 million or more as of June 30); (iii) the date on which the Company issues more than $1.0billion of non-convertible debt over a three-year period.As a result of the Company's election to avail itself of certain provisions of the JOBS Act, the information that the Company providesmay be different than what you may receive from other public companies in which you hold an equity interest.Exchange and Registration RightsThe Spark HoldCo Third Amended and Restated Limited Liability Company Agreement provides that if the Company issues a newshare of Class A common stock, par value $0.01 per share (the "Class A common stock"), Series A Preferred Stock (as defined below),or other equity security of the Company (other than shares of Class B common stock, par value $0.01 per share ("Class B commonstock"), and excluding issuances of Class A common98Table of Contentsstock upon an exchange of Class B common stock or Series A Preferred Stock), Spark HoldCo will concurrently issue a correspondinglimited liability company unit either to the holder of the Class B common stock, or to the Company in the case of the issuance of sharesof Class A common stock, Series A Preferred Stock or such other equity security. As a result, the number of Spark HoldCo units heldby the Company always equals the number of shares of Class A common stock, Series A Preferred Stock or such other equity securitiesof the Company outstanding.Each share of Class B common stock, all of which are held by NuDevco Retail and Retailco, has no economic rights but entitles theholder to one vote on all matters to be voted on by stockholders generally. Holders of Class A common stock and Class B commonstock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise requiredby applicable law or by our certificate of incorporation.NuDevco Retail and Retailco have the right to exchange (the “Exchange Right”) all or a portion of their Spark HoldCo units (togetherwith a corresponding number of shares of Class B common stock) for Class A common stock (or cash at Spark Energy, Inc.’s or SparkHoldCo’s election (the “Cash Option”)) at an exchange ratio of one share of Class A common stock for each Spark HoldCo unit (andcorresponding share of Class B common stock) exchanged. In addition, NuDevco Retail and Retailco have the right, under certaincircumstances, to cause the Company to register the offer and resale of NuDevco Retail's and Retailco's shares of Class A commonstock obtained pursuant to the Exchange Right. Retail Acquisition Co., LLC ("RAC") was entitled to similar registration rights under the$2.1 million convertible subordinated note (the "CenStar Note") and $5.0 million convertible subordinated note (the "Oasis Note") priorto their respective conversions to Class B common stock in January 2017. Refer to Note 8 "Debt" for further information.Tax Receivable AgreementThe Company is party to a Tax Receivable Agreement with Spark HoldCo, NuDevco Retail Holdings and NuDevco Retail. Thisagreement generally provides for the payment by the Company to Retailco, LLC (as successor to NuDevco Retail Holdings) andNuDevco Retail of 85% of the net cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Companyactually realizes (or is deemed to realize in certain circumstances) in future periods as a result of (i) any tax basis increases resultingfrom the purchase by the Company of Spark HoldCo units from NuDevco Retail Holdings, (ii) any tax basis increases resulting fromthe exchange of Spark HoldCo units for shares of Class A common stock pursuant to the Exchange Right (or resulting from anexchange of Spark HoldCo units for cash pursuant to the Cash Option) and (iii) any imputed interest deemed to be paid by theCompany as a result of, and additional tax basis arising from, any payments the Company makes under the Tax Receivable Agreement.The Company retains the benefit of the remaining 15% of these tax savings. See Note 12 "Income Taxes" for further discussion.In certain circumstances, the Company may defer or partially defer any payment due (a “TRA Payment”) to the holders of rights underthe Tax Receivable Agreement, which are currently Retailco and NuDevco Retail. During the five-year period ending September 30,2019, the Company will defer all or a portion of any TRA Payment owed pursuant to the Tax Receivable Agreement to the extent thatSpark HoldCo does not generate sufficient Cash Available for Distribution (as defined below) during the four-quarter period endingSeptember 30th of the applicable year in which the TRA Payment is to be made in an amount that equals or exceeds 130% (the “TRACoverage Ratio”) of the Total Distributions (as defined below) paid in such four-quarter period by Spark HoldCo. For purposes ofcomputing the TRA Coverage Ratio:•“Cash Available for Distribution” is generally defined as the Adjusted EBITDA of Spark HoldCo for the applicable period, less(i) cash interest paid by Spark HoldCo, (ii) capital expenditures of Spark HoldCo (exclusive of customer acquisition costs) and(iii) any taxes payable by Spark HoldCo; and•“Total Distributions” are defined as the aggregate distributions necessary to cause the Company to receive distributions of cashequal to (i) the targeted quarterly distribution the Company intends to pay to holders of its Class A common stock and Series APreferred Stock payable during the applicable four-quarter period,99Table of Contentsplus (ii) the estimated taxes payable by the Company during such four-quarter period, plus (iii) the expected TRA Paymentpayable during the calendar year for which the TRA Coverage Ratio is being tested.In the event that the TRA Coverage Ratio is not satisfied in any calendar year, the Company will defer all or a portion of the TRAPayment to NuDevco Retail or Retailco under the Tax Receivable Agreement to the extent necessary to permit Spark HoldCo to satisfythe TRA Coverage Ratio (and Spark HoldCo is not required to make and will not make the pro rata distributions to its members withrespect to the deferred portion of the TRA Payment). If the TRA Coverage Ratio is satisfied in any calendar year, the Company will payNuDevco Retail or Retailco the full amount of the TRA Payment.Following the five-year deferral period ending September 30, 2019, the Company will be obligated to pay any outstanding deferredTRA Payments to the extent such deferred TRA Payments do not exceed (i) the lesser of the Company's proportionate share ofaggregate Cash Available for Distribution of Spark HoldCo during the five-year deferral period or the cash distributions actuallyreceived by the Company during the five-year deferral period, reduced by (ii) the sum of (a) the aggregate target quarterly dividends(which, for the purposes of the Tax Receivable Agreement, will be $0.18125 per Class A common stock share and $0.546875 perSeries A Preferred Stock share per quarter) during the five-year deferral period, (b) the Company's estimated taxes during the five-yeardeferral period, and (c) all prior TRA Payments and (d) if with respect to the quarterly period during which the deferred TRA Paymentis otherwise paid or payable, Spark HoldCo has or reasonably determines it will have amounts necessary to cause the Company toreceive distributions of cash equal to the target quarterly distribution payable during that quarterly period. Any portion of the deferredTRA Payments not payable due to these limitations will no longer be payable.We met the threshold coverage ratio required to fund the second TRA Payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2016, resulting in an initial TRA Payment of $1.4 millionbecoming due in December 2016. On November 6, 2016, Retailco and NuDevco Retail granted the Company the right to defer theTRA Payment until May 2018. During the period of time when the Company has elected to defer the TRA Payment, the outstandingpayment amount will accrue interest at a rate calculated in the manner provided for under the Tax Receivable Agreement. The initialpayment of $1.4 million deferred until May 2018 was classified to a current liability as of December 31, 2017.We met the threshold coverage ratio required to fund the third TRA Payment to Retailco and NuDevco Retail under the Tax ReceivableAgreement during the four-quarter periods ending September 30, 2017. As such, the third payment under the Tax ReceivableAgreement due in April 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.We expect to meet the threshold coverage ratio required to fund the fourth payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2018. As such, the fourth payment under the TaxReceivable Agreement due in late 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.2. Basis of Presentation and Summary of Significant Accounting PoliciesThe accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principlesgenerally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission(“SEC”). The Company's consolidated financial statements are presented on a consolidated basis and include all wholly-owned andcontrolled subsidiaries. We account for investments over which we have significant influence but not a controlling financial interestusing the equity method of accounting. All significant intercompany transactions and balances have been eliminated in the consolidatedfinancial statements.Transactions with AffiliatesThe Company enters into transactions with and pays certain costs on behalf of affiliates that are commonly controlled by W. KeithMaxwell III, and these affiliates enter into transactions with and pay certain costs on our behalf, in order to reduce risk, reduceadministrative expense, create economies of scale, create strategic alliances and supply goods and services among these related parties.These transactions include, but are not limited to, certain services to the affiliated companies associated with employee benefitsprovided through the Company’s benefit plans, insurance plans, leased office space, administrative salaries for management duediligence work, recurring management consulting, and accounting, tax, legal, or technology services based on services provided,departmental usage, or headcount, which are considered reasonable by management. As such, the accompanying consolidated financialstatements include costs that have been incurred by the Company and then directly billed or allocated to affiliates, and costs that havebeen incurred by our affiliates and then directly billed or allocated to us, and are recorded net in general and administrative expense onthe consolidated statements of operations with a corresponding accounts receivable—affiliates or accounts payable—affiliates,respectively, recorded in the consolidated balance sheets. Additionally, the Company enters into transactions with certain affiliates forsales or purchases of natural gas and electricity, which are recorded in retail revenues, retail cost of revenues, and net asset optimizationrevenues in the consolidated statements of operations with a corresponding accounts receivable—affiliate or accounts payable—affiliatein the consolidated balance sheets. The allocations and related estimates and assumptions are described more fully in Note 14"Transactions with Affiliates."Cash and Cash EquivalentsCash and cash equivalents consist of all unrestricted demand deposits and funds invested in highly liquid instruments with originalmaturities of three months or less. The Company periodically assesses the financial condition of the institutions where these funds areheld and believes that its credit risk is minimal with respect to these institutions.Accounts ReceivableTrade accounts receivable are recorded at the invoiced amount and do not bear interest. Accounts receivable in the consolidatedbalance sheets are net of allowance for doubtful accounts of $4.0 million and $2.3 million as of December 31, 2017 and 2016,respectively.The Company accrues an allowance for doubtful accounts based upon estimated uncollectible accounts receivable consideringhistorical collections, accounts receivable aging analysis, credit risk and other factors. The Company writes off accounts receivablebalances against the allowance for doubtful accounts when the accounts receivable is deemed to be uncollectible. Bad debt expense of$6.6 million, $1.3 million and $7.9 million was recorded in general and administrative expense in the consolidated statements ofoperations for the years ended December 31, 2017, 2016 and 2015, respectively.The Company conducts business in many utility service markets where the local regulated utility purchases our receivables, and thenbecomes responsible for billing the customer and collecting payment from the customer (“POR programs”). This POR service results insubstantially all of the Company’s credit risk being linked to the applicable utility, which generally has an investment-grade rating, andnot to the end-use customer. The Company monitors the financial condition of each utility and currently believes that its susceptibilityto an individually significant write-off as a result of concentrations of customer accounts receivable with those utilities is remote. Tradeaccounts receivable that are part of a local regulated utility’s POR program are recorded on a gross basis in accounts receivable in theconsolidated balance sheets. The discount paid to the local regulated utilities is recorded in general and administrative expense in theconsolidated statements of operations.In markets that do not offer POR services or when the Company chooses to directly bill its customers, certain receivables are billed andcollected by the Company. The Company bears the credit risk on these accounts and records an appropriate allowance for doubtfulaccounts to reflect any losses due to non-payment by customers. The100Table of ContentsCompany’s customers are individually insignificant and geographically dispersed in these markets. The Company writes off customerbalances when it believes that amounts are no longer collectible and when it has exhausted all means to collect these receivables.InventoryInventory consists of natural gas used to fulfill and manage seasonality for fixed and variable-price retail customer load requirementsand is valued at the lower of weighted average cost or market. Purchased natural gas costs are recognized in the consolidated statementsof operations, within retail cost of revenues, when the natural gas is sold and delivered out of the storage facility. There were noinventory impairments recorded for the years ended December 31, 2017, 2016 and 2015. When natural gas is sold costs are recognizedin the consolidated statements of operations, within retail cost of revenues, at the weighted average cost value at the time of the sale.Customer Acquisition CostsThe Company has retail natural gas and electricity customer acquisition costs, net of $22.1 million and $18.8 million recorded incurrent assets and $6.9 million and $6.1 million recorded in noncurrent assets representing direct response advertising costs as ofDecember 31, 2017 and 2016, respectively. Customer acquisition costs are spending for organic customer acquisitions and do notinclude customer acquisitions through merger and acquisition activities, which are recorded as customer relationships. Amortization ofcustomer acquisition costs, recorded in depreciation and amortization in the consolidated statements of operations, was $21.4 million,$17.5 million and $18.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. Capitalized direct responseadvertising costs consist primarily of hourly and commission based telemarketing costs, door-to-door agent commissions and otherdirect advertising costs associated with proven customer generation, and are capitalized and amortized over the estimated two-yearaverage life of a customer in accordance with the provisions of FASB ASC 340-20, Capitalized Advertising Costs.Recoverability of customer acquisition costs is evaluated based on a comparison of the carrying amount of the customer acquisitioncosts to the future net cash flows expected to be generated by the customers acquired, considering specific assumptions for customerattrition, per unit gross profit, and operating costs. These assumptions are based on forecasts and historical experience.Customer RelationshipsCustomer acquisitions through direct acquisitions of customer contracts or recorded as part of the acquisition method in accordancewith FASB ASC Topic 805, Business Combinations ("ASC 805") are recorded as customer relationships and represent customercontract acquisitions not acquired through the direct response advertising discussed above at “Customer Acquisition Costs.” TheCompany has recorded $18.7 million and $12.1 million, net of amortization, as current assets as of December 31, 2017 and 2016,respectively, and $34.8 million and $21.4 million, net of amortization, as non-current assets as of December 31, 2017 and 2016,respectively, related to these intangible assets. These intangibles are amortized on a straight-line basis over the estimated average life ofthe related customer contracts acquired, which ranges from three years to six years.The acquired customer relationships intangibles related to Oasis, CenStar, Provider Companies, Major Energy Companies, PerigeeEnergy LLC, and Verde Companies are reflective of the acquired companies’ customer base, and were valued at the respective dates ofacquisition using an excess earnings method under the income approach. Using this method, the Company estimated the future cashflows resulting from the existing customer relationships, considering attrition as well as charges for contributory assets, such as networking capital, fixed assets, and assembled workforce. These future cash flows were then discounted using an appropriate risk-adjusted rate of return by retail unit to arrive at the present value of the expected future cash flows. CenStar, Oasis and Perigee customerrelationships are amortized to depreciation and amortization based on the expected future net cash flows by year. The acquiredcustomer relationship intangibles related to the Major Energy Companies, the Provider Companies and the Verde Companies werebifurcated between hedged and unhedged and amortized to depreciation101Table of Contentsand amortization based on the expected future cash flows by year and expensed to retail cost of revenue based on the expected term ofthe underlying fixed price contract in each reporting period, respectively.Amortization expense was $17.8 million, $28.6 million, and $5.7 million for the years ended December 31, 2017, 2016 and 2015,respectively. Approximately $0.3 million, $15.8 million, and zero of the $17.8 million, $28.6 million, and $5.7 million customerrelationships amortization expense for the twelve months ending December 31, 2017, 2016, and 2015, respectively, was included inretail cost of revenue.We review customer relationships for impairment whenever events or changes in business circumstances indicate the carrying value ofthe intangible assets may not be recoverable. Impairment is indicated when the undiscounted cash flows estimated to be generated bythe intangible assets are less than their respective carrying value. If an impairment exists, a loss would be recognized for the differencebetween the fair value and carrying value of the intangible assets.No impairments of customer relationships were recorded for the years ended December 31, 2017, 2016 and 2015.Non-compete agreementsThe non-compete agreements provide the Company with a certain level of assurance that acquired companies' expected earningsstreams will not be disrupted by competition from the companies’ previous members. The fair values of non-compete agreements aredetermined using the differential valuation approach at acquisition date. Under this approach, the Company estimates the present valueof expected future cash flows under two scenarios; one scenario assumes the non-compete agreements are in place and the otherscenario assumes the absence of non-compete agreements. The resulting difference between the two scenarios is the implied value ofthe non-compete agreements, which is further adjusted by an estimated probability factor representing the likelihood that previousmembers of acquired companies would be successful competitors.As a result of the Provider Companies and Major Energy Companies acquisitions, the Company recorded $1.2 million, net ofamortization, as Acquired customer intangibles - current and $1.4 million, net of amortization, as Acquired customer intangibles - non-current as of December 31, 2016 related to these non-compete agreements. These non-compete agreements are amortized over theirestimated three-year life on a straight-line basis. Amortization expense was $1.2 million and $0.9 million for the years endedDecember 31, 2017 and 2016.TrademarksTrademarks recorded as part of the acquisition method in accordance with ASC 805 represent the value associated with the recognitionand positive reputation of an acquired company to its target markets. This value would otherwise have to be internally developedthrough significant time and expense or by paying a third party for its use. The fair values of trademark assets were determined at thedate of acquisition using a royalty savings method under the income approach. Under this approach, the Company estimates the presentvalue of expected cash flows resulting from avoiding royalty payments to use a third party trademark. The Company analyzes marketroyalty rates charged for licensing trademarks and applied an expected royalty rate to a forecast of estimated revenue, which was thendiscounted using an appropriate risk adjusted rate of return.The Company has recorded $8.6 million and $6.3 million, net of amortization, as other assets as of December 31, 2017 and 2016related to these trademarks in other assets. These intangibles are amortized over the estimated five-year to twenty-year life of thetrademarks on a straight-line basis. Amortization expense was $0.8 million, $0.4 million and $0.1 million for the years endedDecember 31, 2017, 2016 and 2015, respectively.We review trademarks for impairment whenever events or changes in business circumstances indicate the carrying value of theintangible assets may not be recoverable. Impairment is indicated when the undiscounted cash flows estimated to be generated by theintangible assets are less than their respective carrying value. If an impairment exists, a loss would be recognized for the differencebetween the fair value and carrying value of the intangible assets.102Table of ContentsNo impairments of trademarks were recorded for the years ended December 31, 2017, 2016 and 2015.Deferred Financing CostsCosts incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense using the straight-linemethod over the life of the related long-term debt due to the variable nature of the Company’s long-term debt.Property and EquipmentThe Company records property and equipment at historical cost. Depreciation expense is recorded on a straight-line method based onestimated useful lives. When assets are placed into service, management makes estimates with respect to useful lives and salvage valuesof the assets.When items of property and equipment are sold or otherwise disposed of, any gain or loss is recorded in the consolidated statements ofoperations.The Company capitalizes costs associated with internal-use software projects in accordance with FASB ASC Topic 350-40, Internal-Use Software. Capitalized costs are the costs incurred during the application development stage of the internal-use software project suchas software configuration, coding, installation of hardware and testing. Costs incurred during the preliminary or post-implementationstage of the internal-use software project are expensed in the period incurred. These types of costs include formulation of ideas andalternatives, training and application maintenance. After internal-use software projects are completed, the associated capitalized costsare depreciated over the estimated useful life of the related asset. Interest costs incurred while developing internal-use software projectsare capitalized in accordance with FASB ASC Topic 835-20, Capitalization of Interest. Capitalized interest costs for the years endedDecember 31, 2017, 2016 and 2015 were not material.GoodwillGoodwill represents the excess of cost over fair value of the assets of businesses acquired in accordance with FASB ASC Topic 350Intangibles-Goodwill and Other ("ASC 350"). The goodwill on our consolidated balance sheet as of December 31, 2017 is associatedwith both our Retail Natural Gas and Retail Electricity reporting units. We determine our reporting units by identifying each unit thatengaged in business activities from which it may earn revenues and incur expenses, had operating results regularly reviewed by thesegment manager for purposes of resource allocation and performance assessment, and had discrete financial information.Goodwill is assessed for impairment whenever events or circumstances indicate that impairment of the carrying value of goodwill islikely, but no less often than annually as of October 31. On October 31, 2017, we elected to by-pass the option to perform a qualitativeassessment of goodwill and performed a quantitative assessment of goodwill in accordance with guidance from ASC 350. Thisguidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of areporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwillimpairment test. If we fail the qualitative test or if we elect to by-pass the qualitative assessment, then we must compare our estimate ofthe fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of the reporting unit exceeds its fairvalue, we perform the second step of the goodwill impairment test to measure the amount of goodwill impairment loss to be recorded,as necessary. The second step compares the implied fair value of the reporting unit’s goodwill to the carrying value, if any, of thatgoodwill. We determine the implied fair value of the goodwill in the same manner as determining the amount of goodwill to berecognized in a business combination. The inputs used in the determination of fair value are generally level 3 inputs. See Note 9 "FairValue Measurements" for further discussion.103Table of ContentsWe completed our annual assessment of goodwill impairment as of October 31, 2017 during the fourth quarter of 2017, and the testindicated no impairment.Treasury StockTreasury stock consists of Company's own stock that has been issued, but is subsequently reacquired by the Company. Treasury stockdoes not reduce the number of shares issued but does reduce the number of shares outstanding. These shares are not eligible to receivecash dividends. Accounting for treasury stock transactions is governed by FASB ASC Topic 550-30 Equity-Treasury Stock.We use the cost method to account for treasury shares. Purchases of shares of Class A common stock are recorded at cost, and the grosscost of the Class A common stock purchased is charged to a contra equity account entitled "Treasury Stock."Equity Method InvestmentThe Company accounts for investments in unconsolidated entities using the equity method of accounting, as prescribed in FASB ASCTopic 323-10, Investments-Equity Method and Joint Venture, if the investment gives us the ability to exercise significant influence over,but not control, of an investee. Significant influence generally exists if we have an ownership interest representing between 20% and50% of the voting stock of the investee. Under the equity method of accounting, investments are stated at initial cost and are adjustedfor subsequent additional investments and our proportionate share of earnings or losses and distributions. Such investment is presentedon the consolidated balance sheet under "Other assets" and our share of their income as "Interest and other income" on the consolidatedstatements of operations. The Company determines its equity investment earnings using the Hypothetical Liquidation at Book Value(HLBV) method. Under the HLBV method, a calculation is prepared at each balance sheet date to determine the amount the Companywould receive if the investee were to liquidate all of its assets, as valued in accordance with U.S. GAAP, and distribute that cash to theinvestors. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period,after adjusting for capital contributions and distributions, is the Company's share of the earnings or losses from the equity investmentfor the period. See Note 17 "Equity Method Investment" for further discussion.Segment ReportingThe FASB ASC Topic 280, Segment Reporting, established standards for entities to report information about the operating segmentsand geographic areas in which they operate. The Company operates two segments, retail natural gas and retail electricity, and all of itsoperations are located in the United States.Revenues and Cost of RevenuesThe Company’s revenues are derived primarily from the sale of natural gas and electricity to retail customers. The Company alsorecords revenue from sales of natural gas and electricity to wholesale counterparties, including affiliates. Revenues are recognized bythe Company using the following criteria: (1) persuasive evidence of an exchange arrangement exists, (2) delivery has occurred orservices have been rendered, (3) the buyer’s price is fixed or determinable and (4) collection is reasonably assured. Utilizing thesecriteria, revenue is recognized when the natural gas or electricity is delivered. Similarly, cost of revenues is recognized when thecommodity is delivered.Revenues for natural gas and electricity sales are recognized upon delivery under the accrual method. Natural gas and electricity salesthat have been delivered but not billed by period end are estimated. Accrued unbilled revenues are based on estimates of customerusage since the date of the last meter read provided by the utility. Volume estimates are based on forecasted volumes and estimatedcustomer usage by class. Unbilled revenues are calculated by multiplying these volume estimates by the applicable rate by customerclass. Estimated amounts are adjusted when actual usage is known and billed.104Table of ContentsThe Company records gross receipts taxes on a gross basis in retail revenues and retail cost of revenues. During the years endedDecember 31, 2017, 2016 and 2015, the Company’s retail revenues and retail cost of revenues included gross receipts taxes of $9.0million, $5.3 million and $3.0 million, respectively.Costs for natural gas and electricity sales are recognized as the commodity is delivered to the customer under the accrual method.Natural gas and electricity costs that have not been billed to the Company by suppliers but have been incurred by period end areestimated. The Company estimates volumes for natural gas and electricity delivered based on the forecasted revenue volumes,estimated transportation cost volumes and estimation of other costs associated with retail load that varies by commodity utility territory.These costs include items like ISO fees, ancillary services and renewable energy credits. Estimated amounts are adjusted when actualusage is known and billed.The Company’s asset optimization activities, which primarily include natural gas physical arbitrage and other short term storage andtransportation opportunities, meet the definition of trading activities and are recorded on a net basis in the consolidated statements ofoperations in net asset optimization revenues pursuant to FASB ASC Topic 815, Derivatives and Hedging. The Company recordedasset optimization revenues, primarily related to physical sales or purchases of commodities, of $178.3 million, $133.0 million and$154.1 million for the years ended December 31, 2017, 2016 and 2015, respectively, and recorded asset optimization costs of revenuesof $179.0 million, $133.6 million and $152.6 million for the years ended December 31, 2017, 2016 and 2015, respectively, which arepresented on a net basis in asset optimization revenues.Natural Gas ImbalancesThe consolidated balance sheets include natural gas imbalance receivables and payables, which primarily results when customersconsume more or less gas than has been delivered by the Company to local distribution companies (“LDCs”). The settlement of naturalgas imbalances varies by LDC, but typically the natural gas imbalances are settled in cash or in kind on a monthly, quarterly, semi-annual or annual basis. The imbalances are valued at an estimated net realizable value. The Company recorded an imbalance receivableof $0.7 million and $0.9 million recorded in other current assets on the consolidated balance sheets as of December 31, 2017 and 2016,respectively. The Company recorded an imbalance payable of $1.0 million and $0.1 million recorded in other current liabilities on theconsolidated balance sheets as of December 31, 2017 and 2016, respectively.Fair ValueFASB ASC Topic 820, Fair Value Measurement, established a single authoritative definition of fair value, set out a framework formeasuring fair value, and requires disclosures about fair value measurements. The standard clarifies that fair value is an exit price,representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants. The standard utilizes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair valueinto three broad levels based on quoted prices in active market, observable market prices, and unobservable market prices.When the Company is required to measure fair value, and there is not a quoted or observable market price for a similar asset or liability,the Company utilizes the cost, income, or market valuation approach depending on the quality of information available to supportmanagement’s assumptions.Derivative InstrumentsThe Company uses derivative instruments such as futures, swaps, forwards and options to manage the commodity price risks of itsbusiness operations.All derivatives, other than those for which an exception applies, are recorded in the consolidated balance sheets at fair value. Derivativeinstruments representing unrealized gains are reported as derivative assets while derivative instruments representing unrealized lossesare reported as derivative liabilities. The Company has elected to offset105Table of Contentsamounts in the consolidated balance sheets for derivative instruments executed with the same counterparty under a master nettingarrangement. One of the exceptions to fair value accounting, normal purchases and normal sales, has been elected by the Company forcertain derivative instruments when the contract satisfies certain criteria, including a requirement that physical delivery of theunderlying commodity is probable and is expected to be used in normal course of business. Retail revenues and retail cost of revenuesresulting from deliveries of commodities under normal purchase contracts and normal sales contracts are included in earnings at thetime of contract settlement.To manage commodity price risk, the Company holds certain derivative instruments that are not held for trading purposes and are notdesignated as hedges for accounting purposes. However, to the extent the Company does not hold offsetting positions for suchderivatives, they believe these instruments represent economic hedges that mitigate their exposure to fluctuations in commodity prices.As part of the Company’s strategy to optimize its assets and manage related commodity risks, it also manages a portfolio of commodityderivative instruments held for trading purposes. The Company uses established policies and procedures to manage the risks associatedwith price fluctuations in these energy commodities and uses derivative instruments to reduce risk by generally creating offsettingmarket positions.Changes in the fair value of and amounts realized upon settlement of derivative instruments not held for trading purposes arerecognized currently in retail costs of revenues.Changes in the fair value of and amounts realized upon settlement of derivative instruments held for trading purposes are recognizedcurrently in earnings in net asset optimization revenues.Income TaxesThe Company recognizes the amount of taxes payable or refundable for the year. In addition, the Company follows the asset andliability method of accounting for income taxes where deferred tax assets and liabilities are recognized for the expected future taxconsequences of events that have been recognized in the financial statements or tax returns and operating loss carryforwards. Deferredtax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in those years in which thosetemporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the taxrates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets ifit is more likely than not that these items will not be realized.In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of futuretaxable income during the periods in which those temporary differences become deductible. Management considers the projected futuretaxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projectionsfor future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely thannot that we will realize the benefits of these deductible differences.The Company recognizes interest and penalties related to unrecognized tax benefits within the provision for income taxes on continuingoperations in our consolidated statements of operations.Earnings per ShareBasic earnings per share (“EPS”) is computed by dividing net income attributable to shareholders (the numerator) by the weighted-average number of Class A common shares outstanding for the period (the denominator). Class B common shares are not included inthe calculation of basic earnings per share because they are not participating securities and have no economic interest in the Company.Diluted earnings per share is similarly calculated except that the denominator is increased (1) using the treasury stock method todetermine the potential dilutive effect of the Company’s outstanding unvested restricted stock units, (2) using the if-converted methodto determine the potential dilutive effect of the Company’s Class B common stock and (3) using the if-converted method to determinethe106Table of Contentspotential dilutive effect of the outstanding convertible subordinated notes into the Company's Class B common stock.On May 22, 2017, the Company authorized and approved a two-for-one stock split of the Company's issued Class A common stockand Class B common stock, which was effected through a stock dividend (the "Stock Split"). All shares and per share amounts in thisreport have been retrospectively restated to reflect the Stock Split.Non-controlling InterestThe Company and NuDevco Retail and Retailco owned the following economic interests in Spark HoldCo at December 31, 2016 andDecember 31, 2017, respectively. The CompanyNuDevco Retail and Retailco(1) (2)On December 31, 201638.85%61.15%On December 31, 201738.12%61.88% (1) In January 2016, Retailco succeeded to the interest of NuDevco Retail Holdings of its Class B common stock and an equal number of Spark HoldCo units it held pursuant to aseries of transfers.(2) In January 2017, Retailco converted the CenStar Note and Oasis Note to 269,462 and 766,180 shares, respectively, of Class B common stock.See Note 4 "Equity" for further detail.Net income attributable to non-controlling interest for the years ended December 31, 2017 and 2016 represents NuDevco’s interest inSpark HoldCo. Income and expenses specifically attributable to the non-controlling interest and the Company are allocated accordingly(for example income tax expense (benefit), gain related to the remeasurement of the TRA liability as a result of U.S. Tax Reform, andincome (loss) related to recast financial statements). The weighted average ownership percentages for the applicable reporting periodare used to allocate the remaining income (loss) before income taxes to the each economic interest owner.Commitments and ContingenciesThe Company enters into various firm purchase and sale commitments for natural gas, storage, transportation, and electricity that do notmeet the definition of a derivative instrument. Management does not anticipate that such commitments will result in any significantgains or losses based on current market conditions.Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it isprobable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with losscontingencies are expensed as incurred.Use of Estimates and AssumptionsThe preparation of the Company’s consolidated financial statements requires estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the period. Actual results could materially differ from those estimates. Significantitems subject to such estimates by the Company’s management include estimates for unbilled revenues and related cost of revenues,provisions for uncollectible receivables, valuation of customer acquisition costs, estimated useful lives of property and equipment,valuation of derivatives and reserves for contingencies.Subsequent Events107Table of ContentsSubsequent events have been evaluated through the date these financial statements are issued. Any material subsequent events thatoccurred prior to such date have been properly recognized or disclosed in the consolidated financial statements. See Note 18"Subsequent Events" for further discussion.ReclassificationsCertain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. Thesereclassifications had no effect on reported earnings.Recent Accounting PronouncementsAdopted StandardsIn March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718) ("ASU 2016-09"). ASU 2016-09includes provisions intended to simplify various aspects of accounting for shared-based payments, including income tax consequences,classification of awards as either equity or liability and classification on the statement of cash flows. This guidance is effective forannual and interim reporting periods of public entities beginning after December 15, 2016. The Company adopted ASU 2016-09 onJanuary 1, 2017.The new standard requires prospective recognition of excess tax benefits resulting from stock-based compensation vesting andexercises to be recognized as a reduction of income taxes and reflected in operating cash flows. Previously, these amounts wererecognized in additional paid-in capital and presented as a financing activity on the statement of cash flows. Net excess tax benefits of$0.2 million were recognized as a reduction of income taxes for the year ended December 31, 2017. Prior periods have not beenadjusted.The Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted by ASU 2016-09,rather than electing to account for forfeitures as they occur.ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes to be reported asfinancing activities in the statement of cash flows. Previously, these cash flows were included in operating activities. The Company haselected to adopt this prospectively, as permitted by ASU 2016-09. This change resulted in a $1.1 million impact on the statement ofcash flow for the year ended December 31, 2017.In October 2016, the FASB issued ASU No. 2016-17, Consolidation (Topic 810): Interests Held through Related Parties that Are underCommon Control ("ASU 2016-17"). ASU 2016-17 amends the consolidation guidance on how a reporting entity that is the singledecision maker of a variable interest entity ("VIE") should treat indirect interests in the entity held through related parties that are undercommon control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under ASU 2016-17, asingle decision maker of a VIE is required to consider indirect economic interests in the entity held through related parties on aproportionate basis when determining whether it is the primary beneficiary of that VIE. If a single decision maker and its related partyare under common control, the single decision maker is required to consider indirect interests in the entity held through those relatedparties to be the equivalent of direct interests in their entirety. The amendments are effective for public business entities for fiscal yearsbeginning after December 15, 2016 (the Company's first quarter of fiscal 2017), including interim periods within those fiscal years. Thestandard is to be applied retrospectively or through a cumulative effect adjustment to retained earnings as of the beginning of the fiscalyear of adoption. The Company adopted ASU 2016-17 effective January 1, 2017, and the adoption had no impact on the Company'sconsolidated financial statements.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"). ASU2016-18 is intended to add and clarify guidance on the classification and presentation of restricted cash on the statement of cash flows.ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cashand restricted cash equivalents108Table of Contentsshould be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownon the statement of cash flows. The amendments are effective for public business entities for fiscal years beginning after December 15,2017, and interim periods within those fiscal years. The Company adopted ASU 2016-18 effective April 1, 2017, and has includedrestricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on thestatement of cash flows.Standards adopted in 2018In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize theamount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The standard permitsthe use of either the retrospective or cumulative effect transition method. In December 2016, the FASB further issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, to increase stakeholders'awareness of the proposals and to expedite improvements to ASU 2014-09.The FASB issued additional amendments to ASU No. 2014-09, as amended by ASU No. 2015-14:•March 2016 - ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations(Reporting Revenue Gross versus Net) ("ASU 2016-08"). ASU 2016-08 clarifies the implementation guidance on principalversus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specifiedgood or service before it is transferred to customers.•April 2016 - ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations andLicensing ("ASU 2016-10"). ASU 2016-10 covers two specific topics: performance obligations and licensing. This amendmentincludes guidance on immaterial promised goods or services, shipping or handling activities, separately identifiableperformance obligations, functional or symbolic intellectual property licenses, sales-based and usage-based royalties, licenserestrictions (time, use, geographical) and licensing renewals.•May 2016 - ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements andPractical Expedients ("ASU 2016-12"). ASU 2016-12 clarifies certain core recognition principles including collectability, salestax presentation, noncash consideration, contract modifications and completed contracts at transition and disclosures no longerrequired if the full retrospective transition method is adopted.•September 2017 - ASU No. 2017-13, Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments ("ASU 2017-13"). ASU 2017-13provides additional implementation guidance related to ASC Topic 606 and is effective for annual reporting periods beginningafter December 15, 2017.•November 2017 - ASU No. 2017-14, Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 116 and SECRelease No. 33-10403 ("ASU 2017-14"). ASU 2017-14 amends various paragraphs in ASC 605, Revenue Recognition; andASC 606, Revenue from Contracts With Customers, that contain SEC guidance. The amendments include superseding ASC 605-10-S25-1 (SAB Topic 13) as a result of SEC Staff Accounting Bulletin No. 116 and adding ASC 606-10-S25-1 as a result ofSEC Release No. 33-10403.In 2017, we collaborated with an external professional services firm to analyze the impact of the standard on our contract portfolio byreviewing our current accounting policies and practices to identify potential differences that would result from applying therequirements of the new standard to our revenue contracts. In addition, we identified and implemented appropriate changes to ourbusiness processes, systems and controls to support recognition and disclosure under the new standard.109Table of ContentsThe Company adopted the new standard effective January 1, 2018 utilizing the full retrospective approach. The adoption of the newstandard will result in an immaterial impact to our total revenues and operating income for the years ended December 31, 2017 and2016, since our contracts with customers identify the delivery of products and services that are individually distinct performanceobligations and revenue is recognized when performance obligations are satisfied. As a result, receivable balances related to revenue,including amounts related to unbilled revenue, are reflected as accounts receivable in the consolidated balance sheets. No other revenuerelated contract assets or liabilities are recorded.The standard requires expanded disclosures regarding the qualitative and quantitative information of an entity's nature, amount, timingand uncertainty of revenue and cash flows arising from contracts with customers.Note, the Company’s asset optimization activities meet the definition of trading activities per FASB ASC Topic 815, Derivatives andHedging, and are therefore excluded from the scope of Revenue from Contracts with Customers (Topic 606).In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts andCash Payments ("ASU 2016-15"). ASU 2016-15 provides guidance on the presentation and classification of eight specific cash flowissues in the statement of cash flows. Those issues are cash payment for debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instrument or other debt instrument with coupon interest rates that are insignificant in relation to the effective interestrate of the borrowing; contingent consideration payments made after a business combination; cash proceeds from the settlement ofinsurance claims, cash received from settlement of corporate-owned life insurance policies; distribution received from equity methodinvestees; beneficial interest in securitization transactions; and classification of cash receipts and payments that have aspects of morethan one class of cash flows. The guidance is effective for interim and annual reporting periods beginning after December 15, 2017.This ASU is to be applied using a retrospective transition method for each period presented. The Company adopted ASU 2016-15effective January 1, 2018 and will classify contingent consideration payments made after a business combination as cash outflows foroperating and financing activities on a retrospective basis. Because of the change in accounting guidance, we expect to reclassifyacquisition related payments of approximately $1.8 million and $0.8 million from cash flows from investing activities to cash flowsfrom operating activities for the years ended December 31, 2017 and December 31, 2016, respectively. We expect to reclassifyacquisition related payments of approximately $18.4 million and $2.0 million from cash flows from investing activities to cash flowsfrom financing activities for the years ended December 31, 2017 and December 31, 2016, respectively.In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory(“ASU 2016-16”). ASU 2016-16 requires immediate recognition of the current and deferred income tax consequences of intercompanyasset transfers other than inventory. Current U.S. GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This guidance is effective for annual and interim reporting periodsof public entities beginning after December 15, 2017. This ASU is to be applied using a modified retrospective basis through acumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company adopted ASU2016-16 effective January 1, 2018 and the adoption of this standard will not have an impact on the Company's consolidated financialstatements.In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business("ASU 2017-01"). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities withevaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of abusiness affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective forannual periods beginning after December 15, 2017, including interim periods within those periods and is to be applied prospectively totransactions on or after the adoption date. The Company adopted ASU 2017-01 effective January 1, 2018, and the adoption will nothave an impact on the Company's historical consolidated financial statements.110Table of ContentsIn May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718) ("ASU 2017-09"). ASU 2017-09provides guidance on when changes to the terms or conditions of a share-based payment award require an entity to apply modificationaccounting. An entity should account for the effects of a modification unless all of the following are met:•The fair value of the modified award is the same as the fair value of the original award immediately before the original award ismodified•The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately beforethe original award is modified•The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of theoriginal award immediately before the original award is modified.The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods,beginning after December 15, 2017. The amendments are to be applied prospectively to an award modified on or after the adoptiondate. The Company adopted ASU 2017-09 effective January 1, 2018, and the adoption will not have an impact on the Company'sconsolidated financial statements.Standards Being Evaluated/Standards Not Yet AdoptedIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"). ASU 2016-02 amends the existingaccounting standards for lease accounting by requiring entities to include substantially all leases on the balance sheet by requiring therecognition of right-of-use assets and lease liabilities for all leases. Entities may elect to not recognize leases with a maximum possibleterm of less than 12 months. For lessees, a lease is classified as finance or operating and the asset and liability are initially measured atthe present value of the lease payments. For lessors, accounting for leases is largely unchanged from previous guidance. ASU 2016-02also requires qualitative disclosures along with certain specific quantitative disclosures for both lessees and lessors. The amendments inthis ASU are effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and are effective for interimperiods in the year of adoption. The ASU should be applied using a modified retrospective approach, which requires lessees and lessorsto recognize and measure leases at the beginning of the earliest period presented. The Company is currently evaluating the impact ofadopting this guidance on its consolidated financial statements.In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for GoodwillImpairment ("ASU 2017-04"). ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from thegoodwill impairment test. Under the amendments in this update, an entity should perform its annual or interim, goodwill impairment testby comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for theamount by which the carrying amount exceeds the reporting unit's fair value. However, the loss recognized should not exceed the totalamount of goodwill allocated to that reporting unit. ASU 2017-04 should be applied on a prospective basis and is effective for annualor any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim orannual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact ofadopting this guidance on its consolidated financial statements.3. AcquisitionsAcquisition of CenStar Energy CorpOn July 8, 2015, the Company completed its acquisition of CenStar, a retail energy company based in New York. CenStar servesnatural gas and electricity customers in New York, New Jersey, and Ohio. The purchase price for the CenStar acquisition was $8.3million, subject to working capital adjustments, plus a payment for positive working capital of $10.4 million and an earnout paymentestimated as of the acquisition date to be $0.5 million, which was associated with a financial measurement attributable to the operationsof CenStar for the year following the closing ("CenStar Earnout"). See Note 9 "Fair Value Measurements" for further discussion of theCenStar Earnout. The111Table of Contentspurchase price was financed with $16.6 million (including positive working capital of $10.4 million) under our Senior Credit Facilityand $2.1 million from the issuance of a convertible subordinated note ("CenStar Note") from the Company and Spark HoldCo toRetailco Acquisition Co, LLC ("RAC"). See Note 8 "Debt" for further discussion of the Senior Credit Facility and the CenStar Note.The Company’s consolidated statements of operations for the year ended December 31, 2015 included $21.4 million of revenue and a$1.4 million loss on operations of CenStar. The Company incurred $0.1 million of acquisition related costs for the year endedDecember 31, 2015, in connection with the acquisition of CenStar, which have been expensed as incurred and included in general andadministrative expense in the consolidated statement of operations.Acquisition of Oasis Power Holdings, LLCOn July 31, 2015, the Company completed its acquisition of Oasis, a retail energy company operating in six states across 18 utilities.The purchase price for the Oasis acquisition was $20.0 million, subject to working capital adjustments. The purchase price was financedwith $15.0 million in borrowings under our Senior Credit Facility, $5.0 million from the issuance of a convertible subordinated note("Oasis Note") from the Company and Spark HoldCo to RAC, and $2.0 million cash on hand. See Note 8 "Debt" for further discussionof the Senior Credit Facility and the Oasis Note.The acquisition of Oasis by the Company from RAC was a transfer of equity interests of entities under common control on July 31,2015.The Company’s consolidated statements of operations for year ended December 31, 2015 included $26.9 million of revenue and a $0.5million loss on the operations of Oasis.Acquisition of the Provider CompaniesOn August 1, 2016, the Company and Spark HoldCo completed the purchase of all of the outstanding membership interests of theProvider Companies. The Provider Companies serve electrical customers in Maine, New Hampshire and Massachusetts. The purchaseprice for the Provider Companies was approximately $34.1 million, which included $1.3 million in working capital, subject toadjustments, and up to $9.0 million in earnout payments, valued at $4.8 million as of the purchase date, which was to be paid byJune 30, 2017, subject to the achievement of certain performance targets (the "Provider Earnout"). See Note 9 "Fair ValueMeasurements" for further discussion on the Provider Earnout, including the final earnout payment made in June 2017. The purchaseprice was funded by the sale of 1,399,484 shares of Class B common stock (and a corresponding number of Spark HoldCo units) toRetailco, valued at $14.0 million based on a value of $10 per share; borrowings under the Senior Credit Facility of $10.6 million; and$3.8 million in net installment consideration to be paid in ten monthly payments that commenced in August 2016. The first payment ofthe installment consideration in the amount of $0.4 million was made with the initial consideration paid. See Note 8 "Debt" for furtherdiscussion of the Senior Credit Facility.The acquisition of the Provider Companies was accounted for under the acquisition method in accordance with ASC 805, BusinessCombinations (“ASC 805”). The allocation of purchase consideration was based upon the estimated fair value of the tangible andidentifiable intangible assets acquired and liabilities assumed in the acquisition. The allocation was made to major categories of assetsand liabilities based on management’s best estimates, and supported by independent third-party analyses. The excess of the purchaseprice over the estimated fair value of tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. Thepurchase price allocation for the acquisition of the Provider Companies was finalized as of December 31, 2016.112Table of ContentsThe allocation of the purchase consideration is as follows (in thousands):Final as of December31, 2016Cash$431Net working capital, net of cash acquired812Intangible assets - customer relationships and non-compete agreements24,417Intangible assets - trademark529Goodwill26,040Fair value of derivative liabilities(18,163)Total$34,066The fair values of intangible assets were measured primarily based on significant inputs that are not observable in the market and thusrepresent a Level 3 measurement as defined by ASC 820, Fair Value Measurement ("ASC 820"). The fair value of derivative liabilitieswere measured by utilizing readily available quoted market prices and non-exchange-traded contracts fair valued using market pricequotations available through brokers or over-the-counter and on-line exchanges and represent a Level 2 measurement as defined byASC 820. Refer to Note 9 "Fair Value Measurements" for further discussion on the fair values hierarchy. Significant inputs for Level 3measurements related to customer relationships, non-compete agreements and trademarks are discussed in Note 2 "Basis of Presentationand Summary of Significant Accounting Policies." Significant inputs for Level 3 measurements related to goodwill were as follows:GoodwillThe excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assetsacquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of the Provider Companies primarily duethe value of its assembled workforce, along with access to new utility service territories. Goodwill recorded in connection with theacquisition of the Provider Companies is deductible for income tax purposes because the Provider Companies was an acquisition of allof the assets of the Provider Companies. The valuation and purchase price allocation of the Provider Companies was based on apreliminary fair value analysis. Prior to the measurement period's expiration, the Company recorded adjustments to the working capitalbalances upon settlement of the final working capital balances per the terms of the purchase agreement.The Company’s consolidated statements of operations for the year ended December 31, 2016, respectively, included $46.8 million ofrevenue and $12.8 million of losses from operations related to the operations of the Provider Companies. We have not included proforma information for the Provider Companies acquisition because it did not have a material impact on our financial position or resultsof operations.Acquisition of the Major Energy CompaniesOn August 23, 2016, the Company and Spark HoldCo completed the purchase of all of the outstanding membership interests of theMajor Energy Companies, which are retail energy companies operating in Connecticut, Illinois, Maryland (including the District ofColumbia), Massachusetts, New Jersey, New York, Ohio, and Pennsylvania across 43 utilities, from NG&E in exchange forconsideration of $64.1 million, which included $5.2 million in working capital; an assumed litigation reserve of $5.0 million, and up to$35.0 million in installment and earnout payments, valued at $13.1 million as of NG&E's April 15, 2016 purchase date, to be paid tothe previous members of the Major Energy Companies, in annual installments on March 31, 2017, 2018 and 2019, subject to theachievement of certain performance targets (the “Major Earnout”). The Company is obligated to issue up to 400,000 shares of Class Bcommon stock (and a corresponding number of Spark HoldCo units) to NG&E, subject to the achievement of certain performancetargets, valued at $0.8 million (81,436 shares valued at $10 per share) as of the purchase date (the "Stock Earnout"). See Note 9 "FairValue Measurements" for further discussion on the113Table of ContentsMajor Earnout and Stock Earnout. The purchase price was funded by the issuance of 4,000,000 shares of Class B common stock (and acorresponding number of Spark HoldCo units) valued at $40.0 million based on a value of $10 per share, to NG&E. NG&E is ownedby our Founder.The acquisition of the Major Energy Companies by the Company and Spark HoldCo from NG&E was a transfer of equity interests ofentities under common control on August 23, 2016. Accordingly, the assets acquired and liabilities assumed were based on theirhistorical values as of August 23, 2016. NG&E acquired the Major Energy Companies on April 15, 2016 and the fair value of the netassets acquired was as follows (in thousands): Reported as ofDecember 31, 2016 2017 Adjustments (1) December 31,2017Cash $17,368 $— $17,368Property and equipment 14 — 14Intangible assets - customer relationships & non-compete agreements 24,271 — 24,271Other assets - trademarks 4,973 — 4,973Non-current deferred tax assets 1,042 — 1,042Goodwill 34,728 260 34,988Net working capital, net of cash acquired (6,746) — (6,746)Fair value of derivative liabilities (7,260) — (7,260)Total $68,390 $260 $68,650(1) Changes to the purchase price allocation during 2017 related to NG&E's working capital settlement with the Major Energy Companies' sellers.The working capital paid to Major Energy Companies by NG&E was $10.6 million. The Company paid $4.3 million in working capitalto NG&E on August 23, 2016, and settled working capital with NG&E for $5.2 million in 2017. The $0.9 million related to the workingcapital true-up between the Company and NG&E is included in accounts payable-affiliates as of December 31, 2017. Approximately$3.9 million was recorded as an equity transaction and treated as a contribution on August 23, 2016. The Stock Earnout liability of $0.8million due to NG&E and the working capital true-up of $0.3 million are also recorded as an equity transaction and treated as acontribution as of December 31, 2017. The value of the Stock Earnout liability was zero as of December 31, 2017. See furtherdiscussion in Note 9 "Fair Value Measurements."The fair values of intangible assets were measured primarily based on significant inputs that are not observable in the market and thusrepresent a Level 3 measurement as defined by ASC 820, Fair Value Measurement ("ASC 820"). The fair value of derivative liabilitieswere measured by utilizing readily available quoted market prices and non-exchange-traded contracts fair valued using market pricequotations available through brokers or over-the-counter and on-line exchanges and represent a Level 2 measurement as defined byASC 820. Refer to Note 9 "Fair Value Measurements" for further discussion on the fair values hierarchy. Significant inputs for Level 3measurements related to customer relationships, non-compete agreements and trademarks are discussed in Note 2 "Basis of Presentationand Summary of Significant Accounting Policies." Significant inputs for Level 3 measurements related to goodwill were as follows:GoodwillThe excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assetsacquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of the Major Energy Companies byNG&E primarily due to the value of the Major Energy Companies brand strength, established vendor relationships and access to newutility service territories. Goodwill recorded in connection with the acquisition of the Major Energy Companies is deductible for incometax purposes because the acquisition of the Major Energy Companies was an acquisition of all of the assets of the Major EnergyCompanies.114Table of ContentsGoodwill was transferred to the Company based on the acquisition of the Major Energy Companies by NG&E on April 15, 2016.Goodwill recorded in connection with the transfer of the Major Energy Companies is deductible for income tax purposes.In December 2016, certain executives of the Major Energy Companies exercised a change of control provision under employmentagreements with the Major Energy Companies. As a result, the Company recorded employment contract termination costs of $4.1million as of December 31, 2016. The Company paid employment contract termination costs totaling approximately $2.5 million duringthe year ended December 31, 2017. As of December 31, 2017, the Company's liability related to the contract termination costs was$1.6 million, to be paid over a 22 month period beginning April 1, 2017.The Major Energy Companies contributed revenues of $125.6 million and earnings of $1.3 million to the Company for the year endedDecember 31, 2016.The following unaudited pro forma revenue and earnings summary presents consolidated information of the Company as if theacquisition had occurred on January 1, 2015 (in thousands): Year Ended December 31, 20162015Revenue$603,673$547,381Earnings$15,776$15,460The pro forma results are not necessarily indicative of our consolidated results of operations in future periods or the results that actuallywould have been realized had the companies operated on a combined basis during the periods presented. The revenue and earnings forthe twelve months ended December 31, 2016 reflects actual results of operations for the period from April 15, 2016 through December31, 2016, the period the financial results were fully combined. The pro forma results include adjustments primarily related toamortization of acquired intangibles, and certain accounting policy alignments as well as direct and incremental acquisition related costsreflected in the historical financial statements. The purchase price allocation was used to prepare the pro forma adjustments.Acquisition of PerigeeOn April 1, 2017, the Company and Spark Holdco completed the purchase of all of the outstanding membership interest of Perigee, aTexas limited liability company, with operations across 14 utilities in Connecticut, Delaware, Massachusetts, New York and Ohio. Thepurchase price for Perigee from NG&E was approximately $4.1 million, which consisted of a base price of $2.0 million, $0.2 millionadditional customer option payment, and $1.9 million in working capital.The acquisition of Perigee by the Company and Spark HoldCo from NG&E was a transfer of equity interests of entities under commoncontrol on April 1, 2017. Accordingly, the assets acquired and liabilities assumed were based on their historical value as of April 1,2017. NG&E acquired Perigee on February 3, 2017 and the fair value of the net assets acquired was as follows (in thousands): As of December 31, 2017Cash$23Intangible assets - customer relationships1,100Goodwill1,540Net working capital, net of cash acquired2,085Fair value of derivative liabilities(443)Total$4,305115Table of ContentsCustomer relationshipsThe acquired customer relationships intangibles related to Perigee are reflective of Perigee's customer base, and were valued at therespective dates of acquisition using an excess earnings method under the income approach. Using this method, the Company estimatedthe future cash flows resulting from the existing customer relationships, considering attrition as well as charges for contributory assets,such as net working capital, fixed assets, and assembled workforce. These future cash flows were then discounted using an appropriaterisk-adjusted rate of return by retail unit to arrive at the present value of the expected future cash flows. These customer relationshipsare amortized to depreciation and amortization based on the expected future net cash flows by year.GoodwillThe excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assetsacquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of Perigee by NG&E primarily due to thevalue of Perigee's access to a new utility service territory. Goodwill recorded in connection with the acquisition of Perigee is deductiblefor income tax purposes because the acquisition of Perigee was an acquisition of all of the assets of Perigee.The valuation and purchase price allocation of Perigee was based on a preliminary fair value analysis performed as of February 3,2017, the date Perigee was acquired by NG&E.We have not included pro forma information for the Perigee acquisition because it did not have a material impact on our financialposition or results of operations.Acquisition of VerdeOn July 1, 2017, the Company, through CenStar, its subsidiary, completed the acquisition from Verde Energy USA Holdings, LLC (the“Seller”) of all of the outstanding membership interests and stock in the Verde Companies. Total consideration was approximately$91.2 million, of which approximately $20.8 million was used to purchase positive net working capital, subject to adjustments. TheCompany funded the closing consideration of $85.8 million through: (i) approximately $6.8 million of cash on hand, (ii) approximately$15.0 million in subordinated debt from the Company's founder and majority shareholder through an existing subordinated debtfacility, (iii) approximately $44.0 million in borrowings under its senior secured revolving credit facility, and (iv) the issuance byCenStar to the Seller of a promissory note in the aggregate principal amount of $20.0 million (the “Promissory Note”). In addition to theconsideration paid at closing, CenStar is obligated to pay 100% of the Adjusted EBITDA earned by the Verde Companies for the 18months following closing that exceeds certain thresholds, subject to the Verde Companies’ ability to achieve defined customer countcriteria (the “Verde Earnout”). The Verde Earnout was valued at $5.4 million on the acquisition date. In determining the fair value ofthe Verde Earnout, the Company forecasted certain expected performance targets and calculated the probability of such forecast beingattained. Upon the closing of the acquisition, the Verde Companies became restricted subsidiaries and co-borrowers under theCompany’s Senior Credit Facility.The Verde Earnout was based on achievement by the Verde Companies of certain performance targets over the 18 month periodfollowing the closing of the acquisition of the Verde Companies. The Verde Earnout was valued at $5.4 million as of July 1, 2017, theacquisition date. The Company and the Seller agreed to terminate the Verde Earnout on January 12, 2018, and settled the obligationwith the issuance of a $5.9 million promissory note payable to the Seller in June 2019 (the “Verde Earnout Termination Note”). TheCompany recorded a $0.3 million increase in fair value of the Verde Earnout in general and administrative expenses and classified theliability as long-term debt as of December 31, 2017. During the year ended December 31, 2017, the Company recorded accretion of$0.2 million to reflect the impact of the time value of the liability. See discussion of the Verde Earnout Termination Note in Note 8"Debt."116Table of ContentsThe acquisition of the Verde Companies was accounted for under the acquisition method in accordance with ASC 805, BusinessCombinations (“ASC 805”). The allocation of purchase consideration was based upon the estimated fair value of the tangible andidentifiable intangible assets acquired and liabilities assumed in the acquisition. The allocation was made to major categories of assetsand liabilities based on management’s best estimates, and supported by independent third-party analyses. The excess of the purchaseprice over the estimated fair value of tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. Theallocation of the purchase consideration is as follows (in thousands): December 31, 2017Cash and restricted cash $1,653Property and equipment 4,560Intangible assets - customer relationships 28,700Intangible assets - trademarks 3,000Goodwill 39,207Net working capital, net of cash acquired 19,132Deferred tax liability (3,126)Fair value of derivative liabilities (1,942)Total $91,184Finalization of the Company's actual working capital adjustment with the Seller is pending as of December 31, 2017. An estimatedpositive working capital adjustment between the Company and the Seller of approximately $0.5 million was recorded as of December31, 2017 and is included in accounts receivable.Customer relationshipsThe acquired customer relationships intangibles related to the Verde Companies are reflective of the Verde Companies' customer base,and were valued using an excess earnings method under the income approach. Using this method, the Company estimated the futurecash flows resulting from the existing customer relationships, considering attrition as well as charges for contributory assets, such as networking capital, intangible assets, fixed assets, and assembled workforce. These future cash flows were then discounted using anappropriate risk-adjusted rate of return to arrive at the present value of the expected future cash flows. These customer relationshipswere bifurcated between unhedged and hedged and will be amortized to depreciation and amortization based on the expected future netcash flows by year and expensed to retail cost of revenues based on the expected term of the underlying fixed price contract acquired ineach reporting period, respectively.TrademarkThe fair value of the Verde Companies' trademark is reflective of the value associated with the recognition and reputation of the VerdeCompanies to target markets. The fair value of the trademark was valued using a royalty savings method under the income approach.The value is based on the savings the Company would realize from owning the trademark rather than paying a royalty for the use ofthat trademark. Under this approach, the Company estimated the present value of the expected cash flows resulting from avoidingroyalty payments to use a third party trademark. We analyzed market royalty rates charged for licensing trademarks and applied anexpected royalty rate to a forecast of estimated revenue, which was then discounted using an appropriate risk adjusted rate of return.The trademark is being amortized over the estimated five-year life of the asset on a straight-line basis.GoodwillThe excess of the purchase consideration over the estimated fair value of the amounts initially assigned to the identifiable assetsacquired and liabilities assumed was recorded as goodwill. Goodwill arose on the acquisition of the Verde Companies primarily due thevalue of its assembled workforce, its proprietary sales channels, and access to new utility service territories. Goodwill recorded inconnection with the acquisition of the Verde Companies is117Table of Contentsdeductible for income tax purposes because the Verde Companies was an acquisition of all of the assets of the Verde Companies.The valuation and purchase price allocation of the Verde Companies was based on a preliminary fair value analysis. The Companyanticipates adjustments to the working capital amounts that are expected to be finalized prior to the measurement period's expiration.The Verde Companies contributed revenues of $76.0 million and earnings of $1.2 million to the Company for the year endedDecember 31, 2017.The following unaudited pro forma revenue and earnings summary presents consolidated information of the Company as if theacquisition had occurred on January 1, 2016 (in thousands): Year Ended December 31, 20172016Revenues$868,415$716,696Earnings$18,047$17,860The pro forma results are not necessarily indicative of our consolidated results of operations in future periods or the results that actuallywould have been realized had the companies operated on a combined basis during the periods presented. The revenue and earnings forthe twelve months ended December 31, 2017 reflects actual results of operations for the period from July 1, 2017 through December31, 2017, the period the financial results were fully combined. The pro forma results include adjustments primarily related toamortization of acquired intangibles, and certain accounting policy alignments as well as direct and incremental acquisition related costsreflected in the historical financial statements. The preliminary purchase price allocation was used to prepare the pro forma adjustments.The final allocation could differ materially from the preliminary allocation used in the pro forma adjustments.4. EquityNon-controlling InterestThe Company holds an economic interest and is the sole managing member in Spark HoldCo, with NuDevco Retail and Retailcoholding the remaining economic interest in Spark HoldCo. As a result, the Company has consolidated the financial position and resultsof operations of Spark HoldCo and reflected the economic interest retained by NuDevco Retail and Retailco as a non-controllinginterest.The Company and NuDevco Retail and Retailco owned the following economic interests in Spark HoldCo at December 31, 2016 andDecember 31, 2017, respectively.Non-controlling Interest Economic InterestThe CompanyNuDevco Retail andRetailco (1) (2)December 31, 201638.85%61.15%December 31, 201738.12%61.88%(1) In January 2016, Retailco succeeded to the interest of NuDevco Retail Holdings of its Class B common stock and an equal number of Spark HoldCo units it held pursuant to aseries of transfers.(2) In January 2017, Retailco converted the CenStar Note and Oasis Note into 269,462 and 766,180 shares, respectively, of Class B common stock.118Table of ContentsThe following table summarizes the portion of net income and income tax expense (benefit) attributable to non-controlling interest (inthousands):201720162015 Net income allocated to non-controlling interest$56,696$52,300$21,779Income tax expense (benefit) allocated to non-controlling interest(731)1,071(331)Net income attributable to non-controlling interest$57,427$51,229$22,110Stock SplitOn May 22, 2017, the Company authorized and approved a two-for-one stock split of the Company's issued Class A common stockand Class B common stock, which was effected through a stock dividend (the "Stock Split"). Shareholders of record at the close ofbusiness on June 5, 2017 were issued one additional share of Class A common stock or Class B common stock of the Company foreach share of Class A common stock or Class B common stock, respectively, held by such shareholder on that date. Such additionalshares of Class A common stock or Class B common stock were distributed on June 16, 2017. All shares and per share amounts in thisreport have been retrospectively restated to reflect the Stock Split.Share Repurchase ProgramOn May 24, 2017, the Company authorized a share repurchase program of up to $50.0 million of Spark Class A common stock throughDecember 31, 2017. The Company funds the program through available cash balances, its credit facilities, and operating cash flows.The shares of Class A common stock may be repurchased from time to time in the open market or in privately negotiated transactionsbased on ongoing assessments of capital needs, the market price of the Class A common stock, and other factors, including generalmarket conditions. The repurchase program does not obligate Spark to acquire any particular amount of Class A common stock and itmay be modified or suspended at any time, and can be terminated prior to completion.The Company uses the cost method to account for its treasury shares. Purchases of shares of Class A common stock are recorded atcost, and the gross cost of the Class A common stock purchased is charged to a contra equity account entitled "Treasury Stock."During the year ended December 31, 2017, the Company repurchased 99,446 shares of its Class A common stock at a weighted-average price of $20.22 per share, for a total cost of approximately $2.0 million.Class A Common StockThe Company had a total of 13,135,636 and 12,993,118 shares of its Class A common stock outstanding at December 31, 2017 and2016, respectively, and 99,446 and zero shares of treasury stock at December 31, 2017 and 2016, respectively. Each share of Class Acommon stock holds economic rights and entitles its holder to one vote on all matters to be voted on by shareholders generally. Allshares and per share amounts in this report have been retrospectively restated to reflect the Stock Split.Issuance of Class A Common Stock Upon Vesting of Restricted Stock UnitsFor the year ended December 31, 2017, 356,014 restricted stock units vested, with 241,965 shares of common stock distributed to theholders of these units and 114,049 shares of common stock withheld by the Company to cover taxes owed on the vesting of such units.For the year ended December 31, 2016, 395,056 restricted stock units vested, with 305,872 shares of common stock distributed to theholders of these units and 89,184 shares of common stock withheld by the Company to cover taxes owed on the vesting of such units.119Table of ContentsConversion of Class B Common Stock to Class A Common StockOn February 3, 2016, April 1, 2016 and June 8, 2016, Retailco exchanged 2,000,000, 3,450,000 and 1,000,000, respectively, of itsSpark HoldCo units (together with a corresponding number of shares of Class B common stock) for shares of Class A common stock atan exchange ratio of one share of Class A common stock for each Spark HoldCo unit (and corresponding share of Class B commonstock) exchanged. Refer to Note 12 "Income Taxes" for further discussion.Class B Common StockThe Company had a total of 21,485,126 and 20,449,484 shares of its Class B common stock outstanding at December 31, 2017 and2016, respectively. Each share of Class B common stock, all of which are held by NuDevco Retail and Retailco, have no economicrights but entitles its holder to one vote on all matters to be voted on by shareholders generally. All outstanding shares and per shareamounts in this report have been retrospectively restated to reflect the Stock Split.Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to ourshareholders for their vote or approval, except as otherwise required by applicable law or by our certificate of incorporation.Issuance of Class B Common StockOn August 1, 2016, the Company issued 1,399,484 shares of Class B common stock to Retailco in connection with the acquisition ofthe Provider Companies. On August 23, 2016, the Company issued 4,000,000 shares of Class B common stock to Retailco inconnection with the acquisition of Major Energy Companies.Preferred StockThe Company has 20,000,000 shares of authorized preferred stock for which there are 1,704,339 and zero issued and outstandingshares at December 31, 2017 and 2016.Conversion of CenStar and Oasis NotesOn October 5, 2016, RAC issued to the Company an irrevocable commitment to convert the CenStar Note and Oasis Note into 269,462and 766,180 shares, respectively, of Class B common stock (and related Spark HoldCo units) on January 8, 2017 and January 31,2017, respectively. Refer to Note 8 "Debt" for further discussion.On January 8, 2017 and January 31, 2017, respectively, the CenStar Note and Oasis Note were converted into 269,462 and 766,180shares of Class B common stock (and related Spark HoldCo units). Refer to Note 8 "Debt" for further discussion.Earnings Per ShareBasic earnings per share (“EPS”) is computed by dividing net income attributable to stockholders (the numerator) by the weighted-average number of Class A common shares outstanding for the period (the denominator). Class B common shares are not included inthe calculation of basic earnings per share because they are not participating securities and have no economic interest in the Company.Diluted earnings per share is similarly calculated except that the denominator is increased (1) using the treasury stock method todetermine the potential dilutive effect of the Company's outstanding unvested restricted stock units, (2) using the if-converted method todetermine the potential dilutive effect of the Company's Class B common stock and (3) using the if-converted method to determine thepotential dilutive effect of the outstanding convertible subordinated notes into the Company's Class B common stock. All shares and pershare amounts in this report have been retrospectively restated to reflect the Stock Split.120Table of ContentsThe following table presents the computation of earnings per share for the years ended December 31, 2017 and 2016 (in thousands,except per share data):Year Ended December 31, 201720162015Net income attributable to Spark Energy, Inc. stockholders$18,854$14,444$3,865Less: Dividend on Series A preferred stock3,038——Net income attributable to stockholders of Class A common stock$15,816$14,444$3,865 Basic weighted average Class A common shares outstanding13,14311,4026,129Basic EPS attributable to stockholders$1.20$1.27$0.63 Net income attributable to stockholders of Class A common stock$15,816$14,444$3,865Effect of conversion of Class B common stock to shares of Class A common stock———Effect of conversion of convertible subordinated notes into shares of Class B common stockand shares of Class B common stock into shares of Class A common stock (1)—(310)(334)Diluted net income attributable to stockholders of Class A common stock$15,816$14,134$3,531 Basic weighted average Class A common shares outstanding13,14311,4026,129Effect of dilutive Class B common stock———Effect of dilutive convertible subordinated notes into shares of Class B common stock andshares of Class B common stock into shares of Class A common stock—1,010420Effect of dilutive restricted stock units203278106Diluted weighted average shares outstanding13,34612,6906,655 Diluted EPS attributable to stockholders$1.19$1.11$0.53(1) The CenStar Note and Oasis Note converted into 269,462 and 766,180 shares of Class B common stock on January 8, 2017, and January 31, 2017, respectively.The conversion of shares of Class B common stock to shares of Class A common stock was not recognized in dilutive earnings pershare for the years ended December 31, 2017 as the effect of the conversion was antidilutive.Variable Interest EntityOn January 1, 2016, we adopted ASU No. 2015-02, Consolidation (Topic 810) (“ASU 2015-02”). ASU 2015-02 changed the analysisthat a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Upon adoption, wecontinued to consolidate Spark HoldCo, but considered Spark HoldCo to be a variable interest entity requiring additional disclosures inthe footnotes of our consolidated financial statements.Spark HoldCo is a variable interest entity due to its lack of rights to participate in significant financial and operating decisions andinability to dissolve or otherwise remove its management. Spark HoldCo owns all of the outstanding membership interests in each ofthe operating subsidiaries through which the Company operates. The Company is the sole managing member of Spark HoldCo,manages Spark HoldCo's operating subsidiaries through this managing membership interest, and is considered the primary beneficiaryof Spark HoldCo.The assets of Spark HoldCo cannot be used to settle the obligations of the Company except through distributions to the Company, andthe liabilities of Spark HoldCo cannot be settled by the Company except through contributions to Spark HoldCo.121Table of ContentsThe following table includes the carrying amounts and classification of the assets and liabilities of Spark HoldCo that are included in theCompany's consolidated balance sheet as of December 31, 2017 (in thousands):December 31, 2017Assets Current assets: Cash and cash equivalents$29,385Accounts receivable158,814Other current assets105,165Total current assets293,364Non-current assets: Goodwill120,154Other assets62,552Total non-current assets182,706Total Assets$476,070 Liabilities Current liabilities: Accounts Payable and Accrued Liabilities$110,152Current portion of Senior Credit Facility7,500Contingent consideration4,024Other current liabilities8,933Total current liabilities130,609Long-term liabilities: Long-term portion of Senior Credit Facility117,750Contingent consideration626Other long-term liabilities663Total long-term liabilities119,039Total Liabilities$249,6485. Preferred StockOn March 15, 2017, the Company issued 1,610,000 shares of 8.75% Series A Fixed-to-Floating Rate Cumulative Redeemable PerpetualPreferred Stock ("Series A Preferred Stock"), par value $0.01 per share and liquidation preference $25.00 per share, plus accumulatedand unpaid dividends, at a price to the public of $25.00 per share ($24.21 per share to the Company, net of underwriting discounts andcommissions). The Company received approximately $39.0 million in net proceeds from the offering, after deducting underwritingdiscounts and commissions and a structuring fee. Offering expenses of $1.0 million were recorded as a reduction to the carrying valueof the Series A Preferred Stock. The net proceeds from the offering were contributed to Spark HoldCo to use for general corporatepurposes.On July 21, 2017, the Company entered into an At-the-Market Issuance Sales Agreement ("the ATM Agreement") with FBR CapitalMarkets & Co. as sales agent (the "Agent"). Pursuant to the terms of the ATM Agreement, the Company may sell from time to timethrough the Agent the Company's Series A Preferred Stock, having an aggregate offering price of up to $50.0 million.During the year ended December 31, 2017, the Company sold an aggregate of 94,339 shares of Series A Preferred Stock under theATM Agreement. The Company received net proceeds of $2.4 million and paid compensation to the sales agent of less than $0.1million with respect to these sales.122Table of ContentsHolders of the Series A Preferred Stock have no voting rights, except in specific circumstances of delisting or in the case the dividendsare in arrears as specified in the Series A Preferred Stock Certificate of Designations. From March 15, 2017, the Series A PreferredStock issuance date, to, but not including, April 15, 2022, the Series A Preferred Stock will accrue dividends at an annual percentagerate of three-month LIBOR plus 6.578%.The liquidation preference provisions of the Series A Preferred Stock were considered contingent redemption provisions because therewere certain rights granted to the holders of the Series A Preferred Stock that were not solely within the control of the Company upon achange in control of the Company. Accordingly, the Series A Preferred Stock is presented within the mezzanine portion of theaccompanying consolidated balance sheet.The Company had a total of 1,704,339 shares of Series A Preferred Stock issued and outstanding at December 31, 2017 and no sharesof Series A Preferred Stock issued and outstanding at December 31, 2016. During the year ended December 31, 2017, the Companypaid $2.1 million in dividends to holders of the Series A Preferred Stock. As of December 31, 2017, the Company had accrued $0.9million related to dividends to holders of the Series A Preferred Stock. This dividend was paid on January 15, 2018.A summary of the Company's mezzanine equity for the year ended December 31, 2017 is as follows: (in thousands)Mezzanine equity at December 31, 2016 $—Issuance of Series A Preferred Stock, net of issuance cost 40,241Accumulated dividends on Series A Preferred Stock 932Mezzanine equity at December 31, 2017 $41,173In connection with the issuance of the Series A Preferred Stock, the Company and Spark HoldCo entered into the Third Amended andRestated Spark HoldCo Limited Liability Company Agreement to amend the prior agreement to provide for, among other things, thedesignation and issuance of Spark HoldCo Series A preferred units, as another equity security of Spark HoldCo to be issuedconcurrently with the issuance of Series A Preferred Stock by the Company, including specific terms relating to distributions by SparkHoldCo in connection with the payment by the Company of dividends on the Series A Preferred Stock, the priority of liquidatingdistributions by Spark HoldCo, the allocation of income and loss to the Company in connection with distributions by Spark HoldCo onSeries A preferred units, and other terms relating to the redemption and conversion by the Company of the Series A Preferred Stock.Public Offering of Series A Preferred StockOn January 23, 2018, the Company commenced a public offering of its 8.75% Series A Fixed-to-Floating Rate Cumulative RedeemablePerpetual Preferred Stock (“Series A Preferred Stock”) pursuant to an effective shelf registration statement on Form S-3 previously filedwith the SEC. At the time of issuance, Spark granted the underwriters a 30-day option to purchase additional shares of Series APreferred Stock. The offering closed on January 26, 2018.As of the filing date, the Company sold an aggregate of 2,000,000 shares of Series A Preferred Stock. The Company received netproceeds from the offering of approximately $48.9 million (net of underwriting discounts, commissions and a structuring fee).6. Property and EquipmentProperty and equipment consist of the following amounts as of (in thousands):123Table of ContentsEstimated usefullives (years)December 31, 2017December 31, 2016Information technology2 – 5$34,103$29,675Leasehold improvements2 – 54,5684,568Furniture and fixtures2 – 51,9641,024Building improvements2 – 5809— Total41,444 35,267Accumulated depreciation(33,169)(30,561)Property and equipment—net$8,275 $4,706Information technology assets include software and consultant time used in the application, development and implementation of varioussystems including customer billing and resource management systems. As of December 31, 2017 and 2016, information technologyincludes $1.2 million and $1.1 million, respectively, of costs associated with assets not yet placed into service.Depreciation expense recorded in the consolidated statements of operations was $2.6 million, $2.1 million and $1.6 million for theyears ended December 31, 2017, 2016 and 2015, respectively.7. Goodwill, Customer Relationships and TrademarksGoodwill, customer relationships and trademarks consist of the following amounts as of (in thousands): December 31, 2017 December 31, 2016Goodwill$120,154 $79,147Customer Relationships— Acquired (1) Cost$93,371 $63,571Accumulated amortization(46,681) (31,660)Customer Relationships—Acquired, net$46,690 $31,911Customer Relationships— Other (2) Cost$12,336 $4,320Accumulated amortization(5,534) (2,708)Customer Relationships—Other, net$6,802 $1,612Trademarks (3) Cost$9,770 $6,770Accumulated amortization(1,212) (431)Trademarks, net$8,558 $6,339(1)Customer relationships—Acquired represent those customer acquisitions accounted for under the acquisition method in accordance with ASC 805. See Note 3 "Acquisitions"for further discussion.(2)Customer relationships—Other represent portfolios of customer contracts not accounted for in accordance with ASC 805 as these acquisitions were not in conjunction with theacquisition of businesses. See Note 16 "Customer Acquisitions" for further discussion.(3)Trademarks reflect values associated with the recognition and positive reputation of acquired businesses accounted for as part of the acquisition method in accordance withASC 805 through the acquisitions of CenStar, Oasis, the Provider Companies, the Major Energy Companies and the Verde Companies. These trademarks are recorded asother assets in the consolidated balance sheets. See Note 3 "Acquisitions" for further discussion.Changes in goodwill, customer relationships and trademarks consisted of the following (in thousands):Goodwill (1) Customer Relationships— Acquired & Non-Compete Agreements CustomerRelationships— Other Trademarks Balance at December 31, 2014$— $— $1,501 $—Additions$— $— $2,731 $—Acquisition of CenStar6,396 5,494 — 651Acquisition of Oasis11,983 9,389 — 617Amortization expense— (4,503) (1,183) (74)Balance at December 31, 2015$18,379 $10,380 $3,049 $1,194Additions$— $— $— $—Acquisition of Provider Companies26,040 24,417 — 529Acquisition of Major Energy Companies34,728 24,271 — 4,973Amortization expense— (27,157) (1,437) (357)Balance at December 31, 2016$79,147 $31,911 $1,612 $6,339Additions (Major Working Capital Adjustment)$260$—$—$—Acquisition of Perigee1,5401,100——Acquisition of Verde39,20728,700—3,000Additions (Other) (2)——8,016—Amortization expense—(15,021)(2,826)(781)Balance at December 31, 2017$120,154 $46,690 $6,802 $8,558(1) Changes in goodwill for the year ended December 31, 2017 include NG&E's working capital settlement with the Major Energy Companies' sellers of $0.3 million, Perigee'sgoodwill of $1.5 million, and the Verde Companies' goodwill of $39.2 million.(2) Includes $8.0 million related to customer contract purchases for the year ended December 31, 2017.The acquired customer relationship intangibles related to Major Energy Companies, the Provider Companies, and the Verde Companieswere bifurcated between hedged and unhedged customer contracts. The unhedged customer contracts are amortized to depreciation andamortization based on the expected future cash flows by year. The hedged customer contracts were evaluated for favorable orunfavorable positions at the time of acquisition and amortized to retail cost of revenue based on the expected term and position of theunderlying fixed price contract in each reporting period. For the years ended December 31, 2017, 2016, and 2015, respectively,approximately $0.3 million, $15.8 million, and zero of the $15.0 million, $27.2 million, and $4.5 million customer relationshipamortization expense is included in the cost of revenues.Estimated future amortization expense for customer relationships and trademarks at December 31, 2017 is as follows (in thousands):Year Ending December 31, 2018$19,469201914,894202010,47420218,91220224,700> 5 years3,601Total$62,050124Table of Contents8. DebtBalance Sheet and Income Statement SummaryDebt consists of the following amounts as of (in thousands):December 31, 2017 December 31, 2016Current portion of Senior Credit Facility—Bridge Loan (5)$7,500 $—Current portion of Prior Senior Credit Facility—Working Capital Line (1)— 29,000Current portion of Prior Senior Credit Facility—Acquisition Line (2)— 22,287Current portion of Note Payable—Pacific Summit Energy— 15,501Convertible subordinated notes to affiliate (3)— 6,582Current portion of Note Payable—Verde13,443 —Total current debt20,943 73,370Long-term portion of Senior Credit Facility (4) (5)117,750 —Subordinated Debt— 5,000Long-term portion of Note Payable—Verde7,051 —Total long-term debt124,801 5,000 Total debt$145,744 $78,370(1) As of December 31, 2016, the Company had $29.6 million in letters of credit issued.(2) As of December 31, 2016, the weighted average interest rate on the current portion of our Prior Senior Credit Facility was 4.93%.(3) On October 5, 2016, RAC issued to the Company an irrevocable commitment to convert the CenStar Note and the Oasis Note into shares of Class B common stock on January8, 2017 and January 31, 2017, respectively. RAC assigned the CenStar Note and Oasis Note to Retailco on January 4, 2017, and on January 8, 2017 and January 31, 2017,the CenStar Note and Oasis Note were converted into 269,462 and 766,180 shares of Class B common stock, respectively.(4) As of December 31, 2017, the Company had $47.2 million in letters of credit issued.(5) As of December 31, 2017, the weighted average interest rate on our Senior Credit Facility was 4.61%.Deferred financing costs were $1.6 million and $0.4 million as of December 31, 2017 and 2016, respectively. Of these amounts, $1.2million and $0.4 million is recorded in other current assets in the consolidated balance sheets as of December 31, 2017 and 2016,respectively, and $0.4 million and zero is recorded in other assets in the consolidated balance sheets as of December 31, 2017 and2016, respectively, representing capitalized financing costs related to our Senior Credit Facility and Prior Senior Credit Facility.Interest expense consists of the following components for the periods indicated (in thousands):Years Ended December 31,201720162015Interest incurred on Senior Credit Facility $3,275$1,730$1,144Accretion related to Earnouts (1)4,1085,060—Letters of credit fees and commitment fees1,125883517Amortization of deferred financing costs (2)1,035668412Interest incurred on convertible subordinated notes to affiliate (3)1,052518207Interest incurred on subordinated debt167——Interest on Verde promissory note372——Interest expense$11,134 $8,859 $2,280125Table of Contents(1) Includes accretion related to the Provider Earnout of $0.1 million, the Major Earnout of $3.8 million, and the Verde Earnout of $0.2 million for the year ended December 31,2017 and accretion related to the Provider Earnout of $0.1 million and the Major Earnout of $4.9 million for the year ended December 31, 2016.(2) Write offs of deferred financing costs included in the above amortization were $0.1 million in connection with the amended and restated Prior Senior Credit Facility on July 8,2015, $0.3 million upon extinguishment of the Seventh Amended Credit Facility and $0.1 million in connection with the execution of the Seventh Amended Credit Facility forthe year ended December 31, 2015.(3) Includes amortization of the discount on the convertible subordinated notes to affiliates of zero, $0.2 million, and less than $0.1 million for the years ended December 31, 2017,2016, and 2015.Prior Senior Credit FacilityThe Company, as guarantor, and Spark HoldCo (the “Borrower,” and together with Spark Energy, LLC, Spark Energy Gas, LLC,CenStar Energy Corp, CenStar Operating Company, LLC, Oasis, Oasis Power, LLC, Electricity Maine, LLC, Electricity N.H., LLC, andProvider Power Mass, LLC, each a subsidiary of Spark HoldCo, the “Co-Borrowers”) were party to a senior secured revolving creditfacility (“Prior Senior Credit Facility”), which included a senior secured revolving working capital facility up to $82.5 million("Working Capital Line") and a secured revolving line of credit of $25.0 million ("Acquisition Line") to be used specifically for thefinancing of up to 75% of the cost of acquisitions with the remainder to be financed by the Company either through cash on hand or theissuance of subordinated debt or equity.The Prior Senior Credit Facility was secured by pledges of the equity of the portion of Spark HoldCo owned by the Company and of theequity of Spark HoldCo’s subsidiaries (excluding the Major Energy Companies) and the Co-Borrowers’ present and future subsidiaries,all of the Co-Borrowers’ and their subsidiaries’ present and future property and assets, including accounts receivable, inventory andliquid investments, and control agreements relating to bank accounts. The Major Energy Companies were excluded from the definitionof "Borrowers" under the Prior Senior Credit Facility. Accordingly, we did not factor in their working capital into our working capitalcovenants.The Prior Senior Credit Facility had a maturity date of July 8, 2017. The outstanding balances under the Working Capital Line and theAcquisition Line were paid in full on May 19, 2017 upon execution of the Company's new Senior Credit Facility.Senior Credit FacilityOn May 19, 2017 (the “Closing Date”), the Company, as guarantor, and Spark HoldCo (the “Borrower” and, together with SE, SEG,CenStar, CenStar Operating Company, LLC, Oasis, Oasis Power, LLC, the Provider Companies, the Major Energy Companies andPerigee Energy, LLC, each subsidiaries of Spark HoldCo, the “Co-Borrowers”), entered into a senior secured borrowing base creditfacility (the “Senior Credit Facility”) in an aggregate amount of $120.0 million. The Verde Companies became Co-Borrowers upon thecompletion of our acquisition of the Verde Companies. On November 2, 2017, the Company and Co-Borrowers entered into anamendment to the Senior Credit Facility, which entitles the co-borrowers to elect to increase total commitments under the Senior CreditFacility to $200.0 million. In connection with any such increase in commitments, the various limits on advances for Working CapitalLoans, Letters of Credit and Bridge Loans increased accordingly. On November 30, 2017, we exercised the accordion feature in theSenior Credit Facility, expanding commitments to an aggregate amount of $185.0 million.As of December 31, 2017, there was $125.3 million outstanding under the Senior Credit Facility, and there was approximately $12.5million available borrowing capacity (which includes a $47.2 million reduction for outstanding letters of credit).The Senior Credit Facility will mature on May 19, 2019, and all amounts outstanding thereunder will be payable on the maturity date.Borrowings under the Bridge Loan sublimit will be repaid 25% per year on a quarterly basis (or 6.25% per quarter), with the remainderdue at maturity.126Table of ContentsOn January 11, 2018 and January 23, 2018, we exercised the accordion feature in the Senior Credit Facility for an additional $10.0million and $5.0 million, respectively, in commitments by existing lenders. These exercises of the accordion feature of the Senior CreditFacility brought total commitments under the Senior Credit Facility to $200.0 million.Subject to applicable sublimits and terms of the Senior Credit Facility, borrowings are available for the issuance of letters of credit(“Letters of Credit”), working capital and general purpose revolving credit loans up to $200.0 million (“Working Capital Loans”), andbridge loans up to $50.0 million (“Bridge Loans”) for the purpose of partial funding for acquisitions. Borrowings under the SeniorCredit Facility may be used to refinance loans outstanding under the previous Senior Credit Facility, pay fees and expenses inconnection with the current Senior Credit Facility, finance ongoing working capital requirements and general corporate purposerequirements of the Co-Borrowers, to provide partial funding for acquisitions, as allowed under terms of the Senior Credit Facility, andto make open market purchases of the Company’s Class A common stock.At our election, the interest rate for Working Capital Loans and Letters of Credit under the Senior Credit Facility is generally determinedby reference to:•the Eurodollar rate plus an applicable margin of up to 3.00% per annum (based on the prevailing utilization); or•the alternate base rate plus an applicable margin of up to 2.00% per annum (based on the prevailing utilization). The alternatebase rate is equal to the highest of (i) the prime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus0.50% per annum, or (iii) the reference Eurodollar rate plus 1.00%.Bridge Loan borrowings, if any, under the Senior Credit Facility are generally determined by reference to:•the Eurodollar rate plus an applicable margin of 3.75% per annum; or•the alternate base rate plus an applicable margin of 2.75% per annum. The alternate base rate is equal to the highest of (i) theprime rate (as published in the Wall Street Journal), (ii) the federal funds rate plus 0.50% per annum, or (iii) the referenceEurodollar rate plus 1.00%.The Co-Borrowers will pay a commitment fee of 0.50% quarterly in arrears on the unused portion of the Senior Credit Facility. Inaddition, the Co-Borrowers will be subject to additional fees including an upfront fee, an annual agency fee, and letter of credit feesbased on a percentage of the face amount of letters of credit payable to any syndicate member that issues a letter of credit.The Senior Credit Facility contains covenants that, among other things, require the maintenance of specified ratios or conditions asfollows:•Minimum Fixed Charge Coverage Ratio. Spark Energy, Inc. must maintain a minimum fixed charge coverage ratio of not lessthan 1.25 to 1.00. The Fixed Charge Coverage Ratio is defined as the ratio of (a) Adjusted EBITDA to (b) the sum ofconsolidated (with respect to the Company and the Co-Borrowers) interest expense (other than interest paid-in-kind in respect ofany Subordinated Debt but including interest in respect of that certain promissory note made by Censtar Energy Corp inconnection with the permitted acquisition from Verde Energy USA Holdings, LLC), letter of credit fees, commitment fees,acquisition earn-out payments (excluding earnout payments funded with proceeds from newly issued preferred or commonequity of the Company), distributions, the aggregate amount of repurchases of the Company’s Class A common stock orcommitments for such purchases, taxes and scheduled amortization payments.•Maximum Total Leverage Ratio. Spark Energy, Inc. must maintain a ratio of total indebtedness (excluding eligible subordinateddebt) to Adjusted EBITDA of no more than 2.00 to 1.00.127Table of ContentsThe Senior Credit Facility contains various negative covenants that limit the Company’s ability to, among other things, do any of thefollowing:•incur certain additional indebtedness;•grant certain liens;•engage in certain asset dispositions;•merge or consolidate;•make certain payments, distributions, investments, acquisitions or loans;•materially modify certain agreements; or•enter into transactions with affiliatesThe Senior Credit Facility is secured by pledges of the equity of the portion of Spark HoldCo owned by the Company, the equity ofSpark HoldCo’s subsidiaries, the Co-Borrowers’ present and future subsidiaries, and substantially all of the Co-Borrowers’ and theirsubsidiaries’ present and future property and assets, including accounts receivable, inventory and liquid investments, and controlagreements relating to bank accounts.Spark Energy, Inc. is entitled to pay cash dividends to the holders of the Series A Preferred Stock and Class A common stock and willbe entitled to repurchase up to an aggregate amount of 10,000,000 shares of the Company’s Class A common stock through one ormore normal course open market purchases through NASDAQ so long as: (a) no default exists or would result therefrom; (b) the Co-Borrowers are in pro forma compliance with all financial covenants before and after giving effect thereto; and (c) the outstandingamount of all loans and letters of credit does not exceed the borrowing base limits.The Senior Credit Facility contains certain customary representations and warranties and events of default. Events of default include,among other things, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under ERISA, material judgments in excess of $5.0million, certain events with respect to material contracts, actual or asserted failure of any guaranty or security document supporting theSenior Credit Facility to be in full force and effect, failure of Nathan Kroeker to retain his position as President and Chief ExecutiveOfficer of the Company, and failure of W. Keith Maxwell III to retain his position as chairman of the board of directors. A default willalso occur if at any time W. Keith Maxwell III ceases to, directly or indirectly, own at least 13,600,000 Class A and Class B shares on acombined basis (to be adjusted for any stock split, subdivisions or other stock reclassification or recapitalization), and a controllingpercentage of the voting equity interest of the Company, and certain other changes in control. If such an event of default occurs, thelenders under the Senior Credit Facility would be entitled to take various actions, including the acceleration of amounts due under thefacility and all actions permitted to be taken by a secured creditor.In addition, the Senior Credit Facility contains affirmative covenants that are customary for credit facilities of this type. The covenantsinclude delivery of financial statements, including any filings made with the SEC, maintenance of property and insurance, payment oftaxes and obligations, material compliance with laws, inspection of property, books and records and audits, use of proceeds, paymentsto bank blocked accounts, notice of defaults and certain other customary matters.Convertible Subordinated Notes to AffiliateIn connection with the financing of the CenStar acquisition, the Company, together with Spark HoldCo, issued the CenStar Note toRAC for $2.1 million on July 8, 2015 at an annual interest rate of 5%, payable semiannually. On October 5, 2016, RAC issued to theCompany an irrevocable commitment to convert the CenStar Note into 269,462 shares of Class B common stock. RAC assigned theCenStar Note to Retailco on January 4, 2017, and on January 8, 2017, the CenStar Note was converted into 269,462 shares of Class Bcommon stock.In connection with the financing of the Oasis acquisition, the Company, together with Spark HoldCo, issued the Oasis Note to RAC for$5.0 million on July 31, 2015 at an annual rate of 5%, payable semiannually. On October 5, 2016, RAC issued to the Company anirrevocable commitment to convert the Oasis Note into 766,180 shares of128Table of ContentsClass B common stock. RAC assigned the Oasis Note to Retailco on January 4, 2017, and on January 31, 2017 the Oasis Note wasconverted into 766,180 shares of Class B common stock.The conversion rate of $7.00 per share for the Oasis Note was fixed as of the date of the execution of the Oasis acquisition agreementon May 12, 2015. Due to a rise in the price of our common stock from May 12, 2015 to the closing of Oasis acquisition on July 31,2015, the conversion rate of $7.00 per share was below the market price per share of Class A common stock of $8.11 on the issuancedate of the Oasis Note on July 31, 2015. As a result, the Company assessed the Oasis Note for a beneficial conversion feature. Due tothis conversion feature being "in-the-money" upon issuance, we recognized a beneficial conversion feature based on its intrinsic valueof $0.8 million as a discount to the Oasis Note and as additional paid-in capital. This discount was amortized as interest expense underthe effective interest method over the life of the Oasis Note through the conversion on January 31, 2017, at which time the remaining$1.0 million beneficial conversion feature was written-off and recognized as interest expense.Subordinated Debt FacilityOn December 27, 2016, we and Spark HoldCo jointly issued to Retailco, an entity owned by our Founder, a 5%subordinated note in the principal amount of up to $25.0 million. The subordinated note allows the Company andSpark HoldCo to draw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of thesubordinated note. The subordinated note matures in July 2020, and advances thereunder accrue interest at 5% per annum from thedate of the advance. The Company has the right to capitalize interest payments under the subordinated note. The subordinated note issubordinated in certain respects to the Company's Senior Credit Facility pursuant to a subordination agreement. The Company may payinterest and prepay principal on the subordinated note so long as it is in compliance with its covenants under the Senior Credit Facility,is not in default under the Senior Credit Facility and has minimum availability of $5.0 million under the borrowing base under theSenior Credit Facility. Payment of principal and interest under the subordinated note is accelerated upon the occurrence of certainchange of control or sale transactions. As of December 31, 2017 and 2016, there were zero and $5.0 million, respectively, inoutstanding borrowings under the subordinated note.Pacific Summit Energy LLCPrior to March 31, 2017, the Major Energy Companies were party to three trade credit arrangements with Pacific Summit Energy LLC(“Pacific Summit”), which consisted of purchase agreements, operating agreements relating to purchasing terms, security agreements,lockbox agreements and guarantees, and provided for the exclusive supply of gas and electricity on credit by Pacific Summit to theMajor Energy Companies for resale to end users.Under these arrangements, when the costs that Pacific Summit paid to procure and deliver the gas and electricity exceeded thepayments that the Major Energy Companies made attributable to the gas and electricity purchased, the Major Energy Companiesincurred interest on the difference. The operating agreements also allowed Pacific Summit to provide credit support. Each form ofborrowing incurred interest at the floating 90-day LIBOR rate plus 300 basis points (except for certain credit support guaranties that didnot bear interest). In connection with these arrangements, the Major Companies granted first liens to Pacific Summit on a substantialportion of the Major Companies’ assets, including present and future accounts receivable, inventory, liquid assets, and controlagreements relating to bank accounts. As of December 31, 2016, the Company had aggregate outstanding amounts payable under thesearrangements of approximately $15.5 million bearing an interest rate of approximately 4.0%. The Company was also the beneficiaryunder various credit support guarantees issued by Pacific Summit under these arrangements as of such date. On September 27, 2016,we notified Pacific Summit of our election to trigger the expiration of these arrangements. On March 31, 2017, the agreements wereterminated.Verde Companies Promissory NoteIn connection with the financing of the Verde Companies acquisition, on July 1, 2017, CenStar issued a promissory note in theaggregate principal amount of $20.0 million (the "Verde Promissory Note") for a portion of the purchase price. The Verde PromissoryNote required 18 monthly installments beginning on August 1, 2017, and accrued129Table of Contentsinterest at 5% per annum from the date of issuance. The Verde Promissory Note, including principal and interest, was unsecured, but isguaranteed by the Company. Payment of principal and interest under the Verde Promissory Note was accelerated upon the occurrenceof certain events of default. As of December 31, 2017, there was $14.6 million outstanding under the Verde Promissory Note, of which$13.4 million is due in 2018.On January 12, 2018, CenStar issued to the Seller an amended and restated promissory note (the “Amended and Restated VerdePromissory Note”), which amended and restated the Verde Promissory Note in connection with the termination of our earnoutobligations under the purchase agreement for the Verde Companies. The Amended and Restated Verde Promissory Note, effectiveJanuary 12, 2018, retains the same maturity date as the Verde Promissory Note. The Amended and Restated Verde Promissory Notebears interest at a rate of 9% per annum beginning January 1, 2018. Principal and interest remain payable monthly on the first day ofeach month in which the Amended and Restated Verde Promissory Note is outstanding. CenStar will continue to deposit a portion ofeach payment under the Amended and Restated Verde Promissory Note into an escrow account, which serves as security for certainindemnification claims and obligations under the purchase agreement. The amount deposited into the escrow account has beenincreased from the Verde Promissory Note. All principal and interest payable under the Amended and Restated Verde Promissory Noteremains subject to acceleration upon the occurrence of certain events of default, including the failure to pay any principal or interestwhen due under the Amended and Restated Verde Promissory Note.Verde Earnout Termination NoteOn January 12, 2018, we entered into an Agreement to Terminate Earnout Payments (the “Earnout Termination Agreement”) thatterminates our obligation to make any required earnout payments under the purchase agreement for our acquisition of the VerdeCompanies in exchange for CenStar’s issuance to the Seller of a promissory note in the principal amount of $5.9 million (the “VerdeEarnout Termination Note”). The Verde Earnout Termination Note, effective January 12, 2018, matures on June 30, 2019 (subject toearly maturity upon certain events) and bears interest at a rate of 9% per annum. CenStar is permitted to withhold amounts otherwisedue at maturity related to certain indemnifiable matters under the purchase agreement for our acquisition of the Verde Companies.Interest is payable monthly on the first day of each month in which the Verde Earnout Termination Note is outstanding, beginning onits issuance date. The principal and any outstanding interest is due on June 30, 2019. All principal and interest payable under the VerdeEarnout Termination Note is accelerated upon the occurrence of certain events of default, including the failure to pay any principal orinterest when due under the Verde Earnout Termination Note. The Company recorded the Verde Earnout Termination Note of $5.9million as long-term debt as of December 31, 2017.9. Fair Value MeasurementsFair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transactionbetween market participants at the measurement date. Fair values are based on assumptions that market participants would use whenpricing an asset or liability, including assumptions about risk and the risks inherent in valuation techniques and the inputs to valuations.This includes not only the credit standing of counterparties involved and the impact of credit enhancements but also the impact of theCompany’s own nonperformance risk on its liabilities.The Company applies fair value measurements to its commodity derivative instruments and a contingent payment arrangement basedon the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broadlevels:•Level 1—Quoted prices in active markets for identical assets and liabilities. Instruments categorized in Level 1 primarilyconsist of financial instruments such as exchange-traded derivative instruments.•Level 2—Inputs other than quoted prices recorded in Level 1 that are either directly or indirectly observable for the assetor liability, including quoted prices for similar assets or liabilities in active130Table of Contentsmarkets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices thatare observable for the asset or liability, and inputs that are derived from observable market data by correlation or othermeans. Instruments categorized in Level 2 primarily include non-exchange traded derivatives such as over-the-countercommodity forwards and swaps and options.•Level 3—Unobservable inputs for the asset or liability, including situations where there is little, if any, observablemarket activity for the asset or liability. The Level 3 category includes estimated earnout obligations related to theCompany's acquisitions.As the fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservabledata (Level 3), the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuringfair value. In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases,the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair valuehierarchy.Other Financial InstrumentsThe carrying amount of cash and cash equivalents, accounts receivable, accounts receivable—affiliates, accounts payable, accountspayable—affiliates, and accrued liabilities recorded in the consolidated balance sheets approximate fair value due to the short-termnature of these items. The carrying amounts of the Senior Credit Facility and Prior Senior Credit Facility recorded in the consolidatedbalance sheets approximate fair value because of the variable rate nature of the Company’s line of credit. The fair value of ourconvertible subordinated notes to affiliates is not determinable for accounting purposes due to the affiliate nature and terms of theassociated debt instrument with the affiliate. The fair value of the payable pursuant to tax receivable agreement—affiliate is notdeterminable for accounting purposes due to the affiliate nature and terms of the associated agreement with the affiliate.Assets and Liabilities Measured at Fair Value on a Recurring BasisThe following tables present assets and liabilities measured and recorded at fair value in the Company’s consolidated balance sheets ona recurring basis by and their level within the fair value hierarchy as of (in thousands):Level 1Level 2Level 3TotalDecember 31, 2017 Non-trading commodity derivative assets$158$33,886$—$34,044Trading commodity derivative assets—456—456Total commodity derivative assets$158 $34,342 $— $34,500Non-trading commodity derivative liabilities$(387)$(950)$—$(1,337)Trading commodity derivative liabilities(555)(237)—(792)Total commodity derivative liabilities$(942) $(1,187) $— $(2,129)Contingent payment arrangement$— $— $(4,650) $(4,650)131Table of ContentsLevel 1Level 2Level 3TotalDecember 31, 2016 Non-trading commodity derivative assets$1,511$9,385$—$10,896Trading commodity derivative assets101430—531Total commodity derivative assets$1,612 $9,815 $— $11,427Non-trading commodity derivative liabilities$—$(661)$—$(661)Trading commodity derivative liabilities—(87)—(87)Total commodity derivative liabilities$— $(748) $— $(748)Contingent payment arrangement$— $— $(22,653) $(22,653)The Company had no transfers of assets or liabilities between any of the above levels during the years ended December 31, 2017, 2016and 2015.The Company’s derivative contracts include exchange-traded contracts fair valued utilizing readily available quoted market prices andnon-exchange-traded contracts fair valued using market price quotations available through brokers or over-the-counter and on-lineexchanges. In addition, in determining the fair value of the Company’s derivative contracts, the Company applies a credit risk valuationadjustment to reflect credit risk, which is calculated based on the Company’s or the counterparty’s historical credit risks. As ofDecember 31, 2017 and 2016, the credit risk valuation adjustment was not material.The contingent payment arrangements referred to above reflect estimated earnout obligations incurred in relation to the Company'sacquisitions. As of December 31, 2017, the estimated earnout obligations were $4.6 million, which was comprised of the Major Earnoutand the Stock Earnout in the amount of $4.6 million, and zero, respectively. The final Provider Earnout payment was paid in June 2017.The Verde Earnout was settled for $5.9 million on January 12, 2018 with a promissory note payable to the Seller in June 2019 and isclassified as long-term debt as of December 31, 2017. As of December 31, 2016, the estimated earnout obligations were $22.7 million,which was comprised of the Provider Earnout, the Major Earnout and the Stock Earnout in the amount of $4.9 million, $17.1 million,and $0.7 million, respectively. As of December 31, 2017, the estimated earnouts are recorded on our consolidated balance sheets incurrent liabilities - contingent consideration and long-term liabilities - contingent consideration in the amount of $4.0 million and $0.6million respectively; and as of December 31, 2016, in current liabilities - contingent consideration and long-term liabilities - contingentconsideration in the amount of $11.8 million and $10.8 million, respectively.The Provider Earnout, the Major Earnout, and the Verde Earnout are discussed in Note 3 "Acquisitions."The CenStar Earnout was based on a financial measurement attributable to the operations of CenStar for the year following the closingof the acquisition. In determining the fair value of the CenStar Earnout, the Company forecasted a one year performance measurement,as defined by the CenStar stock purchase agreement. As this calculation was based on management's estimates of the liability, we hadclassified the CenStar Earnout as a Level 3 measurement. During the first quarter of 2016, our estimate of the CenStar Earnout wasincreased to $1.5 million, which was based on the results of operations during such period. In August 2016, we entered into asettlement and release agreement with the seller of CenStar in which the Company paid $1.3 million to such seller and released anadditional $0.6 million from escrow in full satisfaction of the earnout obligation under the CenStar stock purchase agreement. Duringthe year ended December 31, 2016, the remaining estimated earnout liability of $0.2 million was written off via a reduction to generaland administrative expense in our consolidated statements of operations.The Provider Earnout was based on achievement by the Provider Companies of a certain customer count criteria over the nine monthperiod following the closing of the Provider Companies acquisition. The sellers of the Provider Companies were entitled to a maximumof $9.0 million and a minimum of $5.0 million in earnout payments based on the level of customer count attained, as defined by theProvider Companies membership interest purchase agreement. In March and June 2017, the Company paid the sellers of the ProviderCompanies $1.0 million and $4.5 million, respectively, related to the earnout based on the achievement of certain customer count andsales targets.132Table of ContentsDuring the year ended December 31, 2017, the Company recorded accretion of $0.1 million to reflect the impact of the time value ofthe liability prior to the final payment in June 2017. The Company additionally recorded $0.5 million of general and administrativeexpense related to the change in fair value of the earnout prior to the final payment in June 2017. During the period from August 1,2016 (acquisition date) through December 31, 2016, the Company recorded accretion of $0.1 million to reflect the impact of the timevalue of the liability. In determining the fair value of the Provider Earnout, the Company forecasted an expected customer count andcertain other related criteria and calculated the probability of such forecast being attained. As this calculation was based onmanagement's estimates of the liability, we classified the Provider Earnout as a Level 3 measurement.The Major Earnout is based on the achievement by the Major Energy Companies of certain performance targets over the 33 monthperiod following NG&E's closing of the Major Energy Companies acquisition (i.e., April 15, 2016). The previous members of MajorEnergy Companies are entitled to a maximum of $20.0 million in earnout payments based on the level of performance targets attained,as defined by the Major Purchase Agreement. The Stock Earnout obligation is contingent upon the Major Energy Companies achievingthe Major Earnout's performance target ceiling, thereby earning the maximum Major Earnout payments. If the Major Energy Companiesearn such maximum Major Earnout payments, NG&E would be entitled to a maximum of 400,000 shares of Class B common stock(and a corresponding number of Spark HoldCo units). In determining the fair value of the Major Earnout and the Stock Earnout, theCompany forecasted certain expected performance targets and calculated the probability of such forecast being attained. In March2017, the Company paid the previous members of the Major Energy Companies $7.4 million related to the period from April 15, 2016through December 31, 2016. During the year ended December 31, 2017, the Company recorded accretion of $3.8 million to reflect theimpact of the time value of the liability. The Company revalued the liability at December 31, 2017, resulting in the decrease of the fairvalue of the liability to $4.6 million. During the period from April 15, 2016 (NG&E acquisition date) through December 31, 2016, theCompany recorded accretion of $5.0 million to reflect the impact of the time value of the liability. The Company revalued the liability atDecember 31, 2016, resulting in the write-down of the fair value of the liability to $17.8 million. The impact of the $9.6 million and$1.1 million decrease in fair value is recorded in general and administrative expenses for the years ended December 31, 2017 and2016, respectively. As this calculation is based on management's estimates of the liability, we classified the Major Earnout as a Level 3measurement.The Verde Earnout was based on achievement by the Verde Companies of certain performance targets over the 18 month periodfollowing the closing of the acquisition of the Verde Companies. The Verde Earnout was valued at $5.4 million as of July 1, 2017, theacquisition date. The Company and the Seller agreed to terminate the Verde Earnout on January 12, 2018, and settled the obligationwith the issuance of a $5.9 million promissory note payable due to the Seller in June 2019 (the “Verde Earnout Termination Note”).The Company recorded a $0.3 million increase in fair value of the Verde Earnout in general and administrative expenses and classifiedthe liability as long-term debt as of December 31, 2017. During the year ended December 31, 2017, the Company recorded accretion of$0.2 million to reflect the impact of the time value of the liability. In determining the fair value of the Verde Earnout, the Companyforecasted certain expected performance targets and calculated the probability of such forecast being attained. As the calculation wasbased on management's estimates of the liability, we classified the Verde Earnout liability as a Level 3 measurement prior to settlement.See discussion of the Verde Earnout Termination Note in Note 8 "Debt."The following tables present reconciliations of liabilities measured at fair value on a recurring basis using significant unobservableinputs (Level 3) for the years ended December 31, 2017 and 2016, respectively.133Table of ContentsCenStar EarnoutMajor Earnoutand StockEarnoutProviderEarnoutVerde EarnoutTotalFair Value at December 31, 2015$500$—$—$—$500Purchase price contingent consideration$—$13,910$4,823$—18,733Change in fair value of contingentconsideration, net843(1,140)——(297)Accretion of contingent earnout consideration(included within interest expense)—4,99070—5,060Payments and settlements (1)(1,343)———(1,343)Fair Value at December 31, 2016$— $17,760 $4,893 $—$22,653Purchase price consideration$—$—$—$5,400$5,400Change in fair value of contingentconsideration, net—(9,555)500347(8,708)Accretion of contingent earnout consideration(included within interest expense)—3,8481071534,108Payments and settlements (1)—(7,403)(5,500)(5,900)(18,803)Fair Value at December 31, 2017$— $4,650 $— $—$4,650(1) Payments and settlements include pay downs at maturity and the termination of the Verde Earnout liability, which was replaced with the Verde Earnout Termination Note. Seediscussion above and in Note 8 "Debt."Assets and Liabilities Measured at Fair Value on a Non-recurring BasisWe apply the provisions of the fair value measurement standard to our non-recurring, non-financial measurements including businesscombinations as well as impairment related to goodwill and other long-lived assets. For business combinations (see Note 3"Acquisitions"), the purchase price is allocated to the assets acquired and liabilities assumed based on a discounted cash flow model formost intangibles as well as market assumptions for the valuation of equipment and other fixed assets. We utilize a discounted cash flowmodel in evaluating impairment considerations related to goodwill and long-lived assets. Given the unobservable nature of the inputs,the discounted cash flow models are considered to use Level 3 inputs.10. Accounting for Derivative InstrumentsThe Company is exposed to the impact of market fluctuations in the price of electricity and natural gas and basis costs, storage andancillary capacity charges from independent system operators. The Company uses derivative instruments to manage exposure to theserisks, and historically designated certain derivative instruments as cash flow hedges for accounting purposes.The Company holds certain derivative instruments that are not held for trading purposes and are not designated as hedges foraccounting purposes. These derivative instruments represent economic hedges that mitigate the Company’s exposure to fluctuations incommodity prices. For these derivative instruments, changes in the fair value are recognized currently in earnings in retail revenues orretail cost of revenues.As part of the Company’s strategy to optimize its assets and manage related risks, it also manages a portfolio of commodity derivativeinstruments held for trading purposes. The Company’s commodity trading activities are subject to limits within the Company’s RiskManagement Policy. For these derivative instruments, changes in the fair value are recognized currently in earnings in net assetoptimization revenues.Derivative assets and liabilities are presented net in the Company’s consolidated balance sheets when the derivative instruments areexecuted with the same counterparty under a master netting arrangement. The Company’s derivative contracts include transactions thatare executed both on an exchange and centrally cleared, as well as over-the-134Table of Contentscounter, bilateral contracts that are transacted directly with a third party. To the extent the Company has paid or received collateralrelated to the derivative assets or liabilities, such amounts would be presented net against the related derivative asset or liability’s fairvalue. As of December 31, 2017 and 2016, the Company had paid $0.1 million and zero in collateral outstanding, respectively. Thespecific types of derivative instruments the Company may execute to manage the commodity price risk include the following:•Forward contracts, which commit the Company to purchase or sell energy commodities in the future;•Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financialinstrument;•Swap agreements, which require payments to or from counterparties based upon the differential between two prices for apredetermined notional quantity; and,•Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity.The Company has entered into other energy-related contracts that do not meet the definition of a derivative instrument and are thereforenot accounted for at fair value including the following:•Forward electricity and natural gas purchase contracts for retail customer load; and,•Natural gas transportation contracts and storage agreements. Volumetric Underlying Derivative TransactionsThe following table summarizes the net notional volume buy/(sell) of the Company’s open derivative financial instruments accountedfor at fair value, broken out by commodity, as of (in thousands):Non-trading CommodityNotional December 31, 2017 December 31, 2016Natural GasMMBtu 9,191 8,016Natural Gas BasisMMBtu — —ElectricityMWh 8,091 3,958TradingCommodityNotional December 31, 2017 December 31, 2016Natural GasMMBtu 26 (953)Natural Gas BasisMMBtu (225) (380)Gains (Losses) on Derivative InstrumentsGains (losses) on derivative instruments, net and current period settlements on derivative instruments were as follows for the periodsindicated (in thousands):135Table of ContentsYear Ended December 31, 2017 2016 2015Gain (loss) on non-trading derivatives, net5,588 22,254 (18,423)(Loss) gain on trading derivatives, net(580) 153 (74)Gain (loss) on derivatives, net$5,008 $22,407 $(18,497)Current period settlements on non-trading derivatives (1) (2) (3) (4)16,508 (2,284) 20,279Current period settlements on trading derivatives(199) 138 268Total current period settlements on derivatives (1) (2) (3) (4)$16,309 $(2,146) $20,547(1) Excludes settlements of less than $0.1 million, $1.0 million and $3.4 million, respectively, for the years ended December 31, 2017, 2016, and 2015 related to non-tradingderivative liabilities assumed in the acquisitions of CenStar and Oasis.(2) Excludes settlements of $0.5 million and $25.6 million, respectively, for the years ended December 31, 2017 and 2016 related to non-trading derivative liabilities assumed in theacquisitions of Provider Companies and Major Energy Companies.(3) Excludes settlements of $1.1 million for the year ended December 31, 2017 related to non-trading derivative liabilities assumed in the acquisitions of Perigee and othercustomers.(4) Excludes settlements of $1.7 million for the year ended December 31, 2017 related to non-trading derivative liabilities assumed in the acquisition of the Verde Companies.Gains (losses) on trading derivative instruments are recorded in net asset optimization revenues, and gains (losses) on non-tradingderivative instruments are recorded in retail cost of revenues on the consolidated statements of operations.Fair Value of Derivative InstrumentsThe following tables summarize the fair value and offsetting amounts of the Company’s derivative instruments by counterparty andcollateral received or paid as of (in thousands): December 31, 2017DescriptionGross AssetsGrossAmountsOffsetNet AssetsCashCollateralOffsetNet AmountPresentedNon-trading commodity derivatives$60,167 $(29,432) $30,735 $— $30,735Trading commodity derivatives918 (462) 456 — 456Total Current Derivative Assets61,085 (29,894) 31,191 — 31,191Non-trading commodity derivatives16,055 (12,746) 3,309 — 3,309Trading commodity derivatives— — — — —Total Non-current Derivative Assets16,055 (12,746) 3,309 — 3,309Total Derivative Assets$77,140 $(42,640) $34,500 $— $34,500December 31, 2017DescriptionGross LiabilitiesGrossAmountsOffsetNetLiabilitiesCashCollateralOffsetNet AmountPresentedNon-trading commodity derivatives$(4,517) $3,059 $(1,458) $65 $(1,393)Trading commodity derivatives(517) 273 (244) — (244)Total Current Derivative Liabilities(5,034) 3,332 (1,702) 65 (1,637)Non-trading commodity derivatives(676) 732 56 56Trading commodity derivatives(566) 18 (548) — (548)Total Non-current Derivative Liabilities(1,242) 750 (492) — (492)Total Derivative Liabilities$(6,276) $4,082 $(2,194) $65 $(2,129) 136Table of Contents December 31, 2016DescriptionGross AssetsGrossAmountsOffsetNet AssetsCashCollateralOffsetNet AmountPresentedNon-trading commodity derivatives$19,657$(11,844)$7,813$—$7,813Trading commodity derivatives614(83)531—531Total Current Derivative Assets20,271(11,927)8,344—8,344Non-trading commodity derivatives7,874(4,791)3,083—3,083Total Non-current Derivative Assets7,874(4,791)3,083—3,083Total Derivative Assets$28,145$(16,718)$11,427$—$11,427 December 31, 2016DescriptionGross LiabilitiesGrossAmountsOffsetNetLiabilitiesCashCollateralOffsetNet AmountPresentedNon-trading commodity derivatives$(662)$69$(593)$(593)Trading commodity derivatives(92)5(87)—(87)Total Current Derivative Liabilities(754)74(680)—(680)Non-trading commodity derivatives(305)237(68)—(68)Total Non-current Derivative Liabilities(305)237(68)—(68)Total Derivative Liabilities$(1,059)$311$(748)$—$(748)11. Stock-Based CompensationRestricted Stock UnitsIn connection with the IPO, the Company adopted the Spark Energy, Inc. Long-Term Incentive Plan for the employees, consultants anddirectors of the Company and its affiliates who perform services for the Company. The Long-Term Incentive Plan was amended andrestated on September 1, 2016 (as amended and restated, the "LTIP"). The purpose of the LTIP is to provide a means to attract andretain individuals to serve as directors, employees and consultants who provide services to the Company by affording such individualsa means to acquire and maintain ownership of awards, the value of which is tied to the performance of the Company’s Class A commonstock. The LTIP provides for grants of cash payments, stock options, stock appreciation rights, restricted stock or units, bonus stock,dividend equivalents, and other stock-based awards with the total number of shares of stock available for issuance under the LTIP notto exceed 2,750,000 shares.Periodically the Company grants restricted stock units to our officers, employees, non-employee directors and certain employees of ouraffiliates who perform services for the Company. The restricted stock unit awards vest over approximately one year for non-employeedirectors and ratably over approximately three or four years for officers, employees, and employees of affiliates, with the initial vestingdate occurring in May of the subsequent year. Each restricted stock unit is entitled to receive a dividend equivalent when dividends aredeclared and distributed to shareholders of Class A common stock. These dividend equivalents shall be retained by the Company,reinvested in additional restricted stock units effective as of the record date of such dividends and vested upon the same schedule as theunderlying restricted stock unit.In accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”), the Company measures the cost of awards classifiedas equity awards based on the grant date fair value of the award, and the Company measures the cost of awards classified as liabilityawards at the fair value of the award at each reporting period. The Company has utilized an estimated 6% annual forfeiture rate ofrestricted stock units in determining the fair value for all awards excluding those issued to executive level recipients and non-employeedirectors, for which no forfeitures are137Table of Contentsestimated to occur. The Company has elected to recognize related compensation expense on a straight-line basis over the associatedvesting periods.Although the restricted stock units allow for cash settlement of the awards at the sole discretion of management of the Company,management intends to settle the awards by issuing shares of the Company’s Class A common stock.Total stock-based compensation expense for the years ended December 31, 2017, 2016 and 2015 was $5.1 million, $5.2 million and$3.2 million. Total income tax benefit related to stock-based compensation recognized in net income (loss) was $2.1 million, $2.1million and $1.2 million for the years ended December 31, 2017, 2016 and 2015.Equity Classified Restricted Stock UnitsRestricted stock units issued to employees and officers of the Company are classified as equity awards. The fair value of the equityclassified restricted stock units is based on the Company’s Class A common stock price as of the grant date. The Company recognizedstock based compensation expense of $2.8 million, $2.3 million and $2.2 million for the years ended December 31, 2017, 2016 and2015, respectively, in general and administrative expense with a corresponding increase to additional paid in capital.The following table summarizes equity classified restricted stock unit activity and unvested restricted stock units for the year endedDecember 31, 2017:Number of Shares (inthousands)Weighted Average Grant Date FairValueUnvested at December 31, 2016526$9.56Granted30718.10Dividend reinvestment issuances2715.64Vested(180)17.88Forfeited(40)13.27Unvested at December 31, 2017640$11.56For the year ended December 31, 2017, 179,628 restricted stock units vested, with 118,514 shares of Class A common stock distributedto the holders of these units and 61,114 shares of Class A common stock withheld by the Company to cover taxes owed on the vestingof such units.As of December 31, 2017, there was $7.4 million of total unrecognized compensation cost related to the Company’s equity classifiedrestricted stock units, which is expected to be recognized over a weighted average period of approximately 2.9 years.Liability Classified Restricted Stock UnitsRestricted stock units issued to non-employee directors of the Company and employees of certain of our affiliates are classified asliability awards in accordance with ASC 718 as the awards are either to a) non-employee directors that allow for the recipient to choosenet settlement for the amount of withholding taxes dues upon vesting or b) to employees of certain affiliates of the Company and aretherefore not deemed to be employees of the Company. The fair value of the liability classified restricted stock units is based on theCompany’s Class A common stock price as of the reported period ending date. The Company recognized stock based compensationexpense of $2.3 million and $3.0 million and $1.0 million for years ended December 31, 2017, 2016 and 2015, respectively, in generaland administrative expense with a corresponding increase to liabilities. As of December 31, 2017, the Company’s liabilities related tothese restricted stock units recorded in current liabilities was $0.7 million. As of December 31, 2016, the Company's liabilities related tothese restricted stock units recorded in current liabilities was $1.5 million.138Table of ContentsThe following table summarizes liability classified restricted stock unit activity and unvested restricted stock units for the year endedDecember 31, 2017:Number of Shares (inthousands)Weighted Average Reporting DateFair ValueUnvested at December 31, 2016252$15.15Granted14012.40Dividend reinvestment issuances1012.40Vested(176)16.93Forfeited(2)12.40Unvested at December 31, 2017224$12.40For the year ended December 31, 2017, 176,386 restricted stock units vested, with 123,451 shares of Class A common stock distributedto the holders of these units and 52,935 shares of Class A common stock withheld by the Company to cover taxes owed on the vestingof such units.As of December 31, 2017, there was $1.8 million of total unrecognized compensation cost related to the Company’s liability classifiedrestricted stock units, which is expected to be recognized over a weighted average period of approximately 2.5 years.12. Income TaxesThe Company, CenStar and Verde Energy USA, Inc. (Verde Corp) are each subject to U.S. federal income tax as corporations. CenStarand Verde Corp will file consolidated tax returns in jurisdictions that allow combined reporting. Spark HoldCo and its subsidiaries, withthe exception of CenStar and Verde Corp, are treated as flow-through entities for U.S. federal income tax purposes, and, as such, aregenerally not subject to U.S. federal income tax at the entity level. Rather, the tax liability with respect to their taxable income is passedthrough to their members or partners. Accordingly, the Company is subject to U.S. federal income taxation on its allocable share ofSpark HoldCo's net U.S. taxable income.The Company reports federal and state income taxes for its share of the partnership income attributable to its ownership in SparkHoldCo and for the income taxes attributable to CenStar, a C-corporation, which is owned by Spark HoldCo. The income tax liabilityfor the partnership does not accrue to the partnership, but rather the investors are responsible for the income taxes based upon theinvestor's share of the partnership's income. Net income attributable to the non-controlling interest in CenStar includes the provision forincome taxes.The Company accounts for income taxes using the assets and liabilities method. Deferred tax assets and liabilities are recognized forfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilitiesand the tax bases of the assets and liabilities. The Company applies existing tax law and the tax rate that the Company expects to applyto taxable income in the years in which those differences are expected to be recovered or settled in calculating the deferred tax assetsand liabilities. Effects of changes in tax rates on deferred tax assets and liabilities are recognized in income in the period of the tax rateenactment. A valuation allowance is recorded when it is not more likely than not that some or all of the benefit from the deferred taxasset will be realized.On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which enacts a wide range of changes tothe U.S. Corporate income tax system. The impact of U.S. Tax Reform primarily represents our estimates of revaluing our U.S. deferredtax assets and liabilities based on the rates at which they are expected to be recognized in the future. For U.S. federal purposes thecorporate statutory income tax rate was reduced from 35% to 21%, effective for the 2018 tax year. Based on our historical financialperformance, at December 31, 2017 we have a significant net deferred tax asset position that we have remeasured at the lowercorporate rate of 21% and recognized a tax expense to adjust net deferred tax assets to the reduced value.139Table of ContentsThe provision for income taxes included the following components:(in thousands) 2017 2016 2015Current: Federal $6,992 $5,361 $268State 1,952 1,683 (277)Total Current 8,944 7,044 (9) Deferred: Federal 26,583 2,944 1,820State 2,001 438 163 Total Deferred 28,584 3,382 1,983Provision for income taxes $37,528 $10,426 $1,974 The effective income tax rate was 33.0% and 13.7% for the years ended December 31, 2017 and 2016, respectively. The followingtable reconciles the income tax benefit included in the consolidated statement of operations with income tax expense that would resultfrom application of the statutory federal tax rate, 35% for the years ended December 31, 2017 and 2016, respectively, to loss beforeincome tax expense (benefit):(in thousands)20172016Expected provision at federal statutory rate$39,833$26,635Increase (decrease) resulting from: Impact of U.S. Tax Reform13,217— Non-controlling interest(19,810)(17,740)State income taxes, net of federal income tax effect2,5691,346 Other1,719185Provision for income taxes$37,528$10,426Total income tax expense for the year ended December 31, 2017 differed from amounts computed by applying the U.S. federalstatutory tax rates to pre-tax income primarily due to state taxes and the impact of permanent differences between book and taxableincome, most notably the income attributable to non-controlling interest. The effective tax rate includes a rate benefit attributable to thefact that Spark HoldCo operates as a limited liability company treated as a partnership for federal and state income tax purposes and isnot subject to federal and state income taxes. Accordingly, the portion of earnings attributable to non-controlling interest is subject totax when reported as a component of the non-controlling interest’s taxable income. The effective rate in 2017 includes a $13.2 millionunfavorable impact resulting from the enactment of U.S. Tax Reform. The primary impact of the change in tax law was theremeasurment of our U.S. federal deferred tax assets and liabilities at the tax rate expected to be applied when the temporary differencesare settled at a rate of 21%.The Company accounts for income taxes using the assets and liabilities method. Deferred tax assets and liabilities are recognized forfuture tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilitiesand those assets and liabilities tax bases. The Company applies existing tax law and the tax rate that the Company expects to apply totaxable income in the years in which those differences are expected to be recovered or settled in calculating the deferred tax assets andliabilities. Effects of changes in tax rates on deferred tax assets and liabilities are recognized in income in the period of the tax rateenactment. We remeasured our deferred tax assets and liabilities, excluding those that will be included on our 2017 tax return based onthe rates we expect to realize the deferred tax assets and liabilities at in the future. The amount that was recorded related to theremeasurement of our deferred tax balance was $13.2 million of tax expense. A valuation allowance is recorded when it is not morelikely than not that some or all of the benefit from the deferred tax asset will be realized.The components of the Company’s deferred tax assets as of December 31, 2017 and 2016 are as follows:140Table of Contents(in thousands)20172016Deferred Tax Assets: Investment in Spark HoldCo$18,340$35,359Benefit of TRA Liability8,17519,705Federal net operating loss carryforward6602,076State net operating loss carryforward166366Total deferred tax assets27,34157,506 Deferred Tax Liabilities: Derivative liabilities(811)(1,849)Intangibles(2,287)(1,519)Property and equipment—(10)Other(58)(19) Total deferred tax liabilities(3,156)(3,397)Total deferred tax assets/liabilities$24,185$54,109 On the IPO date, the Company recorded a net deferred tax asset of $15.6 million related to the step up in tax basis resulting from thepurchase by the Company of Spark HoldCo units from NuDevco. In addition, the Company had a long-term liability of $20.7 million torecord the effect of the Tax Receivable Agreement liability and a corresponding long-term deferred tax asset of $7.9 million. As ofDecember 31, 2017 and 2016, the Company had a total liability of $32.3 million and $49.9 million, respectively, for the effect of theTax Receivable Agreement liability. The Company adjusted the Tax Receivable Agreement liability at December 31, 2017 to includethe 2016 tax returns filed. The adjustment resulted in an increase to the liability of $4.7 million, of which $1.8 million increased thedeferred tax asset and $2.9 million decreased equity. On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“U.S.Tax Reform”), which enacts a wide range of changes to the U.S. Corporate income tax system including a reduction in the U.S.corporate tax rate to 21% effective in 2018. The revised corporate income tax rate reduces the amount of net cash savings to be realizedin future periods. Therefore, we have reduced the TRA liability as of December 31, 2017 by $22.3 million to reflect the effect of U.S.Tax Reform and recorded this adjustment through Other Income. The Company had a long-term deferred tax asset of approximately$8.2 million related to the Tax Receivable Agreement liability at December 31, 2017. See Note 14 "Transactions with Affiliates" forfurther discussion.The Company has a federal net operating loss carry forward totaling $3.8 million expiring in 2037 and a state net operating loss of $4.1million expiring through 2037. No valuation allowance has been recorded as management believes that there will be sufficient futuretaxable income to fully utilize deferred tax assets.The Company periodically assesses whether it is more likely than not that it will generate sufficient taxable income to realize itsdeferred income tax assets. In making this determination, the Company considers all available positive and negative evidence andmakes certain assumptions. The Company considers, among other things, its deferred tax liabilities, the overall business environment,its historical earnings and losses, current industry trends, and its outlook for future years. The Company believes it is more likely thannot that the deferred tax assets will be utilized.On February 3, 2016, Retailco exchanged 2,000,000 of its Spark HoldCo units (together with a corresponding number of shares ofClass B common stock) for shares of Class A common stock. The exchange resulted in a step up in tax basis, which gave rise to adeferred tax asset of approximately $8.0 million on the exchange date. In addition, the Company recorded an additional long-termliability as a result of the exchange of approximately $10.3 million pursuant to the Tax Receivable Agreement and a correspondinglong-term deferred tax asset of approximately $3.9 million. The initial estimate for the deferred tax asset, net of the liability, under theTax Receivable Agreement was recorded within additional paid-in capital on our consolidated balance sheet at December 31, 2017.141Table of ContentsOn April 1, 2016, Retailco exchanged 3,450,000 of its Spark HoldCo units (together with a corresponding number of shares of Class Bcommon stock) for shares of Class A common stock. The exchange resulted in a step up in tax basis, which gave rise to a deferred taxasset of approximately $7.6 million on the exchange date. In addition, the Company recorded an additional long-term liability as aresult of the exchange of approximately $10.3 million pursuant to the Tax Receivable Agreement and a corresponding long-termdeferred tax asset of approximately $3.9 million. The initial estimate for the deferred tax asset, net of the liability, under the TaxReceivable Agreement was recorded within additional paid-in capital on our consolidated balance sheet at December 31, 2017.On June 8, 2016, Retailco exchanged 1,000,000 of its Spark HoldCo units (together with a corresponding number of shares of Class Bcommon stock) for shares of Class A common stock. The exchange resulted in a step up in tax basis, which gave rise to a deferred taxasset of approximately $5.3 million on the exchange date. In addition, the Company recorded an additional long-term liability as aresult of the exchange of approximately $6.9 million pursuant to the Tax Receivable Agreement and a corresponding long-termdeferred tax asset of approximately $2.6 million. The initial estimate for the deferred tax asset, net of the liability, under the TaxReceivable Agreement was recorded within additional paid-in capital on our consolidated balance sheet at December 31, 2017.Separate federal and state income tax returns are filed for Spark Energy, Inc. and Spark HoldCo. CenStar owns all the outstanding stockof Verde Corp and both are taxed as corporations. CenStar and Verde will file a federal consolidated return for 2017 and separate stateincome tax returns in the states that do not allow combined reporting. The tax years 2013 through 2016 remain open to examination bythe major taxing jurisdictions to which the Company is subject to income tax. NuDevco would be responsible for any audit adjustmentsincurred in connection with transactions occurring up to July 31, 2014 for Spark Energy, Inc. and Spark HoldCo. The last closed auditperiod of exam was for the 2011 Spark Energy, LLC’s federal tax return and resulted in no adjustments by the IRS. Spark Energy, Inc.,Spark HoldCo, ,CenStar, and Verde Corp are not currently under any income tax audits.Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement methodology for the financialstatement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of December 31, 2017 and2016 there was no liability, and for the years ended December 31, 2017, 2016 and 2015, there was no expense recorded for interestand penalties associated with uncertain tax positions or unrecognized tax positions. Additionally, the Company does not haveunrecognized tax benefits as of December 31, 2017 and 2016.13. Commitment and ContingenciesFrom time to time, the Company may be involved in legal, tax, regulatory and other proceedings in the ordinary course of business.Other than proceedings discussed below, management does not believe that we are a party to any litigation, claims or proceedings thatwill have a material impact on the Company’s consolidated financial condition or results of operations. Liabilities for loss contingenciesarising from claims, assessments, litigations or other sources are recorded when it is probable that a liability has been incurred and theamount can be reasonably estimated.Indirect Tax AuditsThe Company is undergoing various types of indirect tax audits spanning from years 2009 to 2017 for which the Company may haveadditional liabilities arise. At the time of filing these consolidated financial statements, these indirect tax audits are at an early stage andsubject to substantial uncertainties concerning the outcome of audit findings and corresponding responses. As of December 31, 2017,we have accrued of $1.7 million related to indirect tax audits. The outcome of these indirect tax audits may result in additional expense.Legal ProceedingsThe Company is the subject of the following lawsuits. At the time of filing these consolidated financial statements, this litigation is at anearly stage and subject to substantial uncertainties concerning the outcome of material factual142Table of Contentsand legal issues. Accordingly, we cannot currently predict the manner and timing of the resolution of this litigation or estimate a rangeof possible losses or a minimum loss that could result from an adverse verdict in a potential lawsuit.John Melville et al v. Spark Energy Inc. and Spark Energy Gas, LLC is a purported class action filed on December 17, 2015 in theUnited States District Court for the District of New Jersey alleging, among other things, that (i) sales representatives engaged asindependent contractors for Spark Energy Gas, LLC engaged in deceptive acts in violation of the New Jersey Consumer Fraud Act, and(ii) Spark Energy Gas, LLC breached its contract with plaintiff, including a breach of the covenant of good faith and fair dealing. OnSeptember 5, 2017, the parties reached a confidential settlement in this matter, which the Company expensed and paid in the fourthquarter of 2017.Halifax-American Energy Company, LLC et al v. Provider Power, LLC, Electricity N.H., LLC, Electricity Maine, LLC, Emile Clavet andKevin Dean is a lawsuit initially filed on June 12, 2014, in the Rockingham County Superior Court, State of New Hampshire, allegingvarious claims related to the Provider Companies’ employment of a sales contractor formerly employed with one or more of theplaintiffs, including misappropriation of trade secrets and tortious interference with a contractual relationship. The relief sought includedcompensatory and punitive damages and attorney's fees. The dispute occurred prior to the Company's acquisition of the ProviderCompanies. Portions of the original claim proceeded to trial and on January 19, 2016, a jury found in favor of the plaintiffs. Damagestotaling approximately $0.6 million and attorneys' fees totaling approximately $0.3 million were awarded to the plaintiffs. On May 4,2016, following post-verdict motions, the defendants filed an appeal in the State of New Hampshire Supreme Court, appealing, amongother things the failure of the trial court to direct a verdict for the defendants, to set aside the verdict, or grant judgment for thedefendants, and the trial court's award of certain attorneys' fees. The appellate hearing was held on June 1, 2017. The New HampshireSupreme Court decided the appeal on February 9, 2018, upholding the jury's verdict and the trial court's rulings in all respects. As ofDecember 31, 2017, the Company has accrued approximately$1.0 million in contingent liabilities related to this litigation. Initialdamages and attorneys' fees have been factored into the purchase price for the Provider Companies, and the Company believes it hasfull indemnity coverage for any actual exposure in this appeal.Katherine Veilleux and Jennifer Chon, individually and on behalf of all other similarly situated v. Electricity Maine. LLC, ProviderPower, LLC, Spark HoldCo, LLC, Kevin Dean and Emile Clavet is a purported class action lawsuit filed on November 18, 2016 in theUnited States District Court of Maine, alleging that Electricity Maine, LLC, an entity acquired by Spark HoldCo, LLC in mid-2016,enrolled and re-enrolled customers through fraudulent and misleading advertising, promotions, and other communications prior to theacquisition. Plaintiffs further allege that some improper enrollment and re-enrollment practices have continued to the present date.Plaintiffs allege the following claims against all defendants: violation of the Maine Unfair Trade Practices Act, violation of RICO,negligence, negligent misrepresentation, fraudulent misrepresentation, unjust enrichment and breach of contract. Plaintiffs seekunspecified damages for themselves and the purported class, rescission of contracts with Electricity Maine, injunctive relief, restitution,and attorney’s fees. By order dated November 15, 2017, the Court, pursuant to Rule 12(b)(6), dismissed all claims against SparkHoldCo except the claims for violation of the Maine Unfair Trade Practices Act and for unjust enrichment. Discovery limited to issuesrelevant to class certification under Rule 23 of the Federal Rules of Civil Procedure has just begun. Spark HoldCo intends to vigorouslydefend this matter and the allegations asserted therein, including the request to certify a class. Given the early stages of this matter, wecannot predict the outcome or consequences of this case at this time. The Company believes it is fully indemnified for this litigationmatter, subject to certain limitations.Gillis et al. v. Respond Power, LLC is a purported class action lawsuit that was originally filed on May 21, 2014 in the PhiladelphiaCourt of Common Pleas. On June 23, 2014, the case was removed to the United States District Court for the Eastern District ofPennsylvania. On September 15, 2014, the plaintiffs filed an amended class action complaint seeking a declaratory judgment that thedisclosure statement contained in Respond Power, LLC’s variable rate contracts with Pennsylvania consumers limited the variable ratethat could be charged to no more than the monthly rate charged by the consumers’ local utility company. The plaintiffs also allege thatRespond Power, LLC (i) breached its variable rate contract with Pennsylvania consumers, and the covenant of good faith and fairdealing therein, by charging rates in excess of the monthly rate charged by the consumers’ local utility company; (ii)143Table of Contentsengaged in deceptive conduct in violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law; and (iii) engagedin negligent misrepresentation and fraudulent concealment in connection with purported promises of savings. The amount of damagessought is not specified. By order dated August 31, 2015, the district court denied class certification. The plaintiffs appealed the districtcourt’s denial of class certification to the United States Court of Appeals for the Third Circuit. The United States Court of Appeals forthe Third Circuit vacated the district court’s denial of class certification and remanded the matter to the district court for furtherproceedings. The district court ordered briefing on defendant’s motion to dismiss. Respond Power LLC filed a motion to dismiss theplaintiffs’ declaratory judgment and breach of contract claims (the class claims) on June 30, 2017. The motion is fully briefed andsubmitted, and the parties are awaiting a decision from the Court. The Company currently cannot predict the outcome or consequencesof this case at this time. The Company believes it is fully indemnified for this litigation matter, subject to certain limitations.Jurich v. Verde Energy USA, Inc., is a purported class action originally filed on March 3, 2015 in the United States District Court for theDistrict of Connecticut and subsequently re-filed on October 8, 2015 in the Superior Court of Judicial District of Hartford, State ofConnecticut. The Amended Complaint asserts that the Verde Companies charged rates in violation of its contracts with Connecticutcustomers and alleges (i) violation of the Connecticut Unfair Trade Practices Act and (ii) breach of the covenant of good faith and fairdealing. Plaintiffs are seeking unspecified actual and punitive damages for the purported class and injunctive relief. The parties haveexchanged initial discovery. Plaintiffs’ motion for class certification was briefed and the Verde Companies filed its opposition toplaintiffs’ motion for class certification on October 17, 2017. On December 6, 2017, the Court granted the plaintiffs’ class certificationmotion. However, the Court opted not to send out class notices, and instead directed the parties to submit briefing on legal issues thatcould result in a modification or decertification of the class. The parties have proposed to the Court that initial briefing on such motionswould be due March 16, 2018. As part of an agreement in connection with the acquisition of the Verde Companies, the original ownersof the Verde Companies are handling this matter. Given the early stage of this matter, we cannot predict the outcome or consequencesof this case at this time. The Company believes it is fully indemnified for this litigation matter by the original owners of the VerdeCompanies, subject to certain limitations.Richardson et al v. Verde Energy USA, Inc. is a purported class action filed on November 25, 2015 in the United States District Courtfor the Eastern District of Pennsylvania alleging that the Verde Companies violated the Telephone Consumer Protection Act by placingmarketing calls using an automatic telephone dialing system or a prerecorded voice to the purported class members’ cellular phoneswithout prior express consent and by continuing to make such calls after receiving requests for the calls to cease. Plaintiffs are seekingstatutory damages for the purported class and injunctive relief prohibiting Verde Companies' alleged conduct. Discovery on the claimsof the named plaintiffs closed on November 10, 2017, and dispositive motions on the named plaintiffs’ claims was filed on November24, 2017. Plaintiffs’ response to dispositive motions’ pleadings was filed on December 22, 2017 and Verde Companies’ reply briefswere filed on January 5, 2018. To date, no hearing has been set on these motions. As part of an agreement in connection with theacquisition of the Verde Companies, the original owners of the Verde Companies is handling this matter. Given the early stages of thismatter, we cannot predict the outcome or consequences of this case at this time. The Company believes it is fully indemnified for thislitigation matter by the original owners of the Verde Companies, subject to certain limitations.Coleman v. Verde Energy USA Illinois, LLC is a purported class action filed on January 23, 2017 in the United States District Court forthe Southern District of Illinois alleging that the Verde Companies violated the Telephone Consumer Protection Act by placingmarketing calls using an automatic telephone dialing system or a prerecorded voice to the purported class members’ cellular phoneswithout prior express consent. The parties have reached a confidential settlement in this matter that was paid in the fourth quarter of2017.Saul Horowitz, as Sellers’ Representative for the former owners of the Major Energy Companies v. National Gas & Electric, LLC(NG&E) and Spark Energy, Inc. (Spark), has filed a lawsuit asserting claims of fraudulent inducement against NG&E, breach ofcontract against NG&E and the Company, and tortious interference with contract against the Company related to the membershipinterest purchase, subsequent transfer, and associated earnout agreements with the Major Energy Companies' former owners. The reliefsought includes unspecified compensatory and punitive damages, prejudgment and post judgment interest, and attorneys’ fees. Thelawsuit was144Table of Contentsfiled on October 10, 2017 in the United States District Court for the Southern District of New York, and after the Company and NG&Efiled a motion to dismiss, Horowitz filed an Amended Complaint, asserting the same four claims. The Company and NG&E filed amotion to dismiss the fraud and tortious interference claims on January 15, 2018. Briefing on the motion to dismiss concluded onMarch 1, 2018, and the Court's decision to rule or schedule oral argument is pending as of the date these financial statements are issued.The Company and NG&E deny the allegations asserted and intend to vigorously defend this matter. Given the early stages of thismatter, we cannot predict the outcome or consequences of this case at this time.14. Transactions with AffiliatesThe Company enters into transactions with and pays certain costs on behalf of affiliates that are commonly controlled in order to reducerisk, reduce administrative expense, create economies of scale, create strategic alliances and supply goods and services to these relatedparties. The Company also sells and purchases natural gas and electricity with affiliates. The Company presents receivables andpayables with the same affiliate on a net basis in the consolidated balance sheets as all affiliate activity is with parties under commoncontrol.Acquisition of Oasis Power Holdings, LLCThe acquisition of Oasis by the Company from RAC was a transfer of equity interests of entities under common control on July 31,2015. Refer to Note 3 "Acquisitions" for further discussion.Acquisition of Major Energy Companies and PerigeeThe acquisition of Major Energy Companies and Perigee by the Company from NG&E was a transfer of equity interests of entitiesunder common control on August 23, 2016 and April 1, 2017, respectively. Refer to Note 3 "Acquisitions" for further discussion.Master Service Agreement with Retailco Services, LLCWe entered into a Master Service Agreement (the “Master Service Agreement”) effective January 1, 2016 with Retailco Services, LLC("Retailco Services"), which is wholly owned by our Founder. The Master Service Agreement is for a one-year term and renewsautomatically for successive one-year terms unless the Master Service Agreement is terminated by either party. Retailco Servicesprovides us with operational support services such as: enrollment and renewal transaction services; customer billing and transactionservices; electronic payment processing services; customer services and information technology infrastructure and application supportservices under the Master Service Agreement. See "Cost Allocations" for further discussion of the fees paid in connection with theMaster Service Agreement during the year ended December 31, 2017 and 2016, respectively.Accounts Receivable and Payable—AffiliatesThe Company recorded current accounts receivable—affiliates of $3.7 million and $2.6 million as of December 31, 2017 and 2016,respectively, and current accounts payable—affiliates of $4.6 million and $3.8 million as of December 31, 2017 and 2016, respectively,for certain direct billings and cost allocations for services the Company provided to affiliates, services our affiliates provided to us, andsales or purchases of natural gas and electricity with affiliates.Convertible Subordinated Notes to AffiliateIn connection with the financing of the CenStar acquisition, the Company, together with Spark HoldCo, issued the CenStar Note toRetailco Acquisition Co, LLC ("RAC"), which is wholly owned by our Founder, for $2.1 million on July 8, 2015. In connection withthe financing of the Oasis acquisition, the Company, together with Spark HoldCo, issued the Oasis Note to RAC for $5.0 million onJuly 31, 2015. RAC converted the CenStar Note and the Oasis Note into shares of Class B common stock on January 8, 2017 andJanuary 31, 2017, respectively. Refer to Note 8 "Debt" for further discussion.145Table of ContentsRevenues and Cost of Revenues—AffiliatesCost of revenues—affiliates, recorded in net asset optimization revenues in the consolidated statements of operations for the yearsended December 31, 2017, 2016 and 2015 related to this agreement were $0.1 million, $1.6 million and $11.3 millionRevenues—affiliates, recorded in net asset optimization revenues in the consolidated statements of operations for the years endedDecember 31, 2017, 2016 and 2015 related to these sales were $1.3 million, $0.2 million, and $1.1 million, respectively.Additionally, the Company entered into a natural gas transportation agreement with another affiliate at its pipeline, whereby theCompany transports retail natural gas and pays the higher of (i) a minimum monthly payment or (ii) a transportation fee per MMBtutimes actual volumes transported. The current transportation agreement renews annually on February 28 at a fixed rate per MMBtuwithout a minimum monthly payment. While this transportation agreement remains in effect, this entity is no longer an affiliate as ourFounder terminated his interest in the affiliate on May 16, 2016. Cost of revenues —affiliates, recorded in retail cost of revenues in theconsolidated statements of operations related to this activity, was zero for the year ended December 31, 2017 and less than $0.1 millionfor the years ended December 31, 2016 and 2015, respectively.Cost AllocationsThe Company paid certain expenses on behalf of affiliates, which are reimbursed by the affiliates to the Company, and our affiliatespaid certain expenses on our behalf, which are reimbursed by us. These transactions include costs that can be specifically identified andcertain allocated overhead costs associated with general and administrative services, including executive management, due diligencework, recurring management consulting, facilities, banking arrangements, professional fees, insurance, information services, humanresources and other support departments to the affiliates. Where costs incurred on behalf of the affiliate or us could not be determinedby specific identification for direct billing, the costs were primarily allocated to the affiliated entities or us based on percentage ofdepartmental usage, wages or headcount. The total net amount direct billed and allocated from affiliates was $25.4 million, $17.0million and $2.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.Of the $25.4 million and $17.0 million total net amount directly billed and allocated from affiliates, the Company recorded general andadministrative expense of $22.0 million and $14.7 million for the years ended December 31, 2017 and 2016, in the consolidatedstatement of operations in connection with fees paid, net of damages charged, under the Master Service Agreement with RetailcoServices. Additionally under the Master Service Agreement, we capitalized $0.7 million and 1.3 million of property and equipment forthe application, development and implementation of various systems during the years ended December 31, 2017 and 2016.The total net amount direct billed and allocated to affiliates was $2.1 million for the year ended December 31, 2015, which wasrecorded as a reduction in general and administrative expense in the consolidated statement of operations.Distributions to and Contributions from AffiliatesDuring the years ended December 31, 2017, 2016 and 2015, the Company made net capital distributions to NuDevco Retail andRetailco of $15.6 million, $23.7 million and $15.6 million, respectively, in conjunction with the payment of quarterly distributionsattributable to its Spark HoldCo units. During the year ended December 31, 2017 and 2016, respectively, the Company madedistributions to NuDevco Retail and Retailco for gross-up distributions of $18.2 million and $11.3 million in connection withdistributions made between Spark HoldCo and Spark Energy, Inc. for payment of income taxes incurred by Spark Energy, Inc.Additionally, during the year ended December 31, 2015 the Company received a capital contribution from NuDevco of $0.1 million asNuDevco forgave an account payable due to NuDevco that arose from the payment of146Table of Contentswithholding taxes related to the vesting of restricted stock units of certain employees of NuDevco who perform services for theCompany.Proceeds from Disgorgement of Stockholder Short-swing ProfitsDuring the year ended December 31, 2017 and 2016, respectively, the Company recorded $0.7 million and $1.6 million from Retailcofor the disgorgement of stockholder short-swing profits under Section 16(b) under the Exchange Act. The amount was recorded as anincrease to additional paid-in capital in our consolidated balance sheet as of December 31, 2017 and 2016. Of the $0.7 million recordedin 2017, the Company received $0.5 million cash during the year ended December 31, 2017 and received $0.2 million cash in February2018. In addition, the Company received $0.7 million cash during the year ended December 31, 2017 related to the disgorgement ofstockholder short-swing profit recorded in our consolidated balance sheet as of December 31, 2016.Class B Common StockIn connection with the Major Energy Companies acquisition, the Company issued RetailCo 4,000,000 shares of Class B common stock(and a corresponding number of Spark HoldCo units) to NG&E. In connection with the financing of the Provider Companiesacquisition, the Company sold 1,399,484 shares of Class B common stock (and a corresponding number of Spark HoldCo units) toRetailCo, valued at $14.0 million based on a value of $10 per share. See Note 3 "Acquisitions" for further discussion.Subordinated Debt FacilityOn December 27, 2016, the Company and Spark HoldCo jointly issued to Retailco, an entity owned by our Founder, a 5%subordinated note in the principal amount of up to $25.0 million. The subordinated note allows the Company and Spark HoldCo todraw advances in increments of no less than $1.0 million per advance up to the maximum principal amount of the subordinated note.The subordinated note matures approximately three and a half years following the date of issuance, and advances thereunder accrueinterest at 5% per annum from the date of the advance. The Company has the right to capitalize interest payments under thesubordinated note. The subordinated note is subordinated in certain respects to the Company's Senior Credit Facility pursuant to asubordination agreement. The Company may pay interest and prepay principal on the subordinated note so long as it is in compliancewith its covenants under the Senior Credit Facility, is not in default under the Senior Credit Facility and has minimum availability of$5.0 million under its borrowing base under the Senior Credit Facility. Payment of principal and interest under the subordinated note isaccelerated upon the occurrence of certain change of control or sale transactions. As of December 31, 2017 and 2016, there were zeroand $5.0 million, respectively, in outstanding borrowings under the subordinated note.Tax Receivable AgreementConcurrently with the closing of the IPO, the Company entered into a Tax Receivable Agreement with Spark HoldCo, NuDevco RetailHoldings and NuDevco Retail. This agreement generally provides for the payment by the Company to Retailco, LLC (as the successorto NuDevco Retail Holdings) and NuDevco Retail of 85% of the net cash savings, if any, in U.S. federal, state and local income tax orfranchise tax that the Company actually realizes (or is deemed to realize in certain circumstances) in future periods as a result of (i) anytax basis increases resulting from the purchase by the Company of Spark HoldCo units from NuDevco Retail Holdings, (ii) any taxbasis increases resulting from the exchange of Spark HoldCo units for shares of Class A common stock pursuant to the Exchange Right(or resulting from an exchange of Spark HoldCo units for cash pursuant to the Cash Option) and (iii) any imputed interest deemed to bepaid by the Company as a result of, and additional tax basis arising from, any payments the Company makes under the Tax ReceivableAgreement. The Company retains the benefit of the remaining 15% of these tax savings. See Note 12 "Income Taxes" for furtherdiscussion.In certain circumstances, the Company may defer or partially defer any payment due (a “TRA Payment”) to the holders of rights underthe Tax Receivable Agreement, which are currently Retailco and NuDevco Retail. During the five-year period ending September 30,2019, the Company will defer all or a portion of any TRA Payment owed147Table of Contentspursuant to the Tax Receivable Agreement to the extent that Spark HoldCo does not generate sufficient Cash Available for Distribution(as defined below) during the four-quarter period ending September 30th of the applicable year in which the TRA Payment is to bemade in an amount that equals or exceeds 130% (the “TRA Coverage Ratio”) of the Total Distributions (as defined below) paid in suchfour-quarter period by Spark HoldCo. For purposes of computing the TRA Coverage Ratio: •“Cash Available for Distribution” is generally defined as the Adjusted EBITDA of Spark HoldCo for the applicable period, less(i) cash interest paid by Spark HoldCo, (ii) capital expenditures of Spark HoldCo (exclusive of customer acquisition costs) and(iii) any taxes payable by Spark HoldCo; and•“Total Distributions” are defined as the aggregate distributions necessary to cause the Company to receive distributions of cashequal to (i) the targeted quarterly distribution the Company intends to pay to holders of its Class A common and Series APreferred Stock payable during the applicable four-quarter period, plus (ii) the estimated taxes payable by the Company duringsuch four-quarter period, plus (iii) the expected TRA Payment payable during the calendar year for which the TRA CoverageRatio is being tested.In the event that the TRA Coverage Ratio is not satisfied in any calendar year, the Company will defer all or a portion of the TRAPayment to NuDevco Retail or Retailco under the Tax Receivable Agreement to the extent necessary to permit Spark HoldCo to satisfythe TRA Coverage Ratio (and Spark HoldCo is not required to make and will not make the pro rata distributions to its members withrespect to the deferred portion of the TRA Payment). If the TRA Coverage Ratio is satisfied in any calendar year, the Company will payNuDevco Retail or Retailco the full amount of the TRA Payment.Following the five-year deferral period ending September 30, 2019, the Company will be obligated to pay any outstanding deferredTRA Payments to the extent such deferred TRA Payments do not exceed (i) the lesser of the Company’s proportionate share ofaggregate Cash Available for Distribution of Spark HoldCo during the five-year deferral period or the cash distributions actuallyreceived by the Company during the five-year deferral period, reduced by (ii) the sum of (a) the aggregate target quarterly dividends(which, for the purposes of the Tax Receivable Agreement, will be $0.18125 per Class A common stock share and $0.546875 perSeries A Preferred Stock share per quarter) during the five-year deferral period, (b) the Company’s estimated taxes during the five-yeardeferral period, and (c) all prior TRA Payments and (d) if with respect to the quarterly period during which the deferred TRA Paymentis otherwise paid or payable, Spark HoldCo has or reasonably determines it will have amounts necessary to cause the Company toreceive distributions of cash equal to the target quarterly distribution payable during that quarterly period. Any portion of the deferredTRA Payments not payable due to these limitations will no longer be payable.We did not meet the threshold coverage ratio required to fund the first payment to Retailco under the Tax Receivable Agreement duringthe four-quarter period ended September 30, 2015. As such, the initial payment under the Tax Receivable Agreement due in late 2015was deferred pursuant to the terms thereof.We met the threshold coverage ratio required to fund the second TRA Payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2016, resulting in an initial TRA Payment of $1.4 millionbecoming due in December 2016. On November 6, 2016, Retailco and NuDevco Retail granted the Company the right to defer theTRA Payment until May 2018. During the period of time when the Company has elected to defer the TRA Payment, the outstandingpayment amount will accrue interest at a rate calculated in the manner provided for under the Tax Receivable Agreement. The liabilityhas been classified as current in our consolidated balance sheet at December 31, 2017.We met the threshold coverage ratio required to fund the third TRA Payment to Retailco and NuDevco Retail under the Tax ReceivableAgreement during the four-quarter period ending September 30, 2017. As such, the third payment under the Tax Receivable Agreementdue in April 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.148Table of ContentsWe expect to meet the threshold coverage ratio required to fund the fourth payment to Retailco and NuDevco Retail under the TaxReceivable Agreement during the four-quarter period ending September 30, 2018. As such, the fourth payment under the TaxReceivable Agreement due in late 2018 has been classified as current in our consolidated balance sheet at December 31, 2017.15. Segment ReportingThe Company’s determination of reportable business segments considers the strategic operating units under which the Company makesfinancial decisions, allocates resources and assesses performance of its retail and asset optimization businesses.The Company’s reportable business segments are retail natural gas and retail electricity. The retail natural gas segment consists ofnatural gas sales to, and natural gas transportation and distribution for, residential and commercial customers. Asset optimizationactivities, considered an integral part of securing the lowest price natural gas to serve retail gas load, are part of the retail natural gassegment. The Company recorded asset optimization revenues of $178.3 million, $133.0 million and $154.1 million and assetoptimization cost of revenues of $179.0 million, $133.6 million and $152.6 million for the years ended December 31, 2017, 2016 and2015, respectively, which are presented on a net basis in asset optimization revenues. The retail electricity segment consists ofelectricity sales and transmission to residential and commercial customers. Corporate and other consists of expenses and assets of theretail natural gas and retail electricity segments that are managed at a consolidated level such as general and administrative expenses.The acquisitions of CenStar and Oasis in 2015, acquisitions of Major Energy Companies and Provider Energy Companies in 2016, andacquisitions of the Perigee Companies and Verde Companies in 2017 had no impact on our reportable business segments as theportions of those acquisitions related to retail natural gas and retail electricity have been included in those existing business segments.To assess the performance of the Company’s operating segments, the Chief Operating Decision Maker analyzes retail gross margin. TheCompany defines retail gross margin as operating income (loss) plus (i) depreciation and amortization expenses and (ii) general andadministrative expenses, less (i) net asset optimization revenues (expenses), (ii) net gains (losses) on non-trading derivative instruments,and (iii) net current period cash settlements on non-trading derivative instruments. The Company deducts net gains (losses) on non-trading derivative instruments, excluding current period cash settlements, from the retail gross margin calculation in order to remove thenon-cash impact of net gains and losses on non-trading derivative instruments.Retail gross margin is a primary performance measure used by our management to determine the performance of our retail natural gasand electricity business by removing the impacts of our asset optimization activities and net non-cash income (loss) impact of oureconomic hedging activities. As an indicator of our retail energy business’ operating performance, retail gross margin should not beconsidered an alternative to, or more meaningful than, operating income, as determined in accordance with GAAP.Below is a reconciliation of retail gross margin to income before income tax expense (in thousands):149Table of Contents Years Ended December 31,(in thousands) 2017 2016 2015Reconciliation of Retail Gross Margin to Income before taxes Income before income tax expense $113,809 $76,099 $27,949Change in Tax Receivable Agreement Liability (22,267) — —Interest and other income (256) (957) (324)Interest expense 11,134 8,859 2,280Operating Income 102,420 84,001 29,905Depreciation and amortization 42,341 32,788 25,378General and administrative 101,127 84,964 61,682Less: Net asset optimization (expenses) revenue (717) (586) 1,494Net, Gain (losses) on non-trading derivative instruments 5,588 22,254 (18,423)Net, Cash settlements on non-trading derivative instruments 16,508 (2,284) 20,279Retail Gross Margin $224,509 $182,369 $113,615The Company uses retail gross margin and net asset optimization revenues as the measure of profit or loss for its business segments.This measure represents the lowest level of information that is provided to the chief operating decision maker for our reportablesegments.Financial data for business segments are as follows (in thousands):Year Ended December 31, 2017RetailElectricity RetailNatural Gas Corporateand Other Eliminations Spark RetailTotal Revenues$657,561 $140,494 $— $— $798,055Retail cost of revenues477,012 75,155 — — 552,167Less: Net asset optimization (expense)(5) (712) — — (717)Net, Gains (losses) on non-trading derivativeinstruments5,784 (196) — — 5,588Current period settlements on non-tradingderivatives16,302 206 — — 16,508Retail gross margin$158,468 $66,041 $— $— $224,509Total Assets $1,228,552 $421,896 $209,428 $(1,353,927) $505,949Goodwill$117,624 $2,530 $— $— $120,154Year Ended December 31, 2016RetailElectricityRetailNatural GasCorporateand OtherEliminationsSpark RetailTotal Revenues$417,229$129,468$—$—$546,697Retail cost of revenues286,79558,149——344,944Less:Net asset optimization (expense)—(586)——(586)Net, Gains on non-trading derivativeinstruments17,1875,067——22,254Current period settlements on non-tradingderivatives(4,889)2,605——(2,284)Retail gross margin$118,136$64,233$—$—$182,369Total Assets$576,757$242,739$169,404$(613,670)$375,230Goodwill$76,617 $2,530 $— $— $79,147150Table of ContentsYear Ended December 31, 2015RetailElectricityRetailNatural GasCorporateand OtherEliminationsSpark RetailTotal Revenues$229,490$128,663$—$—$358,153Retail cost of revenues170,68470,504——241,188Less:Net asset optimization revenues—1,494——1,494Net, (Losses) on non-trading derivativeinstruments(13,348)(5,075)——(18,423)Current period settlements on non-tradingderivatives11,8998,380——20,279Retail gross margin$60,255$53,360$—$—$113,615Total Assets$150,245 $113,583 $88,823 $(190,417) $162,234Goodwill$16,476$1,903$—$—$18,379Significant CustomersFor each of the years ended December 31, 2017, 2016 and 2015, the Company did not have any significant customers that individuallyaccounted for more than 10% of the Company’s consolidated retail revenue.Significant SuppliersFor the years ended December 31, 2017, 2016 and 2015, the Company had two, two and one significant suppliers, respectively, thatindividually accounted for more than 10% of the Company’s consolidated retail cost of revenues and net asset optimization.16. Customer AcquisitionsOn April 3, 2017, the Company and Spark HoldCo exercised an option to acquire approximately 44,000 RCEs from the original ownerof Perigee. As of December 31, 2017, the Company paid $7.5 million for customers transferred to date. The purchase price wascapitalized as customer relationships and is being amortized over a three year period as customers begin using electricity under acontract with the Company.During the first quarter of 2015, the Company entered into a purchase and sale agreement for the purchase of approximately 9,500RCEs in Northern California for a purchase price of $2.0 million. The transaction closed in April 2015. The purchase price wascapitalized as customer relationships in our consolidated balance sheet and is being amortized over a three-year period as customers usenatural gas under a contract with the Company.17. Equity Method InvestmentInvestment in eREX Spark Marketing Co., LtdIn September 2015, the Company and Spark HoldCo, together with eREX Co., Ltd., a Japanese company, entered into an agreement("eREX JV Agreement") to form a new joint venture, eREX Spark Marketing Co., Ltd ("eREX Spark"). As part of this agreement, theCompany made contributions of 156.4 million Japanese Yen, or $1.4 million, for a 20% ownership interest in eREX Spark. TheCompany is entitled to share in 30% of the dividends distributed by eREX Spark for the first year a qualifying dividend is paid and forthe subsequent four years thereafter. After this period, dividends will be distributed proportionately with the equity ownership of eREXSpark. eREX Spark's board of directors consists of four directors, one of whom is appointed by the Company.Based on the Company's significant influence, as reflected by the 20% equity ownership and 25% control of the eREX Spark board ofdirectors, we recorded the investment in eREX Spark as an equity method investment. Our investment in eREX Spark was $2.5 millionas of December 31, 2017, reflecting contributions made by the151Table of ContentsCompany through December 31, 2017 and our proportionate share of earnings as determined under the HLBV method as ofDecember 31, 2017, and recorded in other assets in the consolidated balance sheet. There were no basis differences between our initialcontribution and the underlying net assets of eREX Spark. We recorded our proportionate share of eREX Spark's earnings of $0.2million in our consolidated statement of operations for the year ended December 31, 2017.18. Subsequent EventsBuyout of Verde Earnout ObligationsOn January 12, 2018, we entered into an Agreement to Terminate Earnout Payments (the “Earnout Termination Agreement”) thatterminated our obligation to make any required earnout payments under the agreement for our acquisition of the Verde Companies inexchange for CenStar’s issuance to Verde Energy of a promissory note in the principal amount of $5.9 million (the “Verde EarnoutTermination Note”). See further discussion in Note 8 "Debt."In addition, the Earnout Termination Agreement provided for CenStar’s issuance to Verde Energy USA Holdings, LLC of an amendedand restated promissory note (the “Amended and Restated Verde Promissory Note”), which amended and restated the VerdePromissory Note. See further discussion in Note 8 "Debt."Declaration of DividendsOn January 18, 2018, the Company declared a dividend of $0.18125 per share to holders of record of our Class A common stock onMarch 2, 2018 and payable on March 16, 2018.On January 18, 2018, the Company declared a quarterly cash dividend in the amount of $0.546875 per share of Series A PreferredStock. This amount represents an annualized dividend of $2.1875 per share. The dividend will be paid on April 16, 2018 to holders ofrecord on April 2, 2018 of the Series A Preferred Stock. The Company anticipates Series A Preferred Stock dividends declared of $8.1million in the aggregate for the year ended December 31, 2018 based on the Series A Preferred Stock outstanding as of the date thesefinancial statements are issued.Expansion of Credit FacilityOn January 11, 2018 and January 23, 2018, we exercised the accordion feature in the Senior Credit Facility, which when combinedwith prior exercises, increased the total commitments under the Senior Credit Facility from $150.0 million to $200.0 million. Please seeNote 8 "Debt" and “—Liquidity and Capital Resources—Senior Credit Facility.”Series A Preferred Stock OfferingOn January 26, 2018, we issued 2,000,000 shares of Series A Preferred Stock and received net proceeds from the offering ofapproximately $48.9 million (net of underwriting discounts, commissions and a structuring fee). See Note 5 "Preferred Stock" forfurther discussion.Acquisition of HIKOOn March 1, 2018, we entered into a Membership Interest Purchase Agreement pursuant to which we acquired all of the issued andoutstanding membership interests of HIKO Energy, LLC, a New York limited liability company, for a total purchase price of $6.0million in cash, plus working capital. HIKO Energy, LLC ("HIKO") has a total of approximately 29,000 RCEs located in 42 markets in7 states. Initial accounting for the HIKO business combination is incomplete as of the date these financial statements are issued. Pleasesee "Item 9B—Other Information—Acquisition of HIKO" for a more detailed description.152Table of ContentsAcquisition of Customers from NG&EOn March 7, 2018, we entered into an asset purchase agreement with NG&E pursuant to which we will acquire approximately 50,000RCEs from NG&E for a cash purchase price of $250 for each RCE, or approximately $12.5 million in the aggregate. These customersare expected to begin transferring after April 1, 2018 and are located in 24 markets in 8 states. Please see “Item 9B—Other Information—Acquisition of Customers from NG&E” for a more detailed description.Termination of Master Service AgreementOn March 7, 2018, we, Retailco Services and NuDevco Retail mutually agreed to terminate the Master Services Agreement, effectiveApril 1, 2018. We believe that Retailco Services was able to recognize cost savings and stabilize operating costs related to theoperational support services in 2016 and 2017. Under the terms of the termination agreement, the operational support services will betransferred back to the Company, which may allow us to extract further savings by eliminating overhead attributable to managing andaccounting for Retailco Services as a stand-alone business. Please see “Item 9B—Other Information—Termination of Master ServiceAgreement” for a more detailed description.Supplemental Quarterly Financial Data (unaudited)Summarized unaudited quarterly financial data is as follows:Quarter Ended 2017December 31, 2017September 30,2017June 30, 2017March 31, 2017 (1)(In thousands, except per share data)Total Revenues$234,776$215,536$151,436$196,307Operating income59,75218,0887,79716,783Net income47,53612,9424,67111,132Net income attributable to Spark Energy, Inc.stockholders13,1582,3471,0792,270Net income attributable to stockholders of Class Acommon stock12,2261,415882,087Net income attributable to Spark Energy, Inc. percommon share - basic$0.92$0.11$0.01$0.16Net (loss) income attributable to Spark Energy, Inc. percommon share - diluted$0.92$0.11$0.01$0.16(1)Financial information has been recast to include results attributable to the acquisition of Perigee Energy, LLC by an affiliate on February 3, 2017. See Notes 2 and 3 "Basis ofPresentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion. Quarter Ended2016December 31, 2016September 30,2016June 30, 2016 (1)March 31, 2016(In thousands, except per share data)Total Revenues$168,676$158,094$109,381$110,546Operating income33,0988,96024,36617,577Net income24,1376,80118,99415,741Net income attributable to Spark Energy, Inc.stockholders7,7471832,3414,173Net income attributable to stockholders of Class Acommon stock7,7471832,3414,173Net income attributable to Spark Energy, Inc. percommon share - basic$0.60$0.02$0.05$0.56Net (loss) income attributable to Spark Energy, Inc. percommon share - diluted$0.52$(0.02)$0.21$0.34(1)Financial information has been recast to include results attributable to the acquisition of Major Energy Companies by an affiliate on April 15, 2016. See Notes 2 and 3 "Basisof Presentation and Summary of Significant Accounting Policies" and "Acquisitions," respectively, for further discussion.153Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectivenessof our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. The term“disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and otherprocedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it filesor submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’srules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated andcommunicated to the company’s management, including its principal executive and principal financial officers or persons performingsimilar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls andprocedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, andmanagement necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based onthis evaluation, management concluded that our disclosure controls and procedures were effective as of December 31, 2017 at thereasonable assurance level.Management's Annual Report on Internal Control Over Financial ReportingSee "Management's Report on Internal Control Over Financial Reporting" under Item 8 of this Annual Report on Form 10-K.Attestation Report of the Independent Registered Public Accounting FirmThis Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on ourinternal control over financial reporting because Section 103 of the JOBS Act provides that an emerging growth company is notrequired to provide an auditor's report on internal control over financial reporting for as long as we qualify as an emerging growthcompany.Changes in Internal Control over Financial ReportingThere was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the three months ended December 31, 2017 that has materially affected,or is reasonably likely to materially affect, our internal control over financial reporting, expect as described below.Item 9B. Other InformationAcquisition of Customers from NG&EOn March 7, 2018, Spark HoldCo entered into an asset purchase agreement (the “Customer Purchase Agreement”) with NG&E.Pursuant to the terms of the Customer Purchase Agreement, Spark HoldCo has agreed to purchase, and NG&E has agreed to sell, aportfolio of approximately 50,000 RCEs located in 24 markets in eight states. We expect these customers will begin transferring afterApril 1, 2018. The purchase price under the Customer Purchase Agreement is a cash payment of $250 for each RCE, or approximately$12.5 million in the aggregate and will be funded with cash on hand.154Table of ContentsSpark HoldCo and NG&E have made customary representations, warranties and covenants in the Customer Purchase Agreement.Consummation of the transactions contemplated by the Customer Purchase Agreement is subject to various conditions, including,among others, (1) that no order or decree prohibits the transaction, and (2) that the parties have not otherwise agreed to mutuallyterminate the agreement before the transfer of the customers. The Customer Purchase Agreement requires the parties to deliver certainancillary documents. The Customer Purchase Agreement also contains termination provisions and indemnification provisions.The terms of the Customer Purchase Agreement were approved by our Board of Directors after approval by a special committee of theBoard of Directors. The special committee was composed exclusively of independent members of our Board of Directors. NG&E isowned by W. Keith Maxwell III, our Chairman of the Board, founder and majority shareholder.The foregoing summary of the Customer Purchase Agreement does not purport to be complete and is qualified in its entirety byreference to the complete terms of the Customer Purchase Agreement, a copy of which is attached as Exhibit 2.7 to this Annual Reportand is incorporated in this Item 9B by reference. The Customer Purchase Agreement has been filed as an exhibit to this Annual Reportto provide investors and security holders with more complete information regarding its terms. The Customer Purchase Agreement is notintended to provide any other factual information about Spark HoldCo. The representations, warranties and covenants contained in theCustomer Purchase Agreement were made only for purposes of the Customer Purchase Agreement and as of specific dates, were solelyfor the benefit of the parties to the Customer Purchase Agreement, and may be subject to limitations agreed upon by the contractingparties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of theCustomer Purchase Agreement. The representations and warranties may have been made for the purposes of allocating contractual riskbetween the parties instead of establishing these matters as facts, and may be subject to standards of materiality applicable to thecontracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the agreements andshould not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state offacts or condition of Spark HoldCo or any of their respective subsidiaries or affiliates. Moreover, information concerning the subjectmatter of the representations and warranties may change after the date of the agreements, which subsequent information may or maynot be fully reflected in the public disclosures of the Company.Termination of Master Service AgreementOn March 7, 2018, the Company, Retailco Services and NuDevco Retail mutually agreed to terminate the Master Service Agreement,effective April 1, 2018, pursuant to that certain Termination Agreement, by and between Spark HoldcCo, Retailco Services andNuDevco Retail, as guarantor, (the “MSA Termination Agreement”). For a description of the terms and conditions of the Master ServiceAgreement, please see “Business and Properties-Relationship with our Founder and Majority Shareholder-Master Service Agreement.”Pursuant to the MSA Termination Agreement, the operational support services such as enrollment and renewal transaction services;customer billing and transaction services; electronic payment processing services; customer services and information technologyinfrastructure and application support services previously provided to us by Retailco Services under the Master Service Agreement willbe transferred back to Spark HoldCo. Additionally, certain of Retailco Services employees who previously provided services to SparkHoldCo under the Master Service Agreement will become employees of Spark HoldCo, and certain contracts, assets, and intellectualproperty that were assigned under the Master Service Agreement will be assigned back to Spark HoldCo. To assist in the transition ofthese services and assets back to Spark HoldCo, Retailco Services is obligated to provide transition services to Spark HoldCo for aperiod of six months. Spark HoldCo is not obligated to pay any consideration for the MSA Termination Agreement or the termination ofthe Master Service Agreement.The MSA Termination Agreement and the termination of the Master Service Agreement was approved by our Board of Directors afterapproval by a special committee of the Board of Directors. The Special Committee was composed exclusively of independent membersof our Board of Directors. Retailco Services is owned by W. Keith Maxwell III, our Chairman of the Board, founder and majorityshareholder.155Table of ContentsThe foregoing summary of the MSA Termination Agreement does not purport to be complete and is qualified in its entirety by referenceto the complete terms of the MSA Termination Agreement, a copy of which is attached as Exhibit 10.43 to this Annual Report and isincorporated in this Item 9B by reference.156Table of ContentsPART III.Item 10. Directors, Executive Officers and Corporate GovernanceInformation as to Item 10 will be set forth in the Proxy Statement for the 2018 Annual Meeting of Shareholders (the “Annual Meeting”)and is incorporated herein by reference.Item 11. Executive CompensationInformation as to Item 11 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder MattersInformation as to Item 12 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation as to Item 13 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by reference.Item 14. Principal Accounting Fees and ServicesInformation as to Item 14 will be set forth in the Proxy Statement for the Annual Meeting and is incorporated herein by reference.PART IV.Item 15. Exhibits, Financial Statement Schedules(1) The consolidated financial statements of Spark Energy, Inc. and its subsidiaries and the report of the independent registered publicaccounting firm are included in Part II, Item 8 of this Annual Report.(2) All schedules have been omitted because they are not required under the related instructions, are not applicable or the information ispresented in the consolidated financial statements or related notes.(3) The exhibits listed on the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Annual Report.157Table of ContentsItem 16. Form 10-K SummaryNone.INDEX TO EXHIBITS Incorporated by ReferenceExhibitExhibit DescriptionFormExhibitNumberFiling DateSEC File No.2.1#Membership Interest Purchase Agreement, by and among Spark Energy, Inc.,Spark HoldCo, LLC, Provider Power, LLC, Kevin B. Dean and Emile L.Clavet, dated as of May 3, 2016.10-Q 2.15/5/2016001-365592.2#Membership Interest Purchase Agreement, by and among Spark Energy, Inc.,Spark HoldCo, LLC, Retailco, LLC and National Gas & Electric, LLC, datedas of May 3, 2016.10-Q 2.25/5/2016001-365592.3#Amendment No. 1 to the Membership Interest Purchase Agreement, dated asof July 26, 2016, by and among Spark Energy, Inc., Spark HoldCo, LLC,Provider Power, LLC, Kevin B. Dean and Emile L. Clavet.8-K 2.18/1/2016001-365592.4#Membership Interest and Stock Purchase Agreement, by and among SparkEnergy, Inc., CenStar Energy Corp. and Verde Energy USA Holdings, LLC,dated as of May 5, 2017.10-Q 2.45/8/2017001-365592.5First Amendment to the Membership Interest and Stock Purchase Agreement,dated July 1, 2017, by and among Spark Energy, Inc., CenStar Energy Corp.,and Verde Energy USA Holdings, LLC.8-K 2.17/6/2017001-365592.6#Agreement to Terminate Earnout Payments, effective January 12, 2018, byand among Spark Energy, Inc., CenStar Energy Corp., Woden Holdings, LLC(fka Verde Energy USA Holdings, LLC), Verde Energy USA, Inc., ThomasFitzGerald, and Anthony Mench.8-K 2.11/16/2018001-365592.7*#Asset Purchase Agreement, dated March 7, 2018, by and between SparkHoldCo, LLC and National Gas & Electric, LLC 3.1Amended and Restated Certificate of Incorporation of Spark Energy, Inc.8-K 3.18/4/2014001-365593.2Amended and Restated Bylaws of Spark Energy, Inc.8-K 3.28/4/2014001-36559 3.3Certificate of Designations of Rights and Preferences of 8.75% Series AFixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Stock.8-A 53/11/2017001-365594.1Class A Common Stock CertificateS-1 4.16/30/2014333-196375 4.2Convertible Subordinated Promissory Note of Spark HoldCo, LLC and SparkEnergy, Inc. dated July 8, 2015 payable to Retailco Acquisition Co, LLC10-Q 10.88/13/2015001-36559 4.3Convertible Subordinated Promissory Note of Spark HoldCo, LLC and SparkEnergy, Inc. dated July 31, 2015 payable to Retailco Acquisition Co, LLC10-Q 10.98/13/2015001-36559 4.4Promissory Note of CenStar Energy Corp., effective July 1, 2017, payable toVerde USA Holdings, LLC.8-K 10.17/6/2017001-36559158Table of Contents4.5Amended and Restated Promissory Note of CenStar Energy Corp., effectiveJanuary 12, 2018, payable to Woden Holdings, LLC.8-K 10.21/16/2018001-365594.6Promissory Note of CenStar Energy Corp., effective January 12, 2018,payable to Woden Holdings, LLC.8-K 10.11/16/2018001-3655910.1Credit Agreement, dated as of May 19, 2017, among Spark Energy, Inc., SparkHoldCo, LLC, Spark Energy, LLC, Spark Energy Gas, LLC, CenStar EnergyCorp, CenStar Operating Company, LLC, Oasis Power, LLC, Oasis PowerHoldings, LLC, Electricity Maine, LLC, Electricity N.H., LLC, ProviderPower Mass, LLC, Major Energy Services LLC, Major Energy ElectricityServices LLC, Respond Power LLC and Perigee Energy, LLC as Co-Borrowers, Coöperatieve Rabobank U.A., New York Branch, asAdministrative Agent, an Issuing Bank and a Bank, and CoöperatieveRabobank U.A., New York Branch and BBVA Compass, as Joint LeadArrangers and Sole Bookrunner, and the Other Financial InstitutionsSignatory Thereto.8-K 10.15/24/2017001-3655910.2Amendment No. 1 to the Credit Agreement, dated as of November 2, 2017,among Spark HoldCo, LLC, Spark Energy, LLC, Spark Energy Gas, LLC,CenStar Energy Corp, CenStar Operating Company, LLC, Oasis Power, LLC,Oasis Electricity Maine, LLC, Electricity N.H., LLC, Provider Power Mass,LLC, Major Energy Services, LLC, Perigee Energy, LLC, Verde Energy USA,Inc. as Co-Borrowers.10-Q 10.111/3/2017001-3655910.3Amended and Restated Credit Agreement, dated as of July 8, 2015, amongSpark Energy, Inc., as parent, Spark HoldCo, LLC, Spark Energy, LLC, SparkEnergy Gas, LLC, CenStar Energy Corp, and CenStar Operating Company,LLC, as co-borrowers, Société Générale, as administrative agent, an IssuingBank and a Bank, and SG Americas Securities, LLC and Compass Bank, asco-lead arranger, SG Americas Securities, LLC, as sole bookrunner, CompassBank, as syndication agent, Cooperative Centrale Raiffeisen-BoerenleenbankB.A., “Rabobank Nederland,” New York Branch, as documentation agent, andthe other financial institutions signatory thereto.8-K 10.17/9/2015001-36559 10.4Amendment No. 1 to Amended and Restated Credit Agreement, dated October30, 2015 and effective as of October 31, 2015, by and among Spark HoldCo,LLC, Spark Energy, LLC, Spark Energy Gas, LLC, CenStar Energy Corp,CenStar Operating Company, LLC, Oasis Power Holdings, LLC, Oasis Power,LLC, Spark Energy, Inc., the Banks party thereto and Société Générale, asadministrative agent.10-K 10.23/24/2016001-36559 10.5Amendment No. 2 to Amended and Restated Credit Agreement, dated andeffective as of December 30, 2015, by and among Spark HoldCo, LLC, SparkEnergy, LLC, Spark Energy Gas, LLC, CenStar Energy Corp, CenStarOperating Company, LLC, Oasis Power Holdings, LLC, Oasis Power, LLC,Spark Energy, Inc., the Banks party thereto and Société Générale, asadministrative agent.10-K 10.33/24/2016001-36559 10.6Amendment No. 3 to Amended and Restated Credit Agreement, dated as ofJune 1, 2016, by and among the Company, Spark HoldCo, Spark Energy,LLC, Spark Energy Gas, LLC, CenStar Energy Corp, CenStar OperatingCompany, LLC, Oasis Power Holdings, LLC and Oasis Power, LLC, as co-borrowers, the banks party thereto and Société Générale, as administrativeagent.10-Q 10.48/11/2016001-36559159Table of Contents10.7Amendment No. 4 to Amended and Restated Credit Agreement, effective as ofAugust 1, 2016, by and among the Company, Spark HoldCo, Spark Energy,LLC, Spark Energy Gas, LLC, CenStar Energy Corp, CenStar OperatingCompany, LLC, Oasis Power Holdings, LLC and Oasis Power, LLC, as co-borrowers, the banks party thereto and Société Générale, as administrativeagent.8-K 10.28/1/2016001-3655910.8Credit Agreement, dated as of August 1, 2014, by and among Spark Energy,Inc., as parent, Spark HoldCo, LLC, Spark Energy, LLC, and Spark EnergyGas, LLC, as co-borrowers, Société Générale, as administrative agent, anissuing bank and a bank, SG Americas Securities, LLC, as sole lead arrangerand sole bookrunner, Natixis, New York Branch, Cooperatieve CentraleRaiffeisen-Boerenleenbank B.A., New York Branch, and RB InternationalFinance (USA) LLC, as co-documentation agent, Compass Bank, as seniormanaging agent and the other financial institutions party hereto from time totime.8-K 10.18/4/2014001-36559 10.9Tax Receivable Agreement, dated as of August 1, 2014, by and among SparkEnergy, Inc., Spark HoldCo LLC, NuDevco Retail Holdings, LLC, NuDevcoRetail, LLC and W. Keith Maxwell III.8-K 10.28/4/2014001-36559 10.10+Master Service Agreement, effective as of January 1, 2016, by and amongSpark HoldCo, LLC, Retailco Services, LLC, and NuDevco Retail,. LLC.10-K 10.63/24/2016001-36559 10.11†Spark Energy, Inc. Long-Term Incentive PlanS-8 4.37/31/2014333-197738 10.12†Spark Energy, Inc. Amended and Restated Long-Term Incentive Plan.10-Q 10.311/10/2016001-3655910.13†Form of Restricted Stock Unit AgreementS-1 10.46/30/2014333-196375 10.14†Form of Notice of Grant of Restricted Stock UnitS-1 10.56/30/2014333-196375 10.15Spark HoldCo, LLC Second Amended and Restated Limited LiabilityAgreement, dated as of August 1, 2014, by and among Spark Energy, Inc.,NuDevco Retail Holdings and NuDevco Retail.8-K 10.38/4/2014001-36559 10.16Spark HoldCo. Third Amended and Restated Limited Liability Agreement,dated as of March 15, 2017, by and among Spark Energy, Inc., Retailco, LLCand NuDevco Retail, LLC.10-Q 10.15/8/2017001-3655910.17Amendment No. 1, dated as of January 26, 2018, to Third Amended andRestated Limited Liability Company Agreement of Spark Holdco, LLC.8-K 10.11/26/2018001-3655910.18†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and W. Keith Maxwell III.8-K 10.58/4/2014001-36559 10.19†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and Nathan Kroeker.8-K 10.68/4/2014001-36559 10.20†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and Allison Wall8-K 10.78/4/2014001-36559 10.21†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and Georganne Hodges.8-K 10.88/4/2014001-36559 8-K 10.98/4/2014001-3655910.22†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and Gil Melman. 10.23†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and James G. Jones II.8-K 10.108/4/2014001-36559160Table of Contents 10.24†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and John Eads.8-K 10.118/4/2014001-36559 10.25†Indemnification Agreement, dated August 1, 2014, by and between SparkEnergy, Inc. and Kenneth M. Hartwick.8-K 10.128/4/2014001-36559 10.26†Indemnification Agreement, dated May 25, 2016, by and between SparkEnergy, Inc. and Jason Garrett.8-K 10.25/27/2016001-36559 10.27†Indemnification Agreement, dated May 25, 2016, by and between SparkEnergy, Inc. and Nick W. Evans, Jr.8-K 10.15/27/2016001-3655910.28†Indemnification Agreement, dated June 2, 2016, by and between SparkEnergy, Inc. and Robert Lane.8-K 10.36/3/2016001-3655910.29Registration Rights Agreement, dated as of August 1, 2014, by and amongSpark Energy, Inc., NuDevco Retail Holdings, LLC and NuDevco Retail LLC.8-K 10.48/4/2014001-36559 10.30Transaction Agreement II, dated as of July 30, 2014, by and among SparkEnergy, Inc., Spark HoldCo, LLC, NuDevco Retail LLC, NuDevco RetailHoldings, LLC, Spark Energy Ventures, LLC, NuDevco Partners Holdings,LLC and Associated Energy Services, LP.8-K 4.18/4/2014001-36559 10.31†Employment Agreement, dated April 15, 2015, by and between Spark Energy,Inc. and Nathan Kroeker.8-K 10.14/20/2015001-36559 10.32†Employment Agreement, dated April 15, 2015, by and between Spark Energy,Inc. and Allison Wall.8-K 10.24/20/2015001-36559 10.33†Employment Agreement, dated April 15, 2015, by and between Spark Energy,Inc. and Georganne Hodges.8-K 10.34/20/2015001-36559 10.34†Employment Agreement, dated April 15, 2015, by and between Spark Energy,Inc. and Gil Melman.8-K 10.44/20/2015001-36559 10.35†Employment Agreement, dated August 3, 2015, by and between SparkEnergy, Inc. and Jason Garrett.8-K 10.18/4/2015001-36559 10.36†Amended and Restated Employment Agreement, dated June 2, 2016, by andbetween Spark Energy, Inc. and Robert Lane.8-K 10.16/3/2016001-3655910.37Membership Interest Purchase Agreement, dated as of May 12, 2015, by andbetween Retailco Acquisition Co, LLC and Spark HoldCo, LLC.10-Q 10.55/14/2015001-36559 10.38†Separation and Release Agreement, dated as of November 9, 2015, by andbetween Spark Energy, Inc. and Allison Wall.10-Q 10.511/12/2015001-36559 10.39†Employment Separation Agreement, dated June 2, 2016, by and betweenSpark Energy, Inc. and Georganne Hodges.8-K 10.26/3/2016001-3655910.40Subscription Agreement, by and between Spark Energy, Inc., Spark HoldCo,LLC and Retailco, LLC, dated as of May 3, 2016.10-Q 10.15/5/2016001-3655910.41Amended and Restated Subscription Agreement, dated as of July 27, 2016, byand among Spark Energy, Inc., Spark HoldCo, LLC and Retailco, LLC.8-K 10.18/1/2016001-3655910.42Subordinated Promissory Note of Spark HoldCo, LLC and Spark Energy, Inc.,dated December 27, 2016.8-K 10.112/30/2016001-3655910.43*Termination Agreement, dated March 7, 2018, by and among Spark HoldCo,LLC, Retailco Services, LLC and NuDevco Retail, LLC. 21.1*List of Subsidiaries of Spark Energy, Inc. 23.1*Consent of KPMG 31.1*Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under theSecurities Exchange Act of 1934. 161Table of Contents31.2*Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under theSecurities Exchange Act of 1934. 32**Certifications pursuant to 18 U.S.C. Section 1350. 101.INS*XBRL Instance Document. 101.SCH*XBRL Schema Document. 101.CAL*XBRL Calculation Document. 101.LAB*XBRL Labels Linkbase Document. 101.PRE*XBRL Presentation Linkbase Document. 101.DEF*XBRL Definition Linkbase Document. * Filed herewith** Furnished herewith† Compensatory plan or arrangement+ Portions of this exhibit have been omitted and filed separately with the SEC pursuant to an order granting confidential treatment.# The registrant agrees to furnish supplementally a copy of any omitted schedule to the Commission upon request.162Table of ContentsSIGNATURESPursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.March 9, 2018Spark Energy, Inc. By: /s/ Robert Lane Robert Lane Chief Financial Officer (Principal Financial Officerand Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf ofthe registrant in the capacities indicated on March 9, 2018: By: /s/ Nathan Kroeker Nathan Kroeker Director, President and Chief Executive Officer /s/ W. Keith Maxwell III W. Keith Maxwell III Chairman of the Board of Directors, Director /s/ Robert Lane Robert Lane Chief Financial Officer (Principal Financial Officerand Principal Accounting Officer) /s/ James G. Jones II James G. Jones II Director /s/ Nick Evans Jr. Nick Evans Jr. Director /s/ Kenneth M. Hartwick Kenneth M. Hartwick Director163ASSET PURCHASE AGREEMENTBY AND BETWEENNATIONAL GAS & ELECTRIC, LLCANDSPARK HOLDCO, LLCMARCH 7, 2018TABLE OF CONTENTSPageARTICLE I DEFINITIONS AND INTERPRETATIONS1.1Definitions. 11.2Interpretations. 1ARTICLE II SALE AND PURCHASE OF PURCHASED ASSETS2.1Sale of Assets. 22.2Excluded Assets. 22.3Purchase Price; Adjustments to Purchase Price. 32.4Assumption of Certain Obligations. 32.5Obligations Not Assumed 52.6Tax Allocation of Purchase Price 62.7Taxes. 62.8Payment of Taxes and Other Expense. 6ARTICLE III REPRESENTATIONS AND WARRANTIES OF NGE3.1Organization; Qualification. 63.2Authority; Enforceability. 73.3Non-Contravention. 73.4Governmental Approvals. 83.5Consents. 83.6Compliance with Law. 83.7Taxes. 83.8Legal Proceedings. 93.9Purchased Assets; Title to the Purchased Assets. 93.10Contracts. 93.11Disclosure. 103.12Solvency. 103.13Bankruptcy. 103.14Brokers’ Fee. 10ARTICLE IV REPRESENTATION AND WARRANTIES OF BUYER4.1Organization; Qualification. 114.2Authority; Enforceability. 114.3Non-Contravention. 114.4Governmental Approvals. 124.5Legal Proceedings. 124.6Solvency. 124.7Bankruptcy. 124.8Brokers’ Fee. 12ARTICLE V COVENANTS OF NGE AND BUYER5.1Maintenance of Purchased Contracts 135.2Restrictions on Certain Actions. 135.3Notices; Support of Transaction; Consents. 135.4Collection of Receivables; Payment of Obligations. 145.5Access to Information 145.6Confidentiality. 155.7Further Assurances. 155.8Non-Solicitation of Customers. 15ARTICLE VI POST EXECUTION DELIVERABLES6.1Deliveries by NGE and Buyer. 156.2Notice to Customers 156.3Transfer of Purchased Contracts. 16ARTICLE VII TERMINATION RIGHTS7.1Termination Rights. 167.2Effect of Termination. 16ARTICLE VIII INDEMNIFICATION8.1Indemnification by NGE. 168.2Indemnification by Buyer to NGE. 178.3Limitations and Other Indemnity Claim Matters. 178.4Indemnification Procedures. 188.5Express Negligence. 208.6No Reliance. 208.7Tax Treatment. 20ARTICLE IX GOVERNING LAW AND CONSENT TO JURISDICTION9.1Governing Law. 219.2Consent to Jurisdiction. 21ARTICLE X GENERAL PROVISIONS10.1Amendments to Schedules. 2110.2Amendment and Modification. 2110.3Waiver of Compliance; Consents. 2110.4Notices. 2210.5Assignment. 2210.6Third Party Beneficiaries. 2210.7Entire Agreement.. 2310.8Severability. 2310.9Representation by Counsel. 2310.10Disclosure Schedules. 2310.11Facsimiles; Counterparts. 23ExhibitsExhibit A—DefinitionsExhibit B—Form of Bill of Sale, Assignment and Assumption AgreementExhibit C—Form of Notice to Customers Schedules Schedule 2.1(a) —Listing of Purchased ContractsSchedule 2.1(c)—Listing of Hedge AgreementsASSET PURCHASE AGREEMENTThis ASSET PURCHASE AGREEMENT (this “Agreement”), dated as of March 7, 2018 (the “Execution Date”), is madeand entered into by National Gas & Electric, LLC, a Texas limited liability company (“NGE”), and Spark HoldCo, LLC, a Delawarelimited liability company (“Buyer” or “Spark”).Each of the parties to this Agreement is sometimes referred to individually in this Agreement as a “Party” and all of the partiesto this Agreement are sometimes collectively referred to in this Agreement as the “Parties.”R E C I T A L SWHEREAS, NGE owns certain electric retail sales contracts and certain assets related thereto in the Northeast Markets (asdefined below); andWHEREAS, NGE will sell transfer, assign and convey to Buyer all of the Purchased Contracts (as defined hereinafter) inexchange for the consideration and on the terms and conditions set forth in this Agreement.A G R E E M E N T SNOW, THEREFORE, in consideration of the representations, warranties, agreements and covenants contained in thisAgreement, and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, theParties undertake and agree as follows:Article I DEFINITIONS AND INTERPRETATIONS1.1 Definitions. Capitalized terms used in this Agreement but not defined in the body of this Agreement shall have themeanings ascribed to them in Exhibit A.1.2 Interpretations. In this Agreement, unless a clear contrary intention appears: (a) the singular includes the plural and viceversa; (b) reference to a Person includes such Person’s successors and assigns but, in the case of a Party, only if such successors andassigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity;(c) reference to any gender includes each other gender; (d) references to any Exhibit, Schedule, Section, Article, Annex, subsectionand other subdivision refer to the corresponding Exhibits, Schedules, Sections, Articles, Annexes, subsections and other subdivisionsof this Agreement unless expressly provided otherwise; (e) references in any Section or Article or definition to any clause means suchclause of such Section, Article or definition; (f) “hereunder,” “hereof,” “hereto” and words of similar import are references to thisAgreement as a whole and not to any particular provision of this Agreement; (g) the word “or” is not exclusive, and the word“including” (in its various forms) means “including without limitation”; (h) each accounting term not otherwise defined in thisAgreement has the meaning commonly applied to it in accordance with GAAP; (i) references to “days” are to calendar days; and (j) allreferences to money refer to the lawful currency of the United States. The Table of Contents and the Article and Section titles andheadings in this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaningor interpretation of, this Agreement.ARTICLE II SALE AND PURCHASE OF PURCHASED ASSETS2.1 Sale of Assets. In reliance on the representations, warranties and agreements contained herein, and subject to the terms andconditions of this Agreement, Buyer hereby agrees to purchase from NGE and NGE hereby agrees to sell and convey to Buyer or, ineach case, Buyer’s designee, all of NGE’s right, title and interest in and to the following (collectively, the “Purchased Assets”):(a) the retail electricity and natural gas customer contracts listed in Schedule 2.1(a) (as the same may be updated from time totime prior to the initial Effective Transfer Date) having delivery points with the utilities and in the States listed in Schedule 2.1(a)attached hereto (the “Purchased Contracts”); and(b) a customer list, third-party verification (“TPV”) (to the extent applicable) and or incoming telephone enrollmentrecordings, account names, and other documentation and databases, including all records, files and data relating to the PurchasedContracts listed on Schedule 2.1(a) (as the same may be updated from time to time prior to final Effective Transfer Date).(c) all of NGE’s right, title, benefit, privileges and interest in and to each of the Hedge agreements set forth on Schedule 2.1(c)(the “Hedge Agreements”), insofar and only insofar as the Hedge Agreements apply to, or are utilized to hedge electric or natural gascommodity prices directly related and attributable to, the Purchased Contracts.2.2 Excluded Assets. Other than the Purchased Assets to be transferred by NGE to Buyer pursuant to this Agreement anddescribed in Section 2.1, Buyer expressly understands and agrees that it is not purchasing or acquiring, and NGE is not selling orassigning, any other assets or properties of NGE and all such other assets or properties shall be excluded from the Purchased Assets(the “Excluded Assets”). The Purchased Assets shall exclude any receivables or right of payment arising from the sale and delivery ofelectricity, natural gas, or other commodities and services pursuant to the terms and conditions of a Purchased Asset prior to theEffective Transfer Date for such Purchased Asset. The Purchased Assets shall include only those Purchased Contracts with on-flowcustomers of NGE for which at the applicable Effective Transfer Date: (a) no standby/supplemental service has been elected by NGEpursuant to any tariff to which the applicable utility from which a customer obtains delivery of electricity or natural gas is subject; (b)there are no pending, unresolved informal or formal complaints against NGE with any governmental agency, utility, LDC or ISO; and(c) there is no payment in arrears over thirty (30) days. For purposes of this Agreement, a customer under a Purchased Contractmeeting the qualifications in (a), (b) and (c) shall be defined as a “Qualified Customer” and a customer not meeting suchqualifications shall be defined as a “Non-Qualified Customer”).2.3 Purchase Price; Adjustments to Purchase Price. The consideration for the transfer of the Purchased Assets by NGE toBuyer shall be Buyer’s assumption of the obligations described in Section 2.4 and a purchase price (the “RCE Purchase Price”) of$250 for each RCE attributable to the Purchased Contracts.(a) The RCE Purchase Price for each Purchased Contract described in Section 2.3(a) that (A) has been validly transferred toBuyer; (B) for which the applicable LDC/Utility has accepted enrollment for retail electric service upon the next available read cycle;and (C) has come on flow with Buyer through written confirmation from Buyer (the “Effective Transfer Date” for such PurchasedContract), shall be paid to NGE for the RCE Purchase Price within one week of the applicable Effective Transfer Date; provided thatpayment for RCEs that NGE enrolled on the internet shall be made subject to and in accordance with subsection (c) below.(b) For each RCE applicable to the Purchased Contracts of customers who enrolled with NGE on the internet, payment shallbe made only for those internet-enrolled customers that remain on-flow with Buyer for 60 consecutive calendar days following theapplicable Effective Transfer Date and for which no cancellation or drop request has been submitted into the applicable LDC/utilitysubsequent to the first full read cycle following the applicable Effective Transfer Date for such Purchased Contract. Buyer shall payNGE the RCE Purchase Price no later than 10 Business Days following the end of each applicable 60 day period.(c) Buyer shall be entitled to a full refund of the RCE Purchase Price attributable to any RCEs: (i) that do not come on flowwith Buyer, or (ii) with Non-Qualified Customers immediately upon confirmation by Buyer of the occurrence of either of the mattersset forth in (i) or (ii) above. Any amounts to be refunded hereunder may be set off by Buyer from future payments due to Seller.2.4 Assumption of Certain Obligations. Upon sale and purchase of the Purchased Assets, Buyer shall, subject to Section 2.5,assume all obligations arising or required to be performed after the applicable Effective Transfer Date under each Purchased Contract(other than any liability arising under the Purchased Contracts arising out of or relating to a breach of any such Purchased Contract thatoccurred prior to the applicable Effective Transfer Date) (the “Assumed Obligations”); provided that in no event shall Buyer bedeemed to assume any obligations under a Purchased Contract until that Purchased Contract comes on-flow to Buyer. Within onehundred eighty (180) days after the last of the Purchased Contracts are assigned by NGE to Buyer, NGE and Buyer shall audit each oftheir respective records to determine whether any errors occurred or any modifications to the calculations made pursuant to this Section2.4 need to be made, based on updated information or otherwise, and thereafter shall true up the payments previously made to reflectsuch corrections or modifications. The Party that owes money to the other Party shall make payment to the other Party within ten (10)Business Days of the final true up by the Parties or the final determination thereof. In addition, as a condition to the transfer of eachRCE, Buyer or Buyer’s designee, NGE and the applicable Hedge Counterparty shall enter into a Novation Agreement pursuant towhich NGE, effective as of 12:01 am, on May 1, 2018 (the “Hedge Transfer Effective Date”) assigns all of its rights, and Buyerassumes all of NGE’s obligations, under the Hedge Agreements applicable to each Purchased Contract as of the Hedge TransferEffective Date, unless such Purchased Contract is never assigned to Buyer. Since the Purchased Contracts may not be effectivelytransferred to Buyer as of the Hedge Transfer Effective Date, NGE and Buyer agree to account for any mark-to-market losses or gainssustained by Buyer after the Hedge Transfer Effective Date attributable to those Purchased Contracts that are assigned to Buyer andwhose Effective Transfer Date occurs subsequent to the Hedge Transfer Date, but solely for the period prior to each applicableEffective Transfer Date, as follows:(a) With respect to those Purchased Contracts assigned by NGE to Buyer whose Effective Transfer Date occurs subsequentto the Hedge Transfer Effective Date, after the end of each Month NGE and Buyer shall calculate the mark-to-market losses or gainssustained by Buyer attributable to such Purchased Contracts during such month covering the period from the Hedge Transfer EffectiveDate through the applicable Effective Transfer Date for each such Purchased Contract. Upon final agreement or determination of suchmark-to-market losses, Buyer shall invoice NGE for the mark-to-market losses or gains incurred by Buyer and NGE shall pay to Buyersuch mark-to-market losses and Buyer shall pay to NGE such mark-to-market gains within ten (10) Business Days of NGE’s receipt ofsuch invoice.(b) For the purposes of this Section 4, “mark-to-market losses or gains” shall be calculated based on the difference betweenthe price set forth in the applicable Hedge Agreement for the particular product involved and the current monthly quote or to the end ofmonth quote (if the Effective Transfer Date does not occur on the 1st day of a particular month) for the particular product involved andbased on the same quantity of such product as set forth in the Hedge Agreement based on the applicable zonal locational marginalpricing (“LMP”) settlements or other similar types of settlements, as of the day of the initial Effective Transfer Date. Such mark-to-market losses or gains shall be allocated among NGE and Buyer on a percentage or share basis as follows:(i) During the period from the Hedge Transfer Effective Date to each Effective Transfer Date occurring subsequent tothe Hedge Transfer Effective Date (i.e., during the period Buyer is bearing one hundred percent (100%) of all gains and lossesattributable to the Hedge Agreements), NGE’s percentage share of such losses or gains (“NGE’s Percentage Share”) shall bethe quotient or percentage obtained by dividing (A) the actual volumes delivered under the Purchased Contracts from theHedge Transfer Effective Date and ending on the applicable Effective Transfer Date, by (B) the actual volumes deliveredunder all Purchased Contracts during the same time period. If there is a mark-to-market loss, NGE shall pay to Buyer NGE’sPercentage Share of such losses. If there is a mark-to-market gain, Buyer shall pay to NGE NGE’s Percentage share of suchgain.(c) Within one hundred eighty (180) days after the last of the Purchased Contracts are assigned by NGE to Buyer, NGE andBuyer shall audit each of their respective records to determine whether any errors occurred or any modifications to the calculationsmade pursuant to this Section 2.4 need to be made, based on updated information or otherwise, and thereafter shall true up thepayments previously made to reflect such corrections or modifications. The Party that owes money to the other Party shall makepayment to the other Party within ten (10) Business Days of the final true up by the Parties or the final determination thereof.(d) If the Parties are unable to agree on the calculations of the mark-to-market losses sustained by a Party or are unable toagree on the final true up of such mark-to-market losses, at the request of either Party, such determination shall be made by theIndependent Accountant for final resolution. In such event, the Parties shall direct the Independent Accountant to resolve the disputeswithin thirty (30) days after the relevant materials are submitted for review. The Independent Accountant shall consider only thoseitems or amounts that remain in dispute between the Parties, shall render its decision based solely on written materials submitted by theParties and the terms of this Agreement, and shall not assign a value to any item greater than the greatest value for such item claimedby either Buyer or NGE or less than the smallest value for such item claimed by either Buyer or NGE. The Independent Accountantshall have exclusive jurisdiction over, and resort to the Independent Accountant as provided in this Section 2.4(d) shall be the solerecourse and remedy of Buyer and NGE against one another or any other Person with respect to, any disputes arising out of or relatingto the mark-to-market calculations or the true up of such calculations. The decisions of the Independent Accountant regarding themark-to-market calculations and the true up of such calculations shall be enforceable in a court of law. The fees and expensesassociated with the Independent Accountant shall be borne fifty percent (50%) by Buyer and fifty percent (50%) by NGE.2.5 Obligations Not Assumed. Except as and to the extent specifically set forth in Section 2.4, Buyer is not assuming anyother liability or obligation not included within the Assumed Obligations. Other than the Assumed Obligations, Buyer shall not assumeany liabilities or obligations of NGE of any kind, whether known or unknown, contingent, matured or otherwise, whether currentlyexisting or hereinafter created, including, but not limited to:(a) any liability or obligation to pay commissions to any broker or agent engaged by NGE based on revenue relating to anyof the Purchased Assets;(b) any liability for (i) taxes of NGE (or any member, stockholder, equity interest owner or Affiliate of NGE) relating to thePurchased Assets or the Assumed Obligations for any period prior to the Effective Transfer Date for such Purchased Asset; and (ii)taxes that arise out of the consummation of the transactions contemplated hereby or that are the responsibility of NGE; and (iii) taxesthat are the responsibility of NGE (member, stockholder, equity interest owner or Affiliate of NGE) of any kind or description(including any liability for taxes of NGE (or any member, stockholder, equity interest owner or Affiliate of NGE) that becomes aliability of Buyer under any common law doctrine of de facto merger or transferee or successor liability or otherwise by operation ofcontract or law);(c) any liabilities of NGE for any present or former brokers or agents;(d) liabilities attributable to any employees, officers, directors, retirees, independent contractors or consultants of NGE,including, without limitation, any liabilities associated with any claims for commissions, wages or other benefits, bonuses, accruedvacation, workers’ compensation, severance, retention, termination or other payments;(e) any liabilities of NGE for any present or former wholesale supplier of electricity or natural gas arising out of, in respectof or in connection to, the Purchased Contracts, except for the obligations under the Hedge Agreements;(f) any liabilities of NGE for any present or former applicable local distribution company/utility arising out of, in respect ofor in connection to, the Purchased Assets, including, without limitation, imbalance payments, fines, penalties, and refunds; and(g) any liabilities arising from the failure by NGE or any of its Affiliates to comply with any federal, state or local law orgovernmental order arising out of, in respect of or in connection to, the Purchased Assets.2.6 Tax Allocation of Purchase Price. The Purchase Price shall be allocated among the Purchased Assets for tax purposes ina manner mutually agreeable to NGE and Buyer (within ninety (90) days following the final Effective Transfer Date) and consistentwith Section 1060 of the Internal Revenue Code and the Treasury Regulations promulgated thereunder as Class VI identifiableintangible assets. NGE and Buyer shall file all information reports and Tax Returns (and any amendments thereto or claims for refund)in a manner consistent with this Section 2.6 (including, without limitation, Internal Revenue Service Form 8594 or any successorform).2.7 Taxes.(a) NGE shall be liable for and shall pay when due all Taxes attributable to any of the Purchased Assets for the periods (orportions thereof) ending on or before the applicable Effective Transfer Date, and shall timely file any related Tax Returns in respectthereof.(b) NGE and Buyer shall each pay fifty percent (50%) of all Transfer Taxes involving, specifically, NGE and Buyer. NGEshall pay one hundred percent (100%) of any and all sales or gross receipt taxes that may be owed in connection with the sale andtransfer of the Purchased Assets. NGE and Buyer shall reasonably cooperate to obtain any available exemptions with respect to suchTaxes in all states in which any of the Purchased Assets are located.(c) For Tax purposes, the parties agree to treat all payments made under Article III or under any indemnity provisionscontained in this Agreement, or for breaches of representations, warranties, covenants or agreements, as adjustments to the PurchasePrice.2.8 Payment of Taxes and Other Expense. If Buyer or NGE receives an invoice for any Tax or other expense which isallocable to the other Party in part or in full, the recipient shall forward a copy of the invoice promptly to the other Party with a writtenstatement of the amounts the recipient reasonably believes are owed by the other Party.ARTICLE III REPRESENTATIONS AND WARRANTIES OF NGENGE hereby represents and warrants to the Buyer as of the Execution Date and as of each Effective Transfer Date as follows:3.1 Organization; Qualification. NGE is duly formed, validly existing and in good standing under the laws of its state oforganization and has full limited liability company power and authority to own and hold the properties and assets it now owns andholds and to carry on its business as and where such properties are now owned or held and such business is now conducted. NGE isduly licensed or qualified to do business as a limited liability company (either foreign or domestic) and is in good standing in the statesin which the character of the properties and assets now owned or held by it or the nature of its businesses now conducted by it requiresit to be so licensed or qualified.3.2 Authority; Enforceability.(a) NGE has the requisite limited liability company power and authority to execute and deliver the Transaction Documents towhich it is, or will be, a party, to consummate the transactions contemplated thereby and to perform all the terms and conditions thereofto be performed by it. The execution and delivery by NGE of the Transaction Documents, the consummation by NGE of thetransactions contemplated thereby and the performance by NGE of all of the terms and conditions thereof to be performed by it hasbeen duly and validly authorized by NGE, and no other proceedings on the part of NGE are necessary to authorize the TransactionDocuments to which it is, or will be, a party, to consummate the transactions contemplated by the Transaction Documents to which itis, or will be, a party or to perform all of the terms and conditions thereof to be performed by it.(b) The Transaction Documents to which NGE is, or will be, a party have been (or will be, when executed and delivered toBuyer) duly executed and delivered by NGE, and, assuming the due authorization, execution and delivery by the other parties thereto,each Transaction Document to which NGE is, or will be, a party constitutes (or will constitute, when executed and delivered) the validand binding agreement of NGE, enforceable against NGE in accordance with its terms, except as such enforceability may be limitedby applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Laws relating to or affectingcreditors’ rights generally and subject, as to enforceability, to legal principles of general applicability governing the availability ofequitable remedies, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether suchenforceability is considered in a proceeding in equity or at law) (collectively, “Creditors’ Rights”).3.3 Non-Contravention. The execution, delivery and performance of the Transaction Documents to which NGE is, or willbe, a party and the consummation by NGE of the transactions contemplated thereby does not and will not: conflict with, or require theconsent of any Person under, or result in any breach of, any provision of the Organizational Documents of NGE; conflict with, orrequire the consent of any Person under, or constitute a default (or an Event that with the giving of notice or passage of time or bothwould give rise to a default) or cause any obligation under, or give rise to any right of termination, cancellation, amendment,preferential purchase right or acceleration (with or without the giving of notice, or the passage of time or both) under any of the terms,conditions or provisions of any Contract to which NGE or any of its Subsidiaries is a party or by which any property or asset of NGEor any of its Subsidiaries is bound or affected; assuming compliance with the matters referred to in Section 6.4, conflict with or violateany Law to which NGE or any of its Subsidiaries is subject or by which any property or asset of NGE or any of its Subsidiaries isbound; constitute (with or without the giving of notice or the passage of time or both) an Event which would result in the creation of,or afford any Person the right to obtain, any Lien (other than Permitted Liens) on any asset of NGE; or result in the revocation,cancellation, suspension, or material modification, individually or in the aggregate, of any Contract or Governmental Approval that isnecessary or desirable for the ownership, lease or operation of NGE as now conducted.3.4 Governmental Approvals. No declaration, filing or registration with, or notice to, or authorization, consent or approval of,any Governmental Authority, is necessary for (%4) the consummation by NGE of the transactions contemplated by the TransactionDocuments to which it is, or will be, a party or (%4) the enforcement against NGE of its obligations under the Transaction Documents,except in the cases of clauses (i) and (ii), other than such declarations, filings, registrations, notices, authorizations, consents orapprovals that have been obtained or made or that would in the ordinary course be made or obtained after the initial Effective TransferDate, or which, if not obtained or made, would not reasonably be expected to prevent or materially delay the consummation of thetransactions contemplated by the Transaction Documents to which NGE is, or will be, a party or to materially impair NGE’s ability toperform its obligations under the Transaction Documents to which it is, or will be, a party.3.5 Consents. NGE has obtained or will obtain prior to the Effective Transfer Date all necessary consents, approvals orauthorizations of or designations or filings with all third parties and with all governmental agencies or authorities or other publicPersons or entities required in connection with the execution, delivery and performance by NGE of this Agreement and theconsummation of the transactions contemplated herein and each Transaction Document to which it is, or will be, a party, except wherethe failure to obtain would not reasonably be expected to prevent or delay the consummation of the transactions contemplated by theTransaction Documents to which NGE is, or will be, a party or to impair NGE’s ability to perform its obligations under theTransaction Documents to which it is, or will be, a party or where such matters may or are required to be performedcontemporaneously or subsequent to the Effective Transfer Date.3.6 Compliance with Law. NGE has complied, and is in compliance, with all applicable federal, state, local and foreign laws,ordinances, orders, rules and regulations, and any tariffs, licenses or authorizations issued by all applicable public utility commissions,agencies or similar governing bodies, whether public or applicable to NGE in connection with its ownership of and operations relatedto the Purchased Assets, except where the failure to be in compliance would not have a NGE Material Adverse Effect. NGE has notreceived notice of any violation or alleged violation of any Laws. To its Knowledge the business of NGE in each of the statescomprising the Northeast Markets is subject to no liability (whether accrued, absolute, contingent, direct or indirect) for past orcontinuing violation of any Laws. All material reports and returns required to be filed by NGE in connection with the PurchasedAssets and its operations under the Purchased Assets prior to the applicable Effective Transfer Date with any governmental authorityhave been filed, and were accurate and complete in all material respects when filed.3.7 Taxes.(a) All material Tax Returns required to be filed with respect to NGE (taking into account any valid extension of the due datefor filing) have been timely filed, all such Tax Returns are complete and correct in all material respects and all Taxes due relating toNGE have been paid in full.(b) No Tax audits or administrative or judicial proceedings are being conducted or are pending with respect to NGE.(c) All Taxes required to be withheld, collected or deposited by or with respect to NGE have been timely withheld, collectedor deposited as the case may be, and to the extent required, have been paid to the relevant taxing authority.(d) There are no outstanding agreements or waivers extending the applicable statutory periods of limitation for any Taxesassociated with the ownership or operation of the business and assets of NGE for any period.(e) NGE is not a party to any Tax sharing agreement, Tax indemnity agreement Tax allocation agreement or similaragreement (excluding customary Tax indemnification provisions in commercial Contracts not primarily relating to Taxes).(f) NGE has never been a party to a transaction that is a “reportable transaction,” as such term is defined in TreasuryRegulations Section 1.6011-4(b)(1).(g) NGE is currently, and has been since its formation, a limited liability company that is treated as a partnership for U.S.federal income tax purposes and NGE has not elected to be treated as a corporation for federal Tax purposes.(h) NGE has never been a member of or is a successor to an entity that has been a member of an affiliated group filing aconsolidated federal income Tax Return or has any liability for the Taxes of any Person under Treasury Regulation Section 1.1502-6(or any similar provision of state, local or foreign Law), as a transferee or successor, by contract, or otherwise.3.8 Legal Proceedings. There are no Proceedings pending or, to the Knowledge of NGE, threatened against or by NGE (a)relating to or affecting NGE or the Purchased Assets, which if determined adversely to NGE, would reasonably be expected to have aMaterial Adverse Effect or (b) that questions or involves the validity or enforceability of the obligations of NGE under this Agreementor the Transaction Documents or seeks to prevent or delay, or seeks damages in connection with, the consummation of theTransactions contemplated by this Agreement. There are no orders, writs, injunctions or decrees of any court or federal, state,municipal or other governmental department, commission, board, bureau, agency, or instrumentality, domestic or foreign, relatingadversely to or adversely affecting the business of NGE or the Purchased Assets.3.9 Purchased Assets; Title to the Purchased Assets. NGE has good, legal and marketable title to the Purchased Assets, andat the Effective Transfer Date, Buyer will acquire such title from NGE, free and clear of any and all Liens. NGE warrants to Buyerthat, at the time at each Effective Transfer Date, all Purchased Assets shall be free and clear of all Liens3.10 Contracts. NGE (i) has delivered to Buyer true and complete copies of all the Purchased Contracts listed on Schedule2.1(a), as the same may be updated at the final Effective Transfer Date, (b) true and complete copies of the Hedge Agreements, and (ii)will deliver to Buyer on or prior to the final Effective Transfer Date true and complete copies of all the Purchased Contracts to beassigned to Buyer that has not been previously delivered to Buyer. Schedule 2.1(a) shall be updated (a) as of the final EffectiveTransfer Date to reflect all drop requests on Purchased Contracts received from the initial Effective Transfer Date. NGE has deliveredall Purchased Assets necessary for the conduct of business in relation to and operations under the Purchased Contracts assigned toBuyer. All of the Purchased Contracts and the Hedge Agreements are valid, binding, and effective in accordance with their termsagainst NGE and, to the best of NGE’s Knowledge, valid, binding, and effective against each other Person a party thereto. The HedgeAgreements are the sole supply relationships and arrangements pursuant to which retail electricity or natural gas is provided under thePurchased Contracts. NGE is not in default under any Purchased Contract or any of the Hedge Agreements, nor has any event oromission occurred or not undertaken which, through the passage of time or the giving of notice, or both, would constitute a defaultthereunder. The material terms and conditions of each of the Purchased Contracts are substantially the same. Each of the PurchasedContracts is a retail electricity or natural gas contract (however titled or designated), to which NGE is a party and which is under thejurisdiction of the applicable local distribution company/utility. There are no disputes pending or to NGE’s Knowledge threatened,under any Purchased Contract or any Hedge Agreement. The accounts receivable aging report and bad debt expense analysis for thePurchased Contracts as set forth in Schedule 2.1(a), as updated as provided in this Agreement, is true and correct in all materialrespects and, to the best of NGE’s Knowledge, represents NGE’s good faith determination and characterization of such accountsreceivable irrespective of the aging of such accounts. With respect to each Purchased Contract, NGE has (i) properly enrolled theunderlying customer, (ii) has delivered all requisite enrollment documents to such customer, (iii) has delivered terms of servicecompliant with applicable state regulations to such customer, (iv) has performed a valid third party verification of the sale to suchcustomer, and (v) has delivered all required renewal and other notices to such customer.3.11 Disclosure. To the Knowledge of NGE, no representation or warranty made by NGE in this Agreement, and nostatement of NGE contained in any Exhibit, Schedule, document or certificate attached to or required by this Agreement or theconsummation of the transactions contemplated hereby, when taken as a whole, contains or will contain any untrue statement of amaterial fact or fails or will fail to state any material fact necessary in order to make the statements contained therein, in light of thecircumstances under which they are made, not materially misleading. The books and records of NGE that are necessary for theownership and management of the Purchased Assets have been maintained in accordance with prudent industry practice and suchbooks and records have been made available to Buyer. All of the historical and projected financial and operational data provided toBuyer in connection with its due diligence is true and correct in all material respects.3.12 Solvency. NGE is, and immediately after giving effect to the transactions contemplated herein will be, solvent.3.13 Bankruptcy. There are no (i) voluntary bankruptcy, reorganization or arrangement proceedings pending against, beingcontemplated by, or (ii) to the Knowledge of NGE, involuntary bankruptcy, reorganization or arrangement proceedings pending orthreatened against NGE.3.14 Brokers’ Fee. Neither NGE nor any of its Affiliates has entered (directly or indirectly) into any agreement with anybroker, investment banker, financial advisor or other Person that would obligate Buyer or any of its Affiliates to pay any broker’s,finder’s, financial advisor’s or other similar fee or commission in connection with this Agreement or the transactions contemplatedherein.ARTICLE IV REPRESENTATION AND WARRANTIES OF BUYERBuyer hereby represents and warrants to NGE, as of the Execution Date and as of the Effective Transfer Date, as follows:4.1 Organization; Qualification. Buyer is duly formed, validly existing and in good standing under the laws of its state oforganization and has full limited liability company power and authority to own and hold the properties and assets it now owns andholds and to carry on its business as and where such properties are now owned or held and such business is now conducted. Buyer isduly licensed or qualified to do business as a limited liability company (either foreign or domestic) and is in good standing in the statesin which the character of the properties and assets now owned or held by it or the nature of its businesses now conducted by it requiresit to be so licensed or qualified, except where the failure to be so qualified or in good standing would not reasonably be expected tohave a Buyer Material Adverse Effect.4.2 Authority; Enforceability.(a) Buyer has the requisite limited liability company power and authority to execute and deliver the Transaction Documents towhich it is, or will be, a party, to consummate the transactions contemplated thereby and to perform all the terms and conditions thereofto be performed by it. The execution and delivery by Buyer of the Transaction Documents to which it is, or will be, a party, theconsummation by Buyer of the transactions contemplated thereby and the performance by Buyer of all of the terms and conditionsthereof to be performed by it has been duly and validly authorized by Buyer, and no other proceedings on the part of Buyer isnecessary to authorize the Transaction Documents to which it is, or will be, a party, to consummate the transactions contemplated bythe Transaction Documents to which it is, or will be, a party or to perform all of the terms and conditions thereof to be performed by it.(b) The Transaction Documents to which Buyer is, or will be, a party have been (or will be, when executed and delivered)duly executed and delivered by Buyer and, assuming the due authorization, execution and delivery by the other parties thereto, eachTransaction Document to which Buyer is, or will be, a party constitutes (or will constitute, when executed and delivered) the valid andbinding agreement of Buyer, enforceable against Buyer in accordance with its terms, except as such enforceability may be limited byCreditors’ Rights.4.3 Non-Contravention. The execution, delivery and performance of the Transaction Documents to which Buyer is, or willbe, a party and the consummation by Buyer of the transactions contemplated thereby does not and will not: (%3) conflict with, orrequire the consent of any Person under, or result in any breach of, any provision of the Organizational Documents of Buyer;(%3) conflict with, or require the consent of any Person under, or constitute a default (or an Event that with the giving of notice orpassage of time or both would give rise to a default) or cause any obligation under, or give rise to any right of termination, cancellation,amendment, preferential purchase right or acceleration (with or without the giving of notice, or the passage of time or both) under anyof the terms, conditions or provisions of any Contract to which Buyer or any of its Subsidiaries is a party or by which any property orasset of Buyer or any of its Subsidiaries is bound or affected; (%3) assuming compliance with the matters referred to in Section 5.3,conflict with or violate any Law to which Buyer or any of its Subsidiaries is subject or by which any property or asset of Buyer or anyof its Subsidiaries is bound; (%3) constitute (with or without the giving of notice or the passage of time or both) an Event which wouldresult in the creation of, or afford any Person the right to obtain, any Lien (other than Permitted Liens) on any asset of Buyer; or(%3) result in the revocation, cancellation, suspension, or material modification, individually or in the aggregate, of any Contract orGovernmental Approval that is necessary or desirable for the ownership, lease or operation of Buyer as now conducted, except, in thecases of clauses(c), (d) and (e), for such defaults or rights of termination, cancellation, amendment, acceleration, violations or Liens aswould not reasonably be expected to have a Buyer Material Adverse Effect or to prevent or materially delay the consummation of thetransactions contemplated by the Transaction Documents to which Buyer is, or will be, a party or to materially impair Buyer’s ability toperform its obligations under the Transaction Documents to which it is, or will be, a party or where such matters may or are required tobe performed contemporaneously or subsequent to the Effective Transfer Date.4.4 Governmental Approvals. No declaration, filing or registration with, or notice to, or authorization, consent or approval of,any Governmental Authority, is necessary for (%4) the consummation by Buyer of the transactions contemplated by the TransactionDocuments to which it is, or will be, a party or (%4) the enforcement against Buyer of its obligations under the Transaction Documentsexcept in the cases of clauses (i) and (ii), other than such declarations, filings, registrations, notices, authorizations, consents orapprovals that have been obtained or made or that would in the ordinary course be made or obtained after the final Effective TransferDate, or which, if not obtained or made, would not reasonably be expected to prevent or materially delay the consummation of thetransactions contemplated by the Transaction Documents to which Buyer is, or will be, a party or to materially impair Buyer’s ability toperform its obligations under the Transaction Documents to which it is, or will be, a party.4.5 Legal Proceedings. There are no Proceedings pending or, to the Knowledge of Buyer, threatened against or by Buyer,that questions or involves the validity or enforceability of the obligations of Buyer under this Agreement or the other TransactionDocuments or seeks to prevent or delay, or seeks damages in connection with, the consummation of the Transactions contemplated bythis Agreement.4.6 Solvency. Buyer is, and after giving effect to the transactions contemplated herein will be, solvent.4.7 Bankruptcy. There are no bankruptcy, reorganization or arrangement proceedings pending against, being contemplatedby, or to the Knowledge of Buyer, threatened against Buyer.4.8 Brokers’ Fee. Neither Buyer nor any of its Affiliates has entered (directly or indirectly) into any agreement with anybroker, investment banker, financial advisor or other Person that would obligate NGE or any of its Affiliates to pay any broker’s,finder’s, financial advisor’s or other similar fee or commission in connection with this Agreement or the transactions contemplatedherein.ARTICLE V COVENANTS OF NGE AND BUYER5.1 Maintenance of Purchased Contracts. Except as otherwise permitted by this Agreement or as otherwise consented to inwriting by Buyer, NGE will use commercially reasonable efforts to maintain each Purchased Contract and the Hedge Agreements infull force and effect; provided that NGE (a) may exercise its right to not renew or extend any Purchased Contract, (b) shall have noobligation to cause the renewal or extension of any Purchased Contract, and (c) shall have no obligation to replace any PurchasedContract that is terminated by the counterparty thereto or otherwise expires in accordance with its terms but, notwithstanding (b) and(c) above, if NGE does renew, extend or replace a Purchased Contract, NGE shall utilize the same decision making process in suchrenewal, extension or replacement as was utilized by NGE prior to the date of this Agreement, including without limitation, any creditreview process.5.2 Restrictions on Certain Actions.Until the final Effective Transfer Date, NGE shall administer and perform its obligationsunder the Purchased Contracts and the Hedge Agreements, and shall operate its retail electric businesses in each LDC/utility territory,in the ordinary course of business, consistent with prior practices.(a) NGE will not, without the prior written consent of Buyer: (i) mortgage or pledge any Purchased Asset, or create or sufferto exist any Lien thereupon; (ii) sell, lease, transfer, or otherwise dispose of, directly or indirectly, any Purchased Asset; (iii) settle orresolve any material pending or threatened proceeding concerning any Purchased Contract, unless such settlement or resolution createsno current or future obligation or Lien with respect to such Purchased Contract and does not modify such Purchased Contract ordiminish the Buyer’s rights or interests thereunder; (iv) amend or modify any of the Purchased Contracts; or (v) agree to any of theforegoing. If NGE proposes to take any of the actions described above, it will (x) promptly notify Buyer in writing of such action and(y) will notify Buyer as soon as reasonably possible after any of such actions are taken, in which event, Buyer shall have the right tohave such Purchased Contract excluded as a Purchased Contract and will not be required to pay for same.5.3 Notices; Support of Transaction; Consents.(a) Each Party shall: (i) use All Reasonable Efforts to obtain all consents, approvals or actions of, to make all filings with, andto give all notices to, all governmental authorities or other Persons required to be obtained, made or given by such Party in respect ofthe transactions contemplated by this Agreement between NGE and Buyer; and (ii) provide such other information andcommunications to such governmental authorities as such governmental authorities may reasonably request in connection therewith.Each Party will provide prompt notification to the other Party when any such consent, approval, action, filing or notice referred toabove is obtained, taken, made or given, as applicable.(b) Subject to the terms and conditions of this Agreement, each Party shall use All Reasonable Efforts to take, or cause to betaken, all actions, and to do or cause to be done, all things necessary, proper or advisable consistent with applicable Laws, to promptlycause the fulfillment of the conditions of Article VI and to consummate and make effective the transactions contemplated herebybetween NGE and Buyer. NGE agrees that, prior to and after each Effective Transfer Date, any communications whether written ororal between NGE and the counterparties to the Purchased Contracts related to the transaction contemplated herein or related to theBuyer shall (i) not contain misleading, damaging, harmful or false statements and (ii) be mutually agreed upon by the Parties inadvance. As soon as practicable and in no event later than the first Effective Transfer Date, Buyer shall provide a script and contactinformation to NGE so that NGE’s call center can inform customers under each Purchased Contract how to contact Buyer. In addition,each Party agrees that it will provide the other with reasonable cooperation and support in connection with such Party’s performance ofits obligations under this Section 5.3 prior to and after each Effective Transfer Date.5.4 Collection of Receivables; Payment of Obligations.(a) NGE shall be entitled to receive and collect all amounts due and payable under each Purchased Contract which areallocable or attributable to goods delivered and services performed on or before the applicable Effective Transfer Date for each of thePurchased Contracts.(b) In the event that NGE, Buyer, or any of their respective Affiliates receives any amount which, pursuant to this Agreement,is the property or obligation of the other Party, the Party or such Affiliate that improperly received such amount shall notify the otherParty within three Business Days after becoming aware of such receipt or payment. In the event a Party or any of its Affiliates hasreceived a payment which, pursuant to this Agreement, is the property of the other Party, the Party that improperly received suchpayment shall remit such amounts to the Party entitled to receive such payment simultaneously with the delivery of such noticepursuant to the wire transfer instructions provided by such Party.(c) Notwithstanding the provisions of 5.4(a) and (b), with respect to any Purchased Contracts where there was a failure to billfor electric or natural gas service covering time periods greater than sixty (60) days prior to the Execution Date, NGE agrees that it willnot bill for any such electricity or natural gas sold and delivered under such Purchased Contracts.5.5 Access to Information. From the Execution Date through the earlier of the final Effective Transfer Date or the terminationof this Agreement, NGE, upon receipt of reasonable advance notice from Buyer, shall afford to Buyer and its representativesreasonable access, during normal Business Hours and in such manner as to not interfere with normal operations of the business ofNGE, to the books and records of NGE directly related to the Purchased Contracts, and shall furnish such representatives with allfinancial and operating data and other information directly related to the Purchased Contracts as such representatives may reasonablyrequest and are reasonably available to NGE. After the final Effective Transfer Date, Buyer shall afford to NGE and its representativesthe same access rights described in the foregoing sentence with respect to Buyer and the books and records relating to the PurchasedContracts to the extent reasonably required by NGE in connection with its collections, accounting, tax, legal defense or other similarneeds. Notwithstanding anything to the contrary in this Agreement, neither Party hereto shall be required to disclose any information tothe other Party if such disclosure would, in the disclosing Party’s reasonable discretion: (x) cause significant competitive harm todisclosing Party and its businesses; (y) jeopardize any attorney-client or other privilege; or (z) contravene any applicable Law, fiduciaryduty or binding agreement entered into prior to the Execution Date.5.6 Confidentiality. Buyer and NGE mutually agree to keep the terms and conditions of the Purchased Contracts and allcustomer information in the Purchased Contracts confidential except as required by law, government regulations and or the Securitiesand Exchange Commission, if applicable. The provisions of this Section 5.6 shall survive indefinitely.5.7 Further Assurances.From time to time at or after the final Effective Transfer Date, each of NGE and Buyer, upon the request of the other Party, shallperform, execute or deliver, or cause to be performed, executed or delivered, such further acts, assurances and instruments as therequesting Party may reasonably require to carry out the intent and purposes of this Agreement.5.8 Non-Solicitation of Customers.NGE agrees not to directly or indirectly solicit the sale of any electricity, natural gas, or other commodity or services to thecustomers included in the Purchased Contracts for a period of 3 years from the final Effective Transfer Date.ARTICLE VI POST EXECUTION DELIVERABLES6.1 Deliveries by NGE and Buyer. On the date that is 60 days after the final Effective Transfer Date of the PurchasedContracts, a Party will deliver (or cause to be delivered) the following to the other Party an executed counterpart of the Bill of Sale,Assignment and Assumption Agreement covering the Purchased Assets transferred at such time, the form of which is attached heretoas Exhibit B (the “Bill of Sale”) with a final updated Schedule 2.1(a) reflecting those Purchased Contracts that came on flow withBuyer (and in the case of web enrollments, that remained on flow in accordance with Section 2.3(c), along with all drop requests onsuch Purchased Contracts since the date of this Agreement.6.2 Notice to Customers. Immediately after the execution of this Agreement, NGE shall send a notice to each customer in thePurchased Contracts substantially in the form of the customer notice set forth in Exhibit C (the “Customer Notice”). With respect toeach Purchased Contract in those states which require advanced or contemporaneous notice to the applicable public servicecommission and/or utility/LDC, the Parties shall ensure that all such notices are provided in a timely fashion prior to delivery ofcustomer notices. The cost and expense of all Customer Notices that will be sent by NGE shall be borne by NGE.6.3 Transfer of Purchased Contracts. On each Effective Transfer Date, Buyer and NGE shall cause each PurchasedContract to be assigned from NGE to Buyer (each an “Assigned Purchase Contract”), and for Buyer simultaneously to assume all ofthe Assumed Obligations under each such Assigned Purchased Contract. Buyer shall submit enrollment requests for each applicableAssigned Purchased Contract based on the drop files submitted by NGE to the applicable local distribution company/utility. Thisschedule shall be defined by both Parties in coordination with the applicable local distribution company/utility prior to the finalEffective Transfer Date. Buyer and NGE hereby agree to reasonably assist each other, and to work with the applicable localdistribution company/utility to effectuate such transfer, assignment and assumption.ARTICLE VII TERMINATION RIGHTS7.1 Termination Rights. This Agreement may be terminated at any time prior to the final Effective Transfer Date as follows:(a) By mutual written consent of the Parties; or(b) By any Party if any Governmental Authority of competent jurisdiction shall have issued a final and non-appealable order,decree or judgment prohibiting the consummation of the transactions contemplated by the Transaction Documents.7.2 Effect of Termination. In the event of the termination of this Agreement pursuant to Section 7.1(a) all rights andobligations of the Parties under this Agreement shall terminate, except for the provisions of this Section 7.2, Article IX and Article X;provided, however, that no termination of this Agreement shall relieve any Party from any liability for any willful and intentionalbreach of this Agreement by such Party or for fraud by such Party and all rights and remedies of a non-breaching Party under thisAgreement in the case of any such willful and intentional breach or fraud, at law and in equity, shall be preserved, including the rightto recover reasonable attorneys’ fees and expenses. Except to the extent otherwise provided in the immediately preceding sentence, theParties agree that, if this Agreement is terminated, the Parties shall have no liability to each other under or relating to this Agreement. Inthe event of any willful and intentional breach of this Agreement by a Party or for fraud by such Party, the waiver provisions set forthin Section 8.3(d) shall be inapplicable. For purposes of this Section 7.2, “willful and intentional breach” is defined as a Party’sdeliberate and conscious non-performance of a material contractual obligation.ARTICLE VIII INDEMNIFICATION8.1 Indemnification by NGE. Subject to the terms of this Article VIII, from and after the initial Effective Transfer Date, NGEshall indemnify and hold harmless Buyer and its members, managers, directors, officers, employees, consultants and permitted assigns(collectively, the “Buyer Indemnitees”), to the fullest extent permitted by Law, from and against any losses, claims, damages, liabilitiesand costs and expenses (including reasonable attorneys’ fees and reasonable expenses of investigating, defending and prosecutinglitigation) (collectively, “Losses”) incurred or suffered by the Buyer Indemnitees as a result of, caused by, arising out of or relating to:(a) any breach or inaccuracy of NGE of any of the NGE Fundamental Representations (in each case, when made);(b) any breach or inaccuracy of any of the other representations or warranties (in each case, when made) of NGE contained inthis Agreement;(c) any breach of any of the covenants or agreements of NGE contained in this Agreement; and(d) any obligation or liability of NGE arising under or related to the Purchased Assets prior to the applicable Effective Date.8.2 Indemnification by Buyer to NGE. Subject to the terms of this Article VIII, from and the initial Effective Transfer Date,Buyer shall indemnify and hold harmless NGE and its members, managers, directors, officers, employees, consultants and permittedassigns (the “NGE Indemnitees”), to the fullest extent permitted by Law, from and against any Losses incurred or suffered by the NGEIndemnitees as a result of, caused by, arising out of or relating to:(a) any breach or inaccuracy of Buyer of any of the Buyer Fundamental Representations (in each case, when made);(b) any breach or inaccuracy of any of the other representations or warranties (in each case, when made) of Buyer containedin this Agreement; and(c) any breach of any of the covenants or agreements of Buyer contained in this Agreement.8.3 Limitations and Other Indemnity Claim Matters. Notwithstanding anything to the contrary in this Article VIII orelsewhere in this Agreement (subject to Section 8.3(d)), the following terms shall apply to any claim for monetary damages arising outof this Agreement or related to the transactions contemplated hereby:(a) Cap.(i) NGE’s aggregate liability to the Buyer Indemnitees under Section 8.1(b) and 8.1 (c) and any related obligationsarising under Section 8.4 shall not exceed a dollar amount equal to one hundred percent (100%) of the RCE Purchase Price.(ii) Buyer’s aggregate liability to the NGE Indemnitees under Section 8.2(b) and 8.2(c) and any related obligationsarising under Section 8.4 shall not exceed a dollar amount equal to one hundred percent (100%) of the RCE Purchase Price.(b) Survival; Claims Period.(i) The representations and warranties of the Parties under this Agreement shall survive the execution and delivery ofthis Agreement and shall continue in full force and effect until the second anniversary of the final Effective Transfer Date (the“Expiration Date”); provided that the Buyer Fundamental Representations and the NGE Fundamental Representations shallsurvive for a period equal to the applicable statute of limitations for each such representation (the “Fundamental ExpirationDate”).(ii) No action for a breach of any representation or warranty contained herein shall be brought after the ExpirationDate or the Fundamental Expiration Date, as applicable, except for claims of which a Party has received a Claim Noticesetting forth in reasonable detail the claimed misrepresentation or breach of warranty with reasonable detail, prior to theExpiration Date.(c) Calculation of Losses. In calculating amounts payable to any Indemnitee (each such person, an “Indemnified Party”) fora claim for indemnification hereunder, the amount of any indemnified Losses shall be determined without duplication of any other Lossfor which an indemnification claim has been made or could be made under any other representation, warranty, covenant or agreementand shall be computed net of (i) payments actually recovered by the Indemnified Party under any insurance policy with respect to suchLosses and (ii) any prior or subsequent actual recovery by the Indemnified Party from any Person other than the applicable Partyproviding indemnity under this Agreement (an “Indemnifying Party”) with respect to such Losses.(d) Waiver of Certain Damages. Notwithstanding any other provision of this Agreement, except as provided in this Section8.3(d), in no event shall any Party be liable for punitive, special, indirect, consequential, remote, speculative or lost profits damages ofany kind or nature, regardless of the form of action through which such damages are sought, except (i) for any such damages recoveredby any third party against an Indemnified Party in respect of which such Indemnified Party would otherwise be entitled toindemnification pursuant to this Article VIII and (ii) in the case of consequential damages, to the extent of consequential damages to anIndemnified Party arising from fraud or willful misconduct by the Indemnifying Party.(e) Sole and Exclusive Remedy. Except for the assertion of any claim based on fraud or willful misconduct, the remediesprovided in this Article VIII shall be the sole and exclusive legal remedies of the Parties with respect to this Agreement and thetransactions contemplated hereby.8.4 Indemnification Procedures.(a) Each Indemnitee agrees that promptly after it becomes aware of facts giving rise to a claim by it for indemnificationpursuant to this Article VIII, including receipt by it of notice of any Proceeding, by any third party with respect to any matter as towhich it claims to be entitled to indemnity under the provisions of this Agreement, such Indemnitee must assert its claim forindemnification under this Article VIII (each, a “Claim”) by providing a written notice (a “Claim Notice”) to the Indemnifying Partyallegedly required to provide indemnification protection under this Article VIII specifying, in reasonable detail, the nature and basis forsuch Claim (e.g., the underlying representation, warranty, covenant or agreement alleged to have been breached). Such notice shallinclude a formal demand for indemnification under this Agreement. Notwithstanding the foregoing, an Indemnitee’s failure to send ordelay in sending a third party Claim Notice will not relieve the Indemnifying Party from liability hereunder with respect to such Claimexcept to the extent the Indemnifying Party is materially prejudiced by such failure or delay and except as is otherwise provided herein.If the Indemnified Party knowingly failed to notify the Indemnifying Party thereof in accordance with the provisions of this Agreementin sufficient time to permit the Indemnifying Party or its counsel to defend against such matter and to make a timely response theretoincluding any responsive motion or answer to a complaint, petition, notice or other legal, equitable or administrative process relating tothe Claim, the Indemnifying Party’s indemnity obligation relating to such Claim shall be limited to the extent that such knowing failureto notify the Indemnifying Party has actually resulted in material prejudice or damage to the Indemnifying Party. Except as specificallyprovided herein, each Indemnitee’s rights and remedies set forth in this Agreement will survive and will not be deemed waived by suchIndemnitee’s consummation of the transactions contemplated hereby and will be effective regardless of any inspection or investigationconducted, or the awareness of any matters acquired (or capable or reasonably capable of being acquired), by or on behalf of suchIndemnitee or by its directors, officers, employees, or representatives or at any time (regardless of whether notice of such knowledgehas been given to the Indemnifying Party), whether before or after the Execution Date or the final Effective Transfer Date, asapplicable, with respect to any circumstances constituting a condition under this Agreement.(b) In the event of the assertion of any third party Claim for which, by the terms hereof, an Indemnifying Party is obligated toindemnify an Indemnitee, the Indemnifying Party will have the right, at such Indemnifying Party’s expense, to assume the defense ofsame including the appointment and selection of counsel on behalf of the Indemnitee so long as such counsel is reasonably acceptableto the Indemnitee. If the Indemnifying Party elects to assume the defense of any such third party Claim, it shall within 30 days of itsreceipt of the Claim Notice notify the Indemnitee in writing of its intent to do so. Any such contest may be conducted in the name andon behalf of the Indemnifying Party or the Indemnitee as may be appropriate. The Indemnifying Party will have the right to settle orcompromise or take any corrective or remediation action with respect to any such Claim by all appropriate proceedings, whichproceedings will be diligently prosecuted by the Indemnifying Party to a final conclusion or settled at the reasonable discretion of theIndemnifying Party. The Indemnitee will be entitled, at its own cost, to participate with the Indemnifying Party in the defense of anysuch Claim. If the Indemnifying Party assumes the defense of any such third-party Claim but fails to diligently prosecute such Claim,or if the Indemnifying Party does not assume the defense of any such Claim, the Indemnitee may assume control of such defense andin the event it is determined pursuant to the procedures set forth in this Article VIII that the Claim was a matter for which theIndemnifying Party is required to provide indemnification under the terms of this Article VIII, the Indemnifying Party will bear thereasonable and documented costs and expenses of such defense (including reasonable and documented attorneys’ fees and expenses).(c) If requested by the Indemnifying Party, the Indemnitee agrees to reasonably cooperate with the Indemnifying Party and itscounsel in contesting any Claim that the Indemnifying Party elects to contest or, if appropriate, in making any counterclaim against thePerson asserting the Claim, or any cross-complaint against any Person, and the Indemnifying Party will reimburse the Indemnitee forany reasonable and documented expenses incurred by it in so cooperating. At no cost or expense to the Indemnitee, the IndemnifyingParty shall reasonably cooperate with the Indemnitee and its counsel in contesting any Claim.(d) Notwithstanding anything to the contrary in this Agreement, the Indemnifying Party will not be permitted to settle,compromise, take any corrective or remedial action or enter into an agreed judgment or consent decree, in each case, that subjects theIndemnitee to any criminal liability, requires an admission of guilt, wrongdoing or fault on the part of the Indemnitee or imposes anycontinuing obligation on or requires any payment from the Indemnitee without the Indemnitee’s prior written consent.(e) Notwithstanding anything in this Article VIII to the contrary, any indemnification payment to be made to an Indemniteepursuant to this Article VIII shall be effected by wire transfer of immediately available funds from the Indemnifying Party to anaccount designated by the Indemnitee within ten (10) days after the final determination thereof.8.5 Express Negligence. THE PARTIES INTEND THAT THE INDEMNITIES SET FORTH IN THIS ARTICLE VIIIBE CONSTRUED AND APPLIED AS WRITTEN ABOVE, NOTWITHSTANDING ANY RULE OF CONSTRUCTION TOTHE CONTRARY. WITHOUT LIMITING THE FOREGOING, SUCH INDEMNITIES SHALL APPLYNOTWITHSTANDING ANY STATE’S “EXPRESS NEGLIGENCE” OR SIMILAR RULE THAT WOULD DENYCOVERAGE BASED ON AN INDEMNIFIED PARTY’S SOLE OR CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCEOR GROSS NEGLIGENCE. IT IS THE INTENT OF THE PARTIES THAT, TO THE EXTENT PROVIDED ABOVE, THEINDEMNITIES SET FORTH IN THIS ARTICLE VIII SHALL APPLY TO AN INDEMNIFIED PARTY’S SOLE ORCONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE OR GROSS NEGLIGENCE. THE PARTIES AGREE THAT THISPROVISION IS “CONSPICUOUS” FOR PURPOSES OF ALL STATE LAWS.8.6 No Reliance.(a) THE REPRESENTATIONS AND WARRANTIES OF NGE CONTAINED IN ARTICLE III CONSTITUTE THESOLE AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES OF NGE TO BUYER IN CONNECTION WITH THETRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE REPRESENTATIONS AND WARRANTIES OFBUYER CONTAINED IN ARTICLE IV CONSTITUTE THE SOLE AND EXCLUSIVE REPRESENTATIONS ANDWARRANTIES OF BUYER TO NGE IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THISAGREEMENT.8.7 Tax Treatment. Any payments made to any Party pursuant to Article VIII shall constitute an adjustment of the RCEPurchase Price for Tax purposes and shall be treated as such by the Parties on their Tax Returns to the extent permitted by Law.ARTICLE IX GOVERNING LAW AND CONSENT TO JURISDICTION9.1 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the Laws of theState of Texas, without giving effect to the conflicts of law provision or rule (whether of the State of Texas or any other jurisdiction)that would cause the application of the Laws of any jurisdiction other than the State of Texas.9.2 Consent to Jurisdiction. The Parties irrevocably submit to the exclusive jurisdiction of (a) any state or federal court sittingin Harris County, Texas, and (b) any state appellate court therefrom within the State of Texas for the purposes of any Proceedingarising out of this Agreement or the transactions contemplated hereby (and each agrees that no such Proceeding relating to thisAgreement or the transactions contemplated hereby shall be brought by it except in such courts). The Parties irrevocably andunconditionally waive (and agree not to plead or claim) any objection to the laying of venue of any Proceeding arising out of thisAgreement or the transactions contemplated hereby in (i) any state or federal court sitting in Harris County, Texas, or (ii) any stateappellate court therefrom within the State of Texas or that any such Proceeding brought in any such court has been brought in aninconvenient forum. Each of the Parties hereto also agrees that any final and non-appealable judgment against a Party hereto inconnection with any Proceeding shall be conclusive and binding on such Party and that such award or judgment may be enforced inany court of competent jurisdiction, either within or outside of the United States. A certified or exemplified copy of such award orjudgment shall be conclusive evidence of the fact and amount of such award or judgment.ARTICLE X GENERAL PROVISIONS10.1 Amendments to Schedules. Each Party may, prior to final Effective Transfer Date, deliver to the other Partiesmodifications, changes or updates to such Party’s Disclosure Schedules in order to disclose or take into account facts, matters orcircumstances which arise or occur between the Execution Date and the final Effective Transfer Date and which, if existing oroccurring as of the Execution Date, would have been required to be set forth or described in such Disclosure Schedules. No updatedinformation provided to the Parties in accordance with this Section 10.1 shall be deemed to cure any breach of a representation,warranty or covenant made in this Agreement prior to any such updated information being submitted.10.2 Amendment and Modification. This Agreement may be amended, modified or supplemented only by written agreementof the Parties hereto.10.3 Waiver of Compliance; Consents. Except as otherwise provided in this Agreement, any failure of any of the Parties tocomply with any obligation, covenant, agreement or condition in this Agreement may be waived by the Party or Parties entitled to thebenefits thereof only by a written instrument signed by the Party or Parties granting such waiver, but such waiver or failure to insistupon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respectto, any subsequent or other failure.10.4 Notices. Any notice, demand or communication required or permitted under this Agreement shall be in writing anddelivered personally, by reputable overnight delivery service or other courier or by certified mail, postage prepaid, return receiptrequested, and shall be deemed to have been duly given (a) as of the date of delivery if delivered personally or by overnight deliveryservice or other courier or (b) on the date receipt is acknowledged if delivered by certified mail, addressed as follows; provided that anotice of a change of address shall be effective only upon receipt thereof:If to Buyer to:Spark HoldCo, LLC12140 Wickchester Lane, Suite 100Houston, TX 77079Attention: Chief Executive OfficerWith a copy to:Spark HoldCo, LLC12140 Wickchester Lane, Suite 100Houston, TX 77079Attention: Vice President & General CounselIf to NGE to:National Gas & Electric, LLC12140 Wickchester Lane, Suite 100 Houston, TX 77079Attention: Chief Executive OfficerWith a copy to:National Gas & Electric, LLC12140 Wickchester Lane, Suite 100Houston, TX 77079Attention: Vice President & General Counsel10.5 Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors andpermitted assigns. No Party may assign or transfer this Agreement or any of its rights, interests or obligations under this Agreementwithout the prior written consent of the other Parties; provided that Buyer may assign its rights (but not its obligations) to an Affiliate ofBuyer without the consent of NGE.10.6 Third Party Beneficiaries. (a) this Agreement shall be binding upon and inure solely to the benefit of the Parties heretoand their respective successors and permitted assigns; (b) none of the provisions of this Agreement shall be for the benefit of orenforceable by any third party, including any creditor of any Party or any of their Affiliates; and (c) no such third party shall obtain anyright under any provision of this Agreement or shall by reason of any such provision make any claim in respect of any liability (orotherwise) against any other Party.10.7 Entire Agreement. This Agreement and the other Transaction Documents constitute the entire agreement andunderstanding of the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both oraland written, among the Parties or between any of them with respect to such subject matter.10.8 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in suchmanner as to be effective and valid under applicable Law but if any provision or portion of any provision of this Agreement is held tobe invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such provision or portion of anyprovision shall be severable and the invalidity, illegality or unenforceability will not affect any other provision or portion of anyprovision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid,illegal or unenforceable provision or portion of any provision had never been contained herein.10.9 Representation by Counsel. Each Party agrees that it cooperated in the drafting and preparation of this Agreement andthe documents referred to herein, and any and all drafts relating thereto shall be deemed the work product of the Parties and may not beconstrued against any Party by reason of its preparation. Therefore, the Parties waive the application of any Law providing thatambiguities in an agreement or other document will be construed against the Party drafting such agreement or document.10.10 Disclosure Schedules. The inclusion of any information (including dollar amounts) in any section of the NGEDisclosure Schedules or the Buyer’s Disclosure Schedules shall not be deemed to be an admission or acknowledgment by a Party thatsuch information is required to be listed on such section of such Disclosure Schedules or is material to or outside the ordinary course ofthe business of such Party or the Person to which such disclosure relates. The information contained in this Agreement, the Exhibitsand the Schedules is disclosed solely for purposes of this Agreement, and no information contained in this Agreement, the Exhibits orthe Schedules shall be deemed to be an admission by any Party to any third Person of any matter whatsoever (including any violationof a legal requirement or breach of contract). The disclosure contained in one section of a disclosure schedule may be incorporated byreference into any other section of the disclosure schedule contained therein, and shall be deemed to have been so incorporated intoany other section of the disclosure schedule so long as it is readily apparent that the disclosure is applicable to such other section of theapplicable disclosure schedule.10.11 Facsimiles; Counterparts. This Agreement may be executed by facsimile or electronic signatures by any Party andsuch signature shall be deemed binding for all purposes hereof, without delivery of an original signature being thereafter required. ThisAgreement may be executed in one or more counterparts, each of which, when executed, shall be deemed to be an original and all ofwhich together shall constitute one and the same document.IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed by its respective duly authorizedofficers as of the date first above written.NGE:NATIONAL GAS & ELECTRIC, LLC By: /s/ W. Keith Maxwell III Name: W. Keith Maxwell III Title: President and Chief Executive Officer BUYER:SPARK HOLDCO, LLC By: /s/ Nathan Kroeker Name: Nathan Kroeker Title: CEO Signature Page to Assets Sale and Purchase AgreementTERMINATION AGREEMENTThis Termination Agreement (“Agreement”) entered into as of March 7, 2018 (the“Effective Date”) is among Retailco Services, LLC, a Texas limited liability company with an address of 12140 Wickchester Lane,Suite 100, Houston, TX 77079 and (“Servco”) with NuDevco Retail, LLC as Guarantor, and Spark Holdco, LLC, a Delaware limitedliability company, with offices located at 12140 Wickchester Lane, Suite 100, Houston, TX 77079 (together with its subsidiariescollectively “Client”). NuDevco Retail, LLC (“NuDevco”), a Texas limited liability company with its principal place of business at12140 Wickchester Lane, Suite 100, Houston, TX 77079, is an additional party to this Termination Agreement solely for the purposesof its guaranty associated with the original Master Service Agreement among the Parties. Servco, Client and NuDevco may eachindividually be called a “Party” and collectively may be referred to as the “Parties.”RECITALSWhereas, Servco and Client are parties to a Master Service Agreement, effective asof January 1, 2016 and as amended by the parties from time to time (collectively hereafter the “MSA”); and Whereas, the Parties desire to terminate the MSA.Now, therefore, in consideration of the mutual promises and covenants set forthherein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties heretoagree as follows:AGREEMENTS1.Definitions and Interpretations1.1 Definitions. Capitalized terms used in this Agreement but not defined in the body of this Agreement shall have themeanings ascribed to them in Exhibit A. Capitalized terms defined in the body of this Agreement are listed in Exhibit A with referenceto the location of the definitions of such terms in the body of this Agreement.1.2 Interpretations. In this Agreement, unless a clear contrary intention appears: (a) the singular includes the plural and viceversa; (b) reference to a Person includes such Person’s successors and assigns but, in the case of a Party, only if such successors andassigns are permitted by this Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity;(c) reference to any gender includes each other gender; (d) references to any Exhibit, Schedule, Section, Article, Annex, subsectionand other subdivision refer to the corresponding Exhibits, Schedules, Sections, Articles, Annexes, subsections and other subdivisionsof this Agreement unless expressly provided otherwise; (e) references in any Section or Article or definition to any clause means suchclause of such Section, Article or definition; (f) “hereunder,” “hereof,” “hereto” and words of similar import are references to thisAgreement as a whole and not to any particular provision of this Agreement; (g) the word “or” is not exclusive, and the word“including” (in its various forms) means “including without limitation”; (h) each accounting termnot otherwise defined in this Agreement has the meaning commonly applied to it in accordance with GAAP; (i) references to “days”are to calendar days; and (j) all references to money refer to the lawful currency of the United States. The Article and Section titles andheadings in this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaningor interpretation of, this Agreement.2. Termination.2.1Termination Date. Subject to the terms and conditions of this Agreement, the Parties hereby terminate the MSA and any andall rights, obligations or duties created thereunder effective April 1, 2018 (the “Termination Date”). The rights, duties andobligations of the parties arising or accruing under the MSA prior to the Termination Date are not affected by this TerminationAgreement.2.2Effect of Termination. As of the Termination Date, (a) Servco shall immediately cease providing any services to Client and alllicenses granted under the MSA shall terminate; (b) Client shall return to Servco all of Servco’s Confidential Information andshall, at Servco’s option, delete, destroy, or permanently erase any software installed in Client’s computer systems downloadedfrom the Services or from Servco in connection with the provision of services to Client under the MSA; (c) Servco shall returnto Client and, upon direction from the Client, destroy all remaining copies of Customer Data, Client Intellectual Property andother Client Confidential Information; and (d) Client shall promptly pay to Servco all unpaid fees due and owing.2.3Transfer of Assets and Personnel to Client upon Termination. As of the Termination Date and as directed by Client,Servco shall assign to Client (i) all of the Assigned Assets (as defined in the MSA) that were initially transferred by Client toServco under the MSA, (ii) any future or additional assets that were paid for by Client under the MSA and (iii) any additionalClient Work Made for Hire and Client Work Product created during the term of the MSA, in each case in (i), (ii) and (iii) to theextent they still exist, and (iv) Servco’s existing personnel to the extent requested by Client, which job categories are identifiedon Exhibit B (collectively, the “Servco Infrastructure”) and shall be agreed in a form mutually agreed to by Servco and Client.Additional details regarding the transfer of Servco Infrastructure to Client are set forth in Sections 2.3.1 and 2.3.2 below.Servco shall assist the Client in the transfer of the Servco Infrastructure to Client including without limitation: (a) the executionof transfer and assignment documentation sufficient to give Client good and marketable title to assets being assigned and rightsunder all agreements necessary to operate the Servco Infrastructure; (b) access to all information of Servco includingConfidential Information data and records as may be requested to effect the transfer; (c) the transfer of the employees of Servcoto Client; and (d) making certain Servco employees available to provide transition assistance to Client at no cost to Client for aperiod of no longer than six months.2.3.1Transfers of Assets, Intellectual Property and Contractual Rights. As of the Termination Date, Servco and Client (andClient’s Subsidiaries as applicable) shall enter into: (a) an assignment and assumption of the contracts listed on Exhibit C (the“Re-AssignedContracts”) in a form mutually agreed to by Servco and Client; and (b) an assignment and bill of sale for the assets (includingall computer, monitors, printers, and peripherals used by any Servco personnel who provided Services to Client under the MSAand all assets that were paid for by Client under the MSA) and intellectual property (including all operating systems and othersoftware contained in the computers being transferred from Servco to Client, used or useful in performing the Services onbehalf of Client, Client Work Made for Hire, and Client Work Product) set forth on Exhibit D (the “Re-Assigned Assets”) inform mutually agreed to by Servco and Client.2.3.2Transfer of Personnel. As of the Termination Date, certain of Servco’s personnel (job categories as defined on Exhibit B tothis Agreement and as will be agreed in a final form mutually agreed to by Servco and Client) will become employees of Clienton similar terms as those being provided by Servco at the Termination Date. In connection with such transfer of Servco’semployees, the following shall apply:(a) Each former Servco employee hired by Client shall receive credit for prior service with Servco or its Affiliatesfor purposes of (i) paid time off (“PTO”) accrual and (ii) 401(k) plan vesting. In addition, each such employee shall beoffered the opportunity to participate in the Client employee benefit programs, including without limitation its Short andLong Term Disability programs, its Life Insurance program, its Accidental Death and Dismemberment program, its medicalbenefits program, its vision benefits program, and its FSA program.(b) Servco agrees that nothing contained in this Agreement or the hiring of Servco employees by Client shall inany way effect the vesting of any restricted stock unit awards previously granted to such Servco employees under Client’slong term incentive plan and further agrees that it will take all actions necessary to effectuate the foregoing.(c) Nothing in this Agreement shall be deemed to (i) give rise to any rights, claims, benefits or causes of action toa Servco employee or former Servco employee hired by Client or any Client employee, (ii) prevent, restrict, or limit Clientor any of its Affiliates, from modifying or terminating any of their benefit plans, programs or policies from time to time asthey may deem appropriate, subject only to compliance with the express provisions of this Agreement for the benefit ofServco or (iii) require Servco or any of its Affiliates to modify or terminate any of their benefit plans, programs or policies,or prevent, restrict or limit Servco or any of its Affiliates from modifying or terminating any of their benefit plans, programsor policies from time to time as they may deem appropriate, subject only to compliance with the express provisions of thisAgreement. The provisions of this Agreement are solely for the benefit of the parties hereto and nothing in this Agreement,express or implied, shall confer upon any current or former Servco Employee, Client Employee, or legal representative orbeneficiary thereof, anyrights or remedies, including any right to employment or continued employment for any specified period, or compensationor benefits of any nature or kind whatsoever under this Agreement. Nothing in this Agreement, express or implied, shall bedeemed an amendment of any employee benefit plan, program, policy or agreement providing benefits to any Servcoemployee, former Servco employee or Client employee.2.4Assumption of Servco’s Performance Obligations. As of the Termination Date, Client shall assume responsibility forensuring the continued performance of Servco’s performance obligations and its other business operations, including theprovision of similar Services at the same rates and under the same terms and conditions as currently provided to Client and toany other customer of Servco under Servco’s existing customer contracts and third party customer contracts as necessary toeffectuate the obligations under any such contracts and to fulfill the intent and purposes of this Agreement. .3. Confidential Information. Any Party (the “Disclosing Party”) may from time to time disclose Confidential Information to anyother Party (the “Recipient”). “Confidential Information” is all non-public, confidential, and/or proprietary information concerning thebusiness, technology, and strategies of the Disclosing Party that is conveyed to the Recipient orally or in tangible form and is eitheridentified or marked as “confidential” or “proprietary” or, under the circumstances surrounding its disclosure, or due to its nature orsensitivity, should be reasonably understood by the Recipient as intended by the Disclosing Party to be treated as “confidential” andsubject to the terms of this Agreement. Without limiting the generality of the foregoing, each Party agrees that (a) ConfidentialInformation of Servco includes the software, source code, documentation, inventions, know-how, methods, designs, specifications,updates and any and all other materials and information related to the Services; and (b) Confidential Information of Client includes allClient Data, Client Intellectual Property, Client business processes, Client marketing strategies and copies and details of the Client’sagreements with its customers. For a period of two (2) years after the Termination Date (and indefinitely or as otherwise prescribedwith respect to any Confidential Information that meets the definition of a “Trade Secret” under then applicable law and any personallyidentifying information, including without limitation names, addresses, and e-mail addresses), Recipient will keep in confidence andtrust and will not disclose or disseminate, or permit any employee, agent or other party working under Recipient’s direction to discloseor disseminate, the existence, source, content or substance of any Confidential Information to any other party. Recipient shall useConfidential Information of the Disclosing Party only as necessary for the performance of this Agreement. Recipient will employ atleast the same methods and degree of care (but no less than reasonable care) as Recipient employs with respect to its own ConfidentialInformation of similar import to prevent the unauthorized disclosure or misappropriation of the Disclosing Party’s ConfidentialInformation. Recipient will furnish the Confidential Information only to its and its affiliates’ employees, independent contractors, andagents who have (a) a bona fide need to know the Confidential Information to perform the obligations hereunder, (b) been informed ofthe confidential nature of the Confidential Information, and (c) agreed in writing to be bound by obligations of confidentiality no lessrestrictive than the terms and conditions set forth in this Agreement. The Receiving Party shall be responsible for any breach ofconfidentiality by such persons. The commitments in this Agreement will not impose any obligations on the Recipientwith respect to any portion of the Confidential Information which: (i) is now generally known or available, or which hereafter, throughno wrongful act or failure to act on the part of Recipient, becomes generally known or available in the public domain; (ii) is rightfullyknown by the Recipient prior to or at the time of receiving such information from the Disclosing Party or its representatives; (iii) isfurnished to Recipient by a third party without any known restriction on disclosure and without a breach by such third party of anyconfidentiality undertaking with respect thereto; (iv) is independently developed by the Recipient without the use of the DisclosingParty’s Confidential Information or the breach of this Agreement; or (v) is approved for disclosure without further obligations ofconfidentiality by the express written authorization of the Disclosing Party. Notwithstanding anything herein to the contrary, theRecipient may disclose Confidential Information that is required to be disclosed by order or mandate of any court, tribunal oradministrative agency, or other instrumentality of the government; provided, however, that the Recipient shall give the Disclosing Partyas much advance notice prior to making such disclosure as is reasonably practicable under the circumstances and to the extent legallypermissible so as to permit the Disclosing Party to take commercially reasonable actions at its own expense to prevent or mitigate theadverse effects of such disclosure. Each Party acknowledges that monetary damages may not be a sufficient remedy for theunauthorized disclosure or improper use of Confidential Information and, accordingly, that each Party may seek, without waiving anyof its other rights or remedies, such injunctive or equitable relief as may be available in a court of competent jurisdiction. At theDisclosing Party’s option and direction, Recipient shall promptly either destroy all Confidential Information in its possession or returnall such copies to the Disclosing Party, and, in either event, Recipient shall provide a written certification confirming such destructionor return. Notwithstanding the foregoing, to the extent any Servco Confidential Information is transferred to Client pursuant to Sections2.3 of this Agreement, or is within the knowledge of Servco personnel who become employees of Client pursuant to Section 2.6 of thisAgreement, such Confidential Information shall become the property of Client, and Client shall be free to use such Confidentialinformation as it sees fit and shall not be restricted in any way from using such Confidential Information.4. Alternative Dispute Resolution Procedures4.1 Any dispute, controversy or claim arising out of or relating to this Agreement or the breach or performance hereof,including, but not limited to, any disputes concerning the interpretation of the terms and provisions hereof, shall be resolved throughthe use of the following procedures:(a)The Parties will initially attempt in good faith to resolve any disputes, controversy or claim arising out of orrelating to this Agreement.(b)Should the Parties directly involved in any dispute, controversy or claim be unable to resolve same within areasonable period of time, such dispute, controversy or claim shall be submitted to the senior executives of theParties (the “Senior Executives”) with such explanation or documentation as the Parties deem appropriate toaid the Senior Executives in their consideration of the issues presented. The date the matter is first submitted tothe SeniorExecutives shall be referred to as the “Submission Date.” The Senior Executives shall attempt in good faith,through the process of discussion and negotiation, to resolve any dispute, controversy, or claim presented to itwithin ten (10) Days after the Submission Date.(c)If the Senior Executives cannot so resolve any dispute, controversy, or claim submitted to it within ten (10)Days after the Submission Date, the Parties shall attempt in good faith to settle the matter by submitting thedispute, controversy or claim to mediation within twenty (20) Days after the Submission Date using anymediator upon which they mutually agree. If the Parties are unable to mutually agree upon a mediator, the caseshall be referred for mediation to the office of Judicial Arbitration and Mediation Services, Inc. (“JAMS”) inHouston, Texas. The cost of the mediator will be split equally between the Parties unless they agree otherwisein writing.(d)If the matter has not been resolved pursuant to the aforesaid mediation procedure within thirty (30) Days of theinitiation of such procedure, or if either Party will not participate in such mediation, either Party may request thatthe matter be resolved through arbitration by submitting a written notice (the “Arbitration Notice”) to the other.Any arbitration that is conducted hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 etseq., and will not be governed by the arbitration acts, statutes, or rules of any other jurisdiction.(e)The Arbitration Notice shall name the noticing Party’s arbitrator and shall contain a statement of the issue(s)presented for arbitration. Within fifteen (15) Days of receipt of an Arbitration Notice, the other Party shall nameits arbitrator by written notice to the other and may designate any additional issue(s) for arbitration. The twonamed arbitrators shall select the third arbitrator within fifteen (15) Days after the date on which the secondarbitrator was named. Should the two arbitrators fail to agree on the selection of the third arbitrator, either Partyshall be entitled to request the Senior Judge of the United States District Court for the Southern District of Texasto select the third arbitrator. All arbitrators shall be qualified by education or experience within the electric andnatural gas retail marketing industry to decide the issues presented for arbitration. No arbitrator shall be: (i) acurrent or former director, officer, or employee of either Party or its Affiliates; (ii) an attorney (or member of alaw firm) who has rendered legal services to either Party or its Affiliates within the preceding three years; or (iii)an owner of any of the Voting Interest of either Party, or its Affiliates.(f)The three arbitrators shall commence the arbitration proceedings within twenty-five (25) Days following theappointment of the third arbitrator. The arbitration proceedings shall be held at a mutually acceptable site and iftheParties are unable to agree on a site, the arbitrators shall select the site. The arbitrators shall have the authority toestablish rules and procedures governing the arbitration proceedings. Each Party shall have the opportunity topresent its evidence at the hearing. The arbitrators may call for the submission of pre-hearing statements ofposition and legal authority, but no post-hearing briefs shall be submitted. The arbitration panel shall not havethe authority to award (i) punitive or exemplary damages or (ii) consequential damages, except as expresslyprovided herein. The arbitrators’ decision must be rendered within thirty (30) Days following the conclusion ofthe hearing or submission of evidence, but no later than ninety (90) Days after appointment of the thirdarbitrator.(g)The decision of the arbitrators or a majority of them, shall be in writing and shall be final and binding upon theParties as to the issue(s) submitted. The cost of the hearing shall be shared equally by the Parties, and each Partyshall be responsible for its own expenses and those of its counsel or other representatives. Each Party herebyirrevocably waives, to the fullest extent permitted by law, any objection it may have to the arbitrability of anysuch disputes, controversies or claims and further agrees that a final determination in any such arbitrationproceeding shall be conclusive and binding upon each Party. Judgment on the award rendered by the arbitratormay be entered in any court having jurisdiction thereof. The prevailing Party shall be entitled to recoverreasonable attorneys’ fees and court costs in any court proceeding relating to the enforcement or collection ofany award or judgment rendered by the arbitration panel under this agreement.(h)All deadlines specified herein may be extended by mutual written agreement of the Parties. The proceduresspecified herein shall be the sole and exclusive procedures for the resolution of disputes between the partiesarising out of or relating to this Agreement; provided, however, that a Party may seek a preliminary injunctionor other preliminary judicial relief if in its judgment such action is necessary to avoid irreparable damage.Despite such action, the Parties will continue to participate in good faith in the procedures specified herein. Allapplicable statutes of limitation, including, without limitation, contractual limitation periods provided for in thisAgreement, shall be tolled while the procedures specified in this Section are pending. The Parties will take allactions, if any, necessary to effectuate the tolling of any applicable statutes of limitation.4.2 Continued Performance. Each Party agrees to continue to perform its obligations under this Agreement while anydispute is being resolved, unless and until: (a) such obligations are terminated by the termination or expiration of this Agreement; or (b)otherwise ordered pursuant to a ruling by the arbitration panel, or the issuance of a temporary restraining order or other preliminaryinjunctive relief.5. General5.1Compliance with Laws. Each Party shall at all times comply with all applicable laws, statutes, rules, regulations andordinances.5.2Representations. Each Party represents and warrants that (a) it is a business entity duly organized, validly existing, and ingood standing in the jurisdiction in which it is formed, and that it has the full power and authority to execute and deliver thisAgreement and to carry out the transactions contemplated by this Agreement; (b) it has no outstanding agreement that is inconflict with any of the provisions of this Agreement or that would preclude it from complying with the provisions hereof; (c) itis in material compliance with all applicable laws, regulations and rules of any government body or other competent authorityrelating to its business and performance under this Agreement; and (d) it has the financial capability to meet its obligationsunder this Agreement.5.3Entire Agreement. This Agreement supersedes all prior communications, understandings, and agreements, whether written ororal, between the parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of thefull understanding and agreement between the parties with respect to the subject matter of this Agreement. This Agreementmay not be amended, supplemented, or otherwise modified, except by a written agreement executed by each party hereto.5.4Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the internal laws ofthe State of Texas, without giving effect to any choice of law or rule that would cause the application of the laws of anyjurisdiction other than the internal laws of the State of Texas to the rights and duties of the parties hereto.5.5Severability. If any provision of this Agreement or the application thereof is held to be invalid, void or unenforceable for anyreason, the remaining provisions not so declared will be construed so as to comply with the law and will continue in full forceand effect.5.6Counterparts. This Agreement may be executed in counterparts, each of which shall be considered an original, but all ofwhich taken together shall constitute one and the same instrument, and may be delivered electronically.5.7No Third Party Beneficiaries. This Agreement benefits solely the Parties to this Agreement and their respective permittedsuccessors and assigns, and nothing in this Agreement, express or implied, confers on any other Person any legal or equitableright, benefit or remedy of any nature whatsoever under or by reason of this Agreement.5.8Legal Notices. Any notice permitted or required under this Agreement must be in writing. Any such notice will be delivered asfollows: (a) hand delivery; (b) nationally recognizedovernight courier (fully prepaid and with delivery confirmation via UPS, the United States Postal Service, FedEx, DHL, orother nationally recognized overnight delivery service); or (c) certified U.S. Mail, postage prepaid, return receipt requested. Anunofficial copy may also be transmitted by email. Legal notices shall be effective immediately for notice delivered pursuant tosection (a) above. Notices shall be effective two (2) Business Days following the expiration of the date sent for notice deliveredpursuant to sections (b) or (c) above. All notices shall be addressed to each Party as set forth below (or to such otheraddress/addressee or telecopy number as either Party may from time to time duly notify the other).If to Servco, addressed to:RetailCo Services, LLC 12140 Wickchester Lane, Suite 100 Houston, Texas 77079 Attention: Chief Executive OfficerWith a copy to:RetailCo Services, LLC12140 Wickchester Lane, Suite 100 Houston, Texas 77079Attn: General CounselIf to Client, addressed to:Spark HoldCo, LLC 12140 Wickchester Lane, Suite 100 Houston, Texas 77079 Attention: Chief Executive OfficerWith a copy to:Spark HoldCo, LLC 12140 Wickchester Lane, Suite 100 Houston, Texas 77079 Attention: General CounselIf to NuDevco, addressed to:NuDevco Retail, LLC 12140 Wickchester Lane, Suite 100 Houston, Texas 77079 Attention: Chief Executive OfficerWith a copy to:NuDevco Retail, LLC12140 Wickchester Lane, Suite 100 Houston, Texas 77079Attn: General Counsel5.9 Amendments and Waivers. This Agreement and any Statement of Work, Attachments or Exhibits hereto may beamended in whole or in part only by written agreement signed by the Parties. The failure of any Party to insist upon strict performanceof any of the terms or conditions herein, irrespective of the length of time for which such failure shall continue, shall not be a waiver ofthat Party’s right to demand strict compliance in the future. The Parties may at any time and from time to time waive in whole or in partthe benefit to it of any provision in this Agreement or any default by the other Party, but any waiver on any occasion will be deemednot to be a waiver of that provision thereafter or of any subsequent default or a waiver of any other provision or default. No waiver orconsent shall be effective unless in writing and signed by the Party against whom such waiver or consent is asserted.5.10 Survival. Sections 3.1 (Fees), 3.2 (Expenses), 3.3 (Payment), 3.4 (Effect of Termination), 5.5 (Transition Services), 5.6(Transfer of Assets and Personnel to Client After Termination), Sections 7.2(b), 7.2(c) (Audits), Article 8 (Indemnification; Liability);Article 10 (Confidential Information), Article 11 (Governing Law), Sections 14.15 (Survival), 14.16 (Record Keeping), 14.18(Guaranty of Nudevco Retail, LLC) and any other provisions that by their nature are necessary to survive the expiration or terminationof the MSA shall survive despite this Termination Agreement.5.11 Headings. Headings and captions are for convenience only and are not to be used in the interpretation of the Agreement.5.12 Further Assurances. Each Party agrees to execute such additional documents and instruments and take such additionalactions as may be reasonably necessary or as requested by the other Party to give effect to this Agreement and to carry out itsprovisions.[SIGNATURE PAGE FOLLOWS]IN WITNESS WHEREOF, the parties caused this Agreement to be executed by their duly authorized representatives as ofthe Effective Date. RetailcoServices, LLCBy:/s/ Gary LancasterName: Gary LancasterTitle: Exec.VP & General CounselSpark Holdco, LLCBy: /s/ Nathan KroekerName: Nathan KroekerTitle: CEONudevco Retail, LLC (executed solely as to guaranty obligations)By: /s/ Gary LancasterName: Gary LancasterTitle: Exec.VP & General CounselExhibit A[Definitions]“Agreement” has the meaning set forth in the introductory paragraph.“Arbitration Notice” has the meaning set forth in Section 4.1(d).“Re-Assigned Assets” has the meaning set forth in Section 2.3.1.“Re-Assigned Contracts” has the meaning set forth in Section 2.3.1.“Client” has the meaning set forth in Section the introductory paragraph.“Client Data” means all data imported for use under the MSA or generated pursuant to MSA that (i) constitutes the personallyidentifiable information of Client’s Customers including, without limitation, financial information; (ii) Client’s raw ANSI x12 data; or(iii) otherwise contains information regarding Client’s Customers’ usage of, or payment for, electric or gas services.“Client Intellectual Property” means Client Data, Client Trademarks, Client Work Product, and Client Work Made for Hire.“Client Trademarks” means the Client’s name and logo trademarks.“Client Work Made for Hire” means any specifications, design documents, flow charts, software programs (includingdeveloped applications), historical data, models, processes procedures and related documentation, reports and other similar workproduct (collectively, “Developed Materials”), regardless of the medium in which such Developed Materials are presented, that wasdeveloped by or on behalf of Client and not assigned to Servco as part of the Assigned Assets. The ownership of any DevelopedMaterials developed by Servco on behalf of Client that were addressed in a specific Statement of Work under the MSA shall beidentified in Exhibit D. Any Client Work Made for Hire that is not addressed in a Statement of Work and the Developed Materialswere paid in fully by Client, such Developed Materials shall be owned by Client or if such Developed Materials are a part of Client’sexisting assets or Client Intellectual Property and shall be listed in Exhibit D.“Client Work Product” means all Developed Materials that Client develops or causes to be developed on its behalf in which itowns, excluding any such Developed Materials that Servco develops not owned by Client.“Confidential Information” has the meaning set forth in Section 3.“Customers” means any utility, transmission/distribution service provider, commercial, industrial or residential entities orPersons to which Client sells or purchases electricity or natural gas or provides electric or natural gas services.“Developed Materials” has the meaning set forth in the definition of Client Work Made for Hire.“Disclosing Party” has the meaning set forth in Section 3.“Effective Date” has the meaning set forth in the introductory paragraph.“MSA” has the meaning set forth in the Recitals.“Parties” has the meaning set forth in the introductory paragraph.“Party” has the meaning set forth in the introductory paragraph.“Person” means any natural person, corporation, limited partnership, general partnership, limited liability company, joint stockcompany, joint venture, association, company, estate, trust, bank trust company, land trust, business trust, or other organization,whether or not a legal entity, custodian, trustee-executor, administrator, nominee or entity in a representative capacity and anyGovernmental Authority.“PTO” has the meaning set forth in Section 2.3.2(a).“Recipient” has the meaning set forth in Section 3.“Senior Executives” has the meaning set forth in Section 4.1(b).“Servco” has the meaning set forth in the introductory paragraph.“Servco Infrastructure” has the meaning set forth in Section 2.3.“Submission Date” has the meaning set forth in Section 4.1(b).“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or otherbusiness entity of which a majority of the Voting Interests are at the time owned directly or indirectly, by that Person or one or more ofthe other Subsidiaries of that Person or a combination thereof.“Termination Date” has the meaning set forth in Section 2.1.Exhibit B[Servco Job Categories to be Assigned to Client]Customer service calls and non-call service interaction managementEscalated customer issue managementInbound new enrollments managementInbound retention of customer request to drop managementEnrollment transaction managementEDI and market transaction managementCustomer billing servicesCollections and receivables servicesElectronic payment servicesPrint and mail servicesPricing update servicesContract mgmt. servicesResidual commission servicesOperational and key performance reporting servicesInformation technology infrastructure, application, desktop support & associated servicesData warehouse management and reporting servicesBusiness continuity and disaster recovery planning servicesVendor management of third party providers for above servicesExhibit C[Contracts to Be Assigned to Client]This exhibit will be prepared and agreed to by the Parties after the execution date. Exhibit D[Re-Assigned Assets]This exhibit will be prepared and agreed to by the Parties after the execution date. Exhibit 21.1LIST OF SUBSIDIARIES OF SPARK ENERGY, INC.Entity Jurisdiction Spark HoldCo, LLC Delaware Spark Energy Gas, LLC Texas Spark Energy, LLC Texas Oasis Power Holdings, LLC Texas Oasis Power, LLC Texas CenStar Energy Corp. New York CenStar Operating Company, LLC Texas Major Energy Services LLC New York Major Energy Electric Services LLC New York Respond Power LLC New York Electricity Maine, LLC Maine Electricity N.H., LLC Maine Provider Power Mass, LLC Maine Perigee Energy, LLC Texas Verde Energy USA, Inc. Delaware Verde Energy USA Connecticut, LLC Delaware Verde Energy USA DC, LLC Delaware Verde Energy USA Illinois, LLC Delaware Verde Energy USA Maryland, LLC Delaware Verde Energy USA Massachusetts, LLC Delaware Verde Energy USA New Jersey, LLC Delaware Verde Energy USA New York, LLC Delaware Verde Energy USA Ohio, LLC Delaware Verde Energy USA Pennsylvania, LLC Delaware Verde Energy Solutions, LLC Delaware Verde Energy USA Trading, LLC Delaware Verde Energy USA Texas Holdings, LLC DelawareVerde Energy USA Texas, LLC TexasConsent of Independent Registered Public Accounting FirmThe Board of DirectorsSpark Energy, Inc:We consent to the incorporation by reference in the registration statement No. 333-214023 on Form S-3 and in the registration statement No. 333-197738 on Form S-8 of Spark Energy, Inc. of our report dated March 9, 2018, with respect to the consolidated balance sheets of Spark Energy,Inc. as of December 31, 2017 and 2016, and the related consolidated statements of operations and comprehensive income, changes in equity, andcash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the “consolidated financialstatements”), which report appears in the December 31, 2017 annual report on Form 10-K of Spark Energy, Inc.Our report on the consolidated financial statements refers to a change in the accounting for employee taxes paid for shares withheld for taxwithholding purposes./s/ KPMG LLPHouston, TexasMarch 9, 2018EXHIBIT 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THESECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Nathan Kroeker, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of Spark Energy, Inc. (the“registrant”);2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, oris reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 9, 2018 /s/Nathan Kroeker Nathan Kroeker Chief Executive Officer & PresidentEXHIBIT 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A) AND RULE 15D-14(A) OF THESECURITIES EXCHANGE ACT OF 1934, AS AMENDEDI, Robert Lane, certify that:1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2017 of Spark Energy, Inc. (the“registrant”);2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, oris reasonably likely to materially affect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting whichare reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting.Date: March 9, 2018/s/Robert Lane Robert Lane Chief Financial OfficerEXHIBIT 32CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER UNDER SECTION 906 OF THE SARBANES OXLEY ACT OF 2002, 18 U.S.C. § 1350 In connection with the Annual Report on Form 10-K for the year ended December 31, 2017 (the “Annual Report”) of SparkEnergy, Inc., a Delaware corporation (the “Company”), as filed with the Securities and Exchange Commission on the date hereof,Nathan Kroeker, Chief Executive Officer of the Company, and Robert Lane, Chief Financial Officer of the Company, each certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge: 1.The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, as amended; and2.The information contained in the Annual Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company.Date: March 9, 2018/s/Nathan KroekerNathan KroekerChief Executive Officer & President/s/Robert LaneRobert LaneChief Financial OfficerOur Service Territory Electricity Gas Electricity & Gas 2017 HIGHLIGHTS $102.9 million in Adjusted EBITDA1 and $224.5 million in Retail Gross Margin1 Completed Perigee and Verde acquisitions totaling approximately 162,000 RCEs Invested approximately $26 million in organic customer acquisition Realized consistently strong unit margins in both retail natural gas and electricity segments Increased RCE count by 35%, including 14% net organic growth Held attrition flat to the previous year, at 4.3% Executed a stock split and paid an annual dividend of $0.725 per share of Class A common stock, the same as our pre-split dividend of $1.45 per share since our IPO in July 2014 1 See reconciliation of GAAP to Non-GAAP measures starting on page 58 of our Report on Form 10-K for the year ended December 31, 2017 OHhttp://ir.sparkenergy.com/ Christian Hettick ir@sparkenergy.com 832-200-3727 2017

Continue reading text version or see original annual report in PDF format above