UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

o 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 333-138425

MXENERGY HOLDINGS INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		20-2930908
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

595 Summer Street, Suite 300
Stamford, Connecticut		06901
(Address of Principal Executive Offices)		(Zip Code)

(203) 356-1318

(Registrant’s telephone number, including area code)

Indicate 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 1934 during 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 filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to 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 period that the registrant was required to submit and post such files).* Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 30, 2011, there were 33,710,902 shares of the Registrant’s Class A Common Stock (par value $0.01 per share), 4,002,290 shares of the Registrant’s Class B Common Stock (par value $0.01 per share) and 17,078,335 shares of the Registrant’s Class C Common Stock (par value $0.01 per share) outstanding.

Documents incorporated by reference: None

* The registrant is not currently required to submit electronically and post Interactive Data Files in accordance with Rule 405 of Regulation S-T.

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MXENERGY HOLDINGS INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

TABLE OF CONTENTS

Item Number		Page Number

PART I — FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements		3

1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets at March 31, 2011 and June 30, 2010	4
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended March 31, 2011and 2010	5
	Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended March 31, 2011 and 2010	6
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2011 and 2010	7
	Notes to Condensed Consolidated Financial Statements	8
2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)	33
3.	Quantitative and Qualitative Disclosures about Market Risk	56
4.	Controls and Procedures	60

PART II — OTHER INFORMATION

1.	Legal Proceedings	61
1A.	Risk Factors	61
2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
3.	Defaults Upon Senior Securities	61
4.	(Removed and Reserved)	61
5.	Other Information	61
6.	Exhibits	61

	Signatures	62

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PART I — FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

Some statements in this Quarterly Report on Form 10-Q (the “Quarterly Report”) are known as “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and other statements contained in the Quarterly Report that are not historical facts and may relate to, among other things:

· future performance generally;

· our business goals, strategy, plans, objectives and intentions;

· our integration of any acquired businesses;

· expectations concerning future operations, margins, profitability, attrition, bad debts, expenses, interest rates, liquidity and capital resources; and

· expectations regarding the effectiveness of our hedging practices and the performance of suppliers, pipelines and transmission companies, storage operators, independent system operators, financial hedge providers, banks providing working capital and other counterparties supplying, transporting, and storing physical commodity.

When used in this Quarterly Report, the words “may,” “should,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “predicts,” “estimates,” “potential,” “continue,” “projected” and similar expressions are generally intended to identify forward-looking statements, although the absence of such a word does not mean that such statement is not a forward-looking statement.

Forward-looking statements are subject to risks, uncertainties, and assumptions about us and our operations that are subject to change based on various important factors, some of which are beyond our control. The following factors, as well as the factors identified in “Risk Factors,” among others, could cause our financial performance to differ significantly from the goals, plans, objectives, intentions and expectations expressed in our forward-looking statements:

· failures in our risk management policies and hedging procedures;

· shortfalls in marketing or unusual customer attrition that result in our purchases exceeding our supply commitments;

· unavailability or lack of reliability in monthly settlement index prices;

· changes in the forward prices of natural gas and electricity;

· insufficient liquidity to properly implement our hedging strategy or manage commodity supply;

· changes in weather patterns from historical norms that affect customer consumption patterns;

· failure of our customers to pay their bills or our failure to maintain adequate billing and collection procedures;

· failure of LDCs (as defined herein) to pay amounts owed to us when due;

· failure to collect imbalance receivables;

· inaccuracy of data in our billing systems;

· disruptions in local transportation and transmission facilities;

· changes in regulations that affect our ability to use marketing channels;

· changes in statutes or regulations that affect growth and commodity, operating or financing costs or otherwise impact our profitability;

· investigations by any state utility commissions, state attorneys general or federal agencies that could result in fines, sanctions or damage to our reputation;

· failure to properly manage our growth;

· the loss of key members of management or failure to retain employees;

· changes in general economic conditions;

· competition from utilities and other marketers;

· malfunctions in computer hardware or software or in database management systems or power systems, due to mechanical or human error, that result in billing errors or problems with collections, reconciliation, accounting or risk management;

· natural disasters, including hurricanes; and

· our reliance on energy infrastructure and transportation within the United States and Canada.

Therefore, we caution you not to place undue reliance on any forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report to conform these statements to actual results. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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Item 1 — Financial Statements

MXENERGY HOLDINGS INC.

Condensed Consolidated Balance Sheets (Unaudited)

(dollars in thousands)

	Balance at
	March 31, 2011			June 30, 2010

Assets
Current assets:
Cash and cash equivalents	$	3,066		$	6,220
Restricted cash	1,547			1,574
Fixed Rate Notes Escrow Account (Note 14)	8,977			8,977
Accounts receivable from customers and LDCs, net (Note 5)	94,507			48,925
Accounts receivable from RBS Sempra, net (Note 13)	27,240			43,054
Natural gas inventories (Note 6)	2,517			15,861
Income taxes receivable	4,078			6,063
Deferred income taxes (Note 9)	369			1,378
Other current assets (Note 7)	12,628			16,272
Total current assets	154,929			148,324
Goodwill	3,810			3,810
Customer acquisition costs, net (Note 8)	35,151			30,425
Fixed assets, net	5,158			2,739
Deferred income taxes (Note 9)	1,520			3,629
Deferred debt issuance costs (Notes 13 and 14)	8,979			12,552
Other assets	529			541
Total assets	$	210,076		$	202,020

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities (Note 10)	$	30,900		$	30,302
Current portion of unrealized losses from risk management activities, net (Notes 11 and 12)	5,005			16,731
Deferred revenue	1,432			7,457
Current portion of long-term debt (Note 14)	6,402			—
Total current liabilities	43,739			54,490
Unrealized losses from risk management activities, net (Notes 11 and 12)	79			1,857
Long-term debt (Note 14)	55,089			58,722
Other long-term liabilities (Note 9)	3,756			—
Total liabilities	102,663			115,069

Commitments and contingencies (Note 17)	—			—

Stockholders’ equity:
Common stock (Note 15)
Class A Common Stock (par value $0.01; 50,000,000 shares authorized; 33,940,683 shares issued and 33,710,902 shares outstanding at March 31, 2011 and June 30, 2010)	339			339
Class B Common Stock (par value $0.01; 10,000,000 shares authorized; 4,002,290 shares issued and outstanding at March 31, 2011 and June 30, 2010)	40			40
Class C Common Stock (par value $0.01; 40,000,000 shares authorized; 17,072,127 shares and 16,413,159 shares issued and outstanding at March 31, 2011 and June 30, 2010, respectively)	170			164
Total common stock	549			543
Additional paid-in capital	140,873			139,702
Class A treasury stock (229,781 shares at March 31, 2011 and June 30, 2010)	(99		)	(99		)
Accumulated other comprehensive loss	(294		)	(156		)
Accumulated deficit	(33,616		)	(53,039		)
Total stockholders’ equity	107,413			86,951
Total liabilities and stockholders’ equity	$	210,076		$	202,020

The accompanying notes are an integral part of these consolidated financial statements.

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MXENERGY HOLDINGS INC.

Condensed Consolidated Statements of Operations (Unaudited)

(dollars in thousands)

	Three Months Ended March 31,
	2011			2010

Sales of natural gas and electricity	$	249,834		$	233,636
Cost of goods sold (excluding depreciation and amortization):
Cost of natural gas and electricity sold	191,376			164,997
Realized (gains) losses from risk management activities, net	(6,558		)	1,269
Unrealized losses from risk management activities, net	4,680			26,001
	189,498			192,267
Gross profit	60,336			41,369

Operating expenses:
General and administrative expenses	15,826			14,454
Advertising and marketing expenses	804			1,707
Reserves and discounts	3,004			2,628
Depreciation and amortization	6,372			5,979
Total operating expenses	26,006			24,768

Operating profit	34,330			16,601
Interest expense, net of interest income of $23 and $59, respectively	7,369			7,778
Income before income tax expense	26,961			8,823
Income tax expense	(9,809		)	(3,563		)
Net income	$	17,152		$	5,260

	Nine Months Ended March 31,
	2011			2010

Sales of natural gas and electricity	$	528,014		$	462,377
Cost of goods sold (excluding depreciation and amortization):
Cost of natural gas and electricity sold	402,729			311,664
Realized losses from risk management activities, net	8,518			34,504
Unrealized gains from risk management activities, net	(9,594		)	(2,451		)
	401,653			343,717
Gross profit	126,361			118,660

Operating expenses:
General and administrative expenses	46,452			41,366
Advertising and marketing expenses	3,927			2,449
Reserves and discounts	7,718			6,443
Depreciation and amortization	18,552			16,875
Total operating expenses	76,649			67,133

Operating profit	49,712			51,527
Interest expense, net of interest income of $70 and $116, respectively	21,326			28,942
Income before income tax expense	28,386			22,585
Income tax expense	(8,963		)	(9,336		)
Net income	$	19,423		$	13,249

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MXENERGY HOLDINGS INC.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(dollars in thousands)

	Nine Months Ended March 31, 2011
	Common Stock			Additional Paid-in Capital			Class A Treasury Stock			Accumulated Other Comprehensive Loss			Retained Earnings (Accumulated Deficit)			Total Stockholders’ Equity

Balance at June 30, 2010	$	543		$	139,702		$	(99	)	$	(156	)	$	(53,039	)	$	86,951
Issuance of Class C Common Stock	10			—			—			—			—			10
Retirement of Class C Common Stock	(4		)	(1,167		)	—			—						(1,171		)
Stock compensation expense	—			2,338			—			—			—			2,338
Comprehensive income:
Net income	—			—			—			—			19,423			19,423
Foreign currency translation loss	—			—			—			(138		)	—			(138		)
Total comprehensive income																19,285
Balance at March 31, 2011	$	549		$	140,873		$	(99	)	$	(294	)	$	(33,616	)	$	107,413

	Nine Months Ended March 31, 2010
	Common Stock			Additional Paid-in Capital		Class A Treasury Stock			Accumulated Other Comprehensive Loss			(Accumulated Deficit) Retained Earnings			Total Stockholders’ Equity

Balance at June 30, 2009	$	47		$	18,275	$	—		$	(3	)	$	(90,469	)	$	(72,150	)
Issuance of Class A Common Stock	339			81,468		—			—			—			81,807
Issuance of Class B Common Stock	40			9,005		—			—			—			9,045
Issuance of Class C Common Stock	164			28,591		—			—			—			28,755
Acquisition of Class A Treasury Stock	—			—		(99		)	—			—			(99		)
Cancellation of common stock	(47		)	—		—			—			—			(47		)
Stock compensation expense	—			1,009		—			—			—			1,009
Revaluation of redeemable convertible preferred stock	—			—		—			—			25,925			25,925
Comprehensive income:
Net income	—			—		—			—			13,249			13,249
Foreign currency translation	—			—		—			(193		)	—			(193		)
Total comprehensive income															13,056
Balance at March 31, 2010	$	543		$	138,348	$	(99	)	$	(196	)	$	(51,295	)	$	87,301

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MXENERGY HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)

	Nine Months Ended March 31,
	2011			2010

Operating activities:
Net income	$	19,423		$	13,249
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized gains from risk management activities, net	(9,594		)	(2,451		)
Stock compensation expense	2,338			1,009
Provision for doubtful accounts	4,791			4,661
Depreciation and amortization	18,552			16,875
Deferred tax expense	3,118			9,338
Non-cash interest expense, primarily unrealized losses on interest rate swaps and amortization of debt issuance costs	8,750			7,975
Changes in assets and liabilities, net of effects of acquisition:
Restricted cash	27			72,620
Accounts receivable	(50,373		)	(56,703		)
Accounts receivable — RBS Sempra	15,814			(14,700		)
Natural gas inventories	13,344			22,790
Income taxes receivable	1,985			(724		)
Fixed Rate Notes Escrow Account	—			(8,977		)
Option premiums	39			(335		)
Other assets	(2,768		)	(5,884		)
Customer acquisition costs	(21,668		)	(12,862		)
Accounts payable and accrued liabilities	598			(11,579		)
Deferred revenue	(6,025		)	(2,666		)
Other long-term liabilities	3,756			—
Net cash provided by operating activities	2,107			31,636

Investing activities:
Asset acquisitions and business combinations	(162		)	(304		)
Purchases of fixed assets	(3,867		)	(545		)
Net cash used in investing activities	(4,029		)	(849		)

Financing activities:
Repayment of Floating Rate Notes due 2011	—			(26,700		)
Repayment of Fixed Rate Notes due 2014	—			(423		)
Repayment of Denham Credit Facility	—			(12,000		)
Repayment of Bridge Financing Loans under the Revolving Credit Facility	—			(5,400		)
Debt issuance costs	(71		)	(6,249		)
Payroll taxes paid in connection with issuance of common stock from RSUs	(1,161		)	—
Acquisition of Class A treasury stock	—			(99		)
Stock issuance costs	—			(329		)
Net cash used in financing activities	(1,232		)	(51,200		)
Net decrease in cash and cash equivalents	(3,154		)	(20,413		)
Cash and cash equivalents at beginning of period	6,220			23,266
Cash and cash equivalents at end of period	$	3,066		$	2,853

The accompanying notes are an integral part of these condensed consolidated financial statements.

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MXENERGY HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months and Nine Months Ended March 31, 2011

Note 1. Organization and Basis of Presentation

MXenergy Holdings Inc. (“Holdings”) was founded in 1999 as a retail energy marketer, and was incorporated in Delaware on January 24, 2005 as part of a corporate reorganization. The two principal operating subsidiaries of Holdings are MXenergy Inc. and MXenergy Electric Inc., which are engaged in the marketing and supply of natural gas and electricity, respectively. Holdings and its subsidiaries (collectively, the “Company”) collectively operate in 41 market areas located in 14 states in the United States (the “U.S.”) and in two Canadian provinces.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with requirements of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. (“U.S. GAAP”) for complete financial statements. The condensed consolidated balance sheet at June 30, 2010 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010 (the “2010 Form 10-K”), but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the 2010 Form 10-K.

In the opinion of management, all normal and recurring adjustments considered necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods have been made. The accounting and reporting policies of the Company are consistent, in all material respects, with those used to prepare the 2010 Form 10-K, except for the impact, if any, of new accounting pronouncements summarized in Note 3 below. The preparation of financial statements in conformity with U.S. GAAP requires the use of estimates and assumptions that affect reported amounts and disclosures. Actual amounts could differ from those estimates. Interim results should not be considered indicative of results for future periods.

Certain reclassifications have been made to prior period amounts to conform to the current period presentations. Capitalized customer acquisition costs of $12.9 million were reclassified from investing activities to operating activities on the consolidated statement of cash flows for the nine months ended March 31, 2010.

Note 2. Merger and Termination Agreements

On May 12, 2011, the Company entered into an agreement and plan of merger (the “Merger Agreement”) pursuant to which it will be acquired by Constellation Energy Resources, LLC (“Constellation”) in an all-cash transaction subject to shareholder and regulatory approvals (the “Merger”). The transaction is expected to close in the quarter ending September 30, 2011, provided all necessary approvals have been received.

The total base purchase price of the transaction is $175.0 million, subject to normal adjustments. Shareholders can expect to receive between $3.00 and $3.28 per share in cash at closing. Additional payments of up to $0.93 per share may be made to shareholders upon settlement of escrow holdbacks, aggregating to total potential cash consideration of up to approximately $4.21 per share. The final price per share will be subject to a number of factors, including final working capital balances and the amount of escrowed contingency reserves ultimately released.

In connection with the Merger, the Company has agreed to pay in full all amounts owed on its outstanding floating rate senior notes due 2011 (the “Floating Rate Notes due 2011”) and will redeem any and all outstanding 13.25% Senior Subordinated Secured Notes due 2014 (the “Fixed Rate Notes due 2014”) at a redemption price of 106.625% plus accrued interest through August 1, 2011 (the earliest redemption date and stated redemption percentage per the bond agreement). If the Company successfully closes the Merger, the full amount of redemption cost of the Fixed Rate Notes due 2014 and accrued interest will be set aside with the trustee in satisfaction of the bonds. In the event the Company is not able to successfully close the Merger, the Company will pay the full amounts owed on the outstanding Floating Rate Notes due 2011 out of current funds on the August 1, 2011 due date.

In addition, on May 12, 2011, Holdings, certain of its subsidiaries, Constellation and Sempra Energy Trading LLC (“RBS Sempra”) entered into a termination agreement (the “Termination Agreement”) pursuant to which the Company agreed, subject to the closing of the Merger, to pay just over $16.0 million in exchange for RBS Sempra’s Class B Common Stock, Class C Common Stock and unvested restricted stock units (“RSUs”) in the Company as well as any early termination obligation under the Commodity Supply Facility (as defined hereinafter) with RBS Sempra. The termination obligation portion of the settlement is estimated to be approximately $4.0 million based on the minimum volume commitments under the ISDA Master Agreements (as defined hereinafter). Refer to Note 13.

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Note 3. New Accounting Pronouncements

Accounting Pronouncements Adopted During the Nine Months Ended March 31, 2011

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06 (“ASU 2010-06”), which amends FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” The amended guidance in ASU 2010-06 requires entities to disclose additional information regarding assets and liabilities that are transferred between levels of the fair value hierarchy. ASU 2010-06 also requires that Level 3 disclosures regarding purchases, sales, issuances and settlements be reported on a gross basis. ASU 2010-06 clarifies existing guidance pertaining to the level of disaggregation at which fair value disclosures should be made and the requirements to disclose information about the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. The amended guidance in ASU 2010-06 pertaining to disclosure of transfers between levels of the fair value hierarchy, the level of disaggregation of disclosures and disclosure of valuation techniques and inputs used in estimating Level 2 and Level 3 measurements became effective and was adopted for the Company’s quarterly reporting period ended March 31, 2010.

The requirement to disclose purchases, sales, issuances and settlements of instruments that are valued using Level 3 measurements on a gross basis became effective and was adopted for the Company’s quarterly reporting period ended September 30, 2010. The adoption of this provision of ASU 2010-06 did not have any impact on the Company’s financial statement disclosures as of March 31, 2011.

On January 1, 2011, we adopted the FASB Accounting Standards Update No. 2010-28 (“ASU 2010-28”), which amends FASB ASC Topic 350, “Intangibles — Goodwill and Other.” The amended guidance in ASU 2010-28 modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those units, the amendments in ASU 2010-28 require an entity to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that an impairment loss exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment loss may exist. Adoption of the provisions of ASU 2010-28 did not have any impact on the Company’s financial position, results of operations or financial statement disclosures as of March 31, 2011.

Note 4. Seasonality of Operations

Natural gas and electricity sales accounted for approximately 72% and 28%, respectively, of the Company’s total sales for the nine months ended March 31, 2011 and 82% and 18%, respectively, of the Company’s total sales for the fiscal year ended June 30, 2010. The mix of natural gas and electricity sales varies significantly during the reporting quarters within the Company’s fiscal year due to the seasonality of its natural gas and electricity businesses. The majority of natural gas customer consumption occurs during the months of November through March. By contrast, electricity customer consumption peaks during the months of June through September. Because the natural gas business segment comprises such a large component of the Company’s overall business operations for its entire fiscal year, the second and third fiscal quarters represent the seasonal peak of operating results for the Company’s full fiscal year.

Cash collections from natural gas customers peak in the spring of each calendar year, while cash collections from electricity customers peak in late summer and early fall. The Company utilizes a considerable amount of cash from operations to meet working capital requirements during the months of November through March of each fiscal year. In addition, the Company utilizes considerable cash to purchase natural gas inventories during the months of April through October.

Weather conditions have a significant impact on customer demand and market prices for natural gas and electricity. Customer demand exposes the Company to a high degree of seasonality in sales, cost of sales, billing and collection of customer accounts receivable, inventory requirements and cash flows. In addition, budget billing programs and payment terms of local distribution companies (“LDCs”) can cause timing differences between the billing and collection of accounts receivable and the recording of revenues.

The impact of rising or falling commodity prices also varies greatly depending on the period of time in which they occur during the Company’s fiscal year. Although commodity price movements can have material short-term impacts on monthly and quarterly operating results, the Company’s economic hedging and contract pricing strategies are designed to reduce the impact of such trends on operating results for a full fiscal year. Therefore, the short-term impacts of changing commodity prices should be considered in the context of the Company’s annual operating cycle.

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Note 5. Accounts Receivable from Customers and LDCs, Net

Accounts receivable, net, is summarized in the following table.

	Balances at
	March 31, 2011			June 30, 2010
	(in thousands)
Billed customer accounts receivable:
Guaranteed by LDCs	$	37,122		$	11,736
Non-guaranteed by LDCs	29,125			21,543
	66,247			33,279
Unbilled customer accounts receivable (1):
Guaranteed by LDCs	21,160			10,206
Non-guaranteed by LDCs	8,353			7,211
	29,513			17,417
Total customer accounts receivable	95,760			50,696
Less: Allowance for doubtful accounts	(4,868		)	(5,074		)
Customer accounts receivable, net	90,892			45,622
Cash imbalance settlements and other receivables, net (2)	3,615			3,303
Accounts receivable, net	$	94,507		$	48,925

(1) Unbilled customer accounts receivable represents estimated revenues associated with natural gas and electricity consumed by customers but not yet billed under the monthly cycle billing method utilized by LDCs.

(2) Cash imbalance settlements represent differences between natural gas or electricity delivered to LDCs for consumption by the Company’s customers and actual customer usage. The Company expects such imbalances to be settled in cash within the next 12 months in accordance with contractual payment arrangements with the LDCs.

The Company operates in 41 market areas located in 14 U.S. states and two Canadian provinces. The Company’s diversified geographic coverage reduces the credit exposure that could result from concentrations in a single LDC territory or a single regulatory jurisdiction, from extreme local weather patterns or from an economic downturn in any single geographic region.

Imbalance settlements represent differences between the natural gas or electricity delivered to LDCs or independent system operators (“ISOs”) for consumption by our customers and actual usage by our customers. We expect that such imbalances will be settled with cash within twelve months following the balance sheet date. Imbalance settlements will fluctuate from period to period depending on the market price for natural gas and electricity, weather patterns and other factors that affect customer consumption, and the timing of cash remittances from LDCs or ISOs. These receivables are generally due from counterparties with investment grade credit ratings.

The Company has limited exposure to risk associated with high concentrations of sales volumes with individual customers. In April 2010, the Company began delivering natural gas to an LDC in Ohio as part of a Standard Service Offer program (the “SSO Program”). As a result of the Company’s participation in the SSO Program, the LDC in Ohio became the Company’s largest single customer, accounting for approximately 18% of the Company’s natural gas sales volume for the nine months ended March 31, 2011. Under the SSO Program, for the 12-month period from April 1, 2010 through March 31, 2011, the Company received a NYMEX-referenced price plus a price adjustment for natural gas delivered by the LDC to its customers who were eligible to participate in the SSO Program. The Company no longer participates in the SSO Program effective April 1, 2011.

The allowance for doubtful accounts represents the Company’s estimate of potential credit losses associated with customer accounts receivable in markets where such receivables are not guaranteed by LDCs. The Company assesses the adequacy of its allowance for doubtful accounts through review of the aging of customer accounts receivable and general economic conditions in the markets that it serves. Based upon this review as of March 31, 2011, and for the nine months then ended, the Company believes that its allowance for doubtful accounts is adequate to cover potential credit losses related to customer accounts receivable. An analysis of the allowance for doubtful accounts, credit quality and accounts receivable concentrations are provided in the following table.

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	Three Months ended March 31,						Nine Months ended March 31,
	2011			2010			2011			2010
	(in thousands)
Allowance for doubtful accounts activity:
Balance at beginning of period	$	4,860		$	5,128		$	5,074		$	7,344
Add: Provision for doubtful accounts	1,590			1,565			4,791			4,661
Less: Net charge offs of customer accounts receivable	(1,582		)	(1,213		)	(4,997		)	(6,525		)
Balance at end of period	$	4,868		$	5,480		$	4,868		$	5,480

Credit quality statistics:
Allowance for doubtful accounts as a percentage of total customer accounts receivable in non-guaranteed markets at end of period	12.99		%	9.81		%	12.99		%	9.81		%
Provision for doubtful accounts as a percentage of sales of natural gas and electricity in non-guaranteed markets during the period	1.97		%	1.37		%	2.52		%	1.92		%

Percentage of total sales of natural gas and electricity:
In markets where LDCs guarantee customer accounts receivable (1)	67		%	51		%	64		%	47		%
In markets where LDCs do not guarantee customer accounts receivable	33		%	49		%	36		%	53		%

(1) For fiscal year 2011, higher percentage of revenue in guaranteed markets primarily reflects incremental revenues related to the SSO Program, and revenue in new electricity markets where customer accounts receivable are guaranteed by the LDC.

The allowance for doubtful accounts as a percentage of total customer accounts receivable in non-guaranteed markets fluctuates significantly during the Company’s fiscal year depending on seasonal sales activity. The percentage is generally lower at December 31 and March 31, when total customer accounts receivable is high and aged accounts receivable are a relatively small percentage of the total. The percentage is generally higher at June 30 and September 30, when total customer accounts receivable is low and aged accounts receivable are a relatively large percentage of the total.

Certain LDCs guarantee billed and unbilled customer accounts receivable or amounts due for delivered gas and electricity, which mitigates the Company’s direct credit risk since the Company is exposed only to the credit risk of the LDC, rather than that of its customers. Reserves and discounts in the consolidated statements of operations includes the provision for doubtful accounts related to customer accounts receivable within markets where such receivables are not guaranteed by LDCs as well as discounts related to customer accounts receivable that are guaranteed by LDCs. The Company monitors the credit ratings of LDCs and the parent companies of LDCs that guarantee customer accounts receivable. The Company also periodically reviews payment history and financial information for LDCs to ensure that it identifies and responds to any deteriorating trends. As of March 31, 2011, all of the Company’s customer accounts receivable in LDC-guaranteed markets were with LDCs with investment grade credit ratings.

Note 6. Natural Gas Inventories

Natural gas inventories are summarized in the following table.

	Balances at
	March 31, 2011		June 30, 2010
	(in thousands)

Storage inventory for delivery to customers	$	1,692	$	9,956
Imbalance settlements in-kind (1)	825		5,905
Total	$	2,517	$	15,861

(1) Represents inventory to be transferred to the Company or its customers from LDCs as a result of an excess of natural gas deliveries over amounts used by customers in prior periods. The Company expects these inventories to be transferred to the Company or its customers within the upcoming 12-month period.

The Company reports the volume of natural gas held in storage in million British thermal units (“MMBtus”), which is a standard unit of heating equivalent measure for natural gas. The decrease in storage inventory for delivery to customers from June 30, 2010 to March 31, 2011 was primarily due to normal seasonal activity as customer consumption of natural gas inventory during the winter months generally exceeds purchases of inventory during the first nine months of the Company’s fiscal year. The volume of natural gas held in storage decreased 83% from 1.8 million MMBtus at June 30, 2010 to 0.3 million MMBtus at March 31, 2011.

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Natural gas inventories are valued on a weighted-average cost basis, which includes related transportation and storage costs, and which does not exceed net realizable value. The weighted-average cost per MMBtu of natural gas held in storage increased 2% from June 30, 2010 to March 31, 2011.

Note 7. Other Current Assets

Other current assets are summarized in the following table.

	Balance at
	March 31, 2011			June 30, 2010
	(in thousands)
Security deposits:
Collateral required by hedging counterparties (1)	$		2,120	$	6,180
Collateral posted in connection with the SSO Program	4,569			4,569
Collateral required by transmission, pipeline and transportation counterparties	1,675			3,295
Prepaid State Taxes	1,896			—
Prepaid expenses	1,260			1,448
Other	1,108			780
Total other current assets	$	12,628		$	16,272

(1) Primarily includes cash collateral required to secure unrealized losses from risk management activities associated with interest rate swaps (refer to Note 11).

Note 8. Customer Acquisition Costs, Net

Customer acquisition costs and related accumulated amortization are summarized in the following table.

	Balance at March 31, 2011
	Gross Book Value		Accumulated Amortization			Net Book Value
	(in thousands)
Customer contracts acquired from:
Asset acquisitions and business combinations (1)	$	689	$	(574	)	$	115
Success-based third-party marketing activities	53,205		(21,788		)	31,417
Hourly-paid third-party direct-response telemarketing activities	10,128		(6,509		)	3,619
Totals	$	64,022	$	(28,871	)	$	35,151

	Balance at June 30, 2010
	Gross Book Value		Accumulated Amortization			Net Book Value
	(in thousands)
Customer contracts acquired from:
Asset acquisitions and business combinations (1)	$	8,196	$	(6,424	)	$	1,772
Success-based third-party marketing activities	42,010		(17,237		)	24,773
Hourly-paid, third-party direct-response telemarketing activities	13,261		(9,381		)	3,880
Totals	$	63,467	$	(33,042	)	$	30,425

(1) Includes the fair value of customer portfolios acquired in transactions accounted for as asset acquisitions or business combinations. Also includes contingent consideration paid by the Company subsequent to the acquisition date in accordance with the respective acquisition agreements. The Company’s most recent asset acquisition or business combination was completed in October 2008. Once an asset acquisition is fully amortized, the asset gross book value is netted against the accumulated amortization.

Amortization expense associated with capitalized customer acquisition costs was $5.8 million and $5.5 million for the three months ended March 31, 2011 and 2010, respectively, and $17.1 million and $15.0 million for the nine months ended March 31, 2011 and 2010, respectively. Amortization expense associated with customer acquisition costs capitalized as of March 31, 2011 is expected to approximate $5.0 million for the remainder of fiscal year 2011, $16.3 million for fiscal year 2012, $11.3 million for fiscal year 2013 and $2.6 million for fiscal year 2014. At March 31, 2011, the weighted average remaining amortization period associated with all customer acquisition costs was approximately 1.6 years.

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The value and recoverability of customer acquisition costs are evaluated quarterly by comparing their carrying value to their projected future cash flows on an undiscounted basis. During the nine months ended March 31, 2011, no impairment was indicated as a result of these comparisons.

Note 9. Income Taxes

The Company’s effective income tax rate was an expense of 36.4% and 40.4% for the three months ended March 31, 2011 and 2010, respectively. The Company’s effective income tax rate was an expense of 31.6% and 41.3% for the nine months ended March 31, 2011 and 2010, respectively.

The effective income tax rate for the three months and nine months ended March 31, 2011 included adjustments necessary to conform the Company’s tax provision to its tax return filed for the fiscal year ended June 30, 2010. These adjustments resulted in a net tax benefit of $1.4 million, which reduced the effective tax rate for the nine months ended March 31, 2011.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s policy is to establish a valuation allowance if it is “more likely than not” that the related tax benefits will not be realized. As of March 31, 2011 and June 30, 2010, the Company determined based on available evidence, including historical financial results for the last three years, that it is “more likely than not” that a portion of these items may not be recoverable in the future. Accordingly, the Company has recorded valuation allowances of $23.3 million and $28.1 million at March 31, 2011 and June 30, 2010, respectively, related to non-recovery of deferred tax assets. The change during the period related to the provision to return adjustments for prior years.

During the quarter ended December 31, 2010, the Company recorded an unrecognized tax benefit of approximately $3.8 million, which is included in other long-term liabilities on the consolidated balance sheet at March 31, 2011. This liability relates to the timing of expense recognition and does not impact the effective tax rate.

Note 10. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities are summarized in the following table.

	Balance at
	March 31, 2011		June 30, 2010
	(in thousands)

Trade accounts payable and accrued liabilities (1)	$	19,939	$	16,069
Accrued commodity purchases	1,609		2,083
Interest payable	1,580		3,951
Payroll and related expenses	4,379		4,301
Sales and other taxes	2,705		1,630
Other	688		2,268
Total accounts payable and accrued liabilities	$	30,900	$	30,302

(1) Includes $0.6 million and $0.2 million due to related parties at March 31, 2011 and June 30, 2010, respectively, for legal services, financial advisory services and management fees. Refer to Note 16 for additional information regarding related party transactions.

Note 11. Derivatives and Hedging Activities

The Company is exposed to commodity price risk and interest rate risk related to its business operations, which it manages with derivative instruments. The Company has a risk management policy that is intended to reduce its financial exposure related to changes in the price of natural gas and electricity and to changes in the interest rates associated with its exclusive credit, supply and commodity hedging agreement (the “Commodity Supply Facility”) with RBS Sempra and the Floating Rate Notes due 2011. The Company’s risk management policy defines various risk management controls and limits that are designed to monitor its commodity price risk position and ensure that hedging performance is in line with objectives established by its board of directors (the “Board of Directors”) and management. Speculative trading activities are explicitly prohibited under the Company’s risk management policy.

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The Company has not elected to designate any derivative instruments as hedges under U.S. GAAP guidelines. Accordingly, any changes in fair value during the term of a derivative contract are adjusted through unrealized (gains) losses from risk management activities in the consolidated statements of operations with offsetting adjustments to unrealized gains or losses from risk management activities in the consolidated balance sheets. Unrealized gains from risk management activities on the consolidated balance sheets represent receivables from derivative counterparties, net of amounts due to the same counterparties when master netting agreements exist. Unrealized losses from risk management activities represent liabilities to derivative counterparties, net of receivables from the same counterparties when master netting agreements exist. Settlements on the derivative instruments are realized monthly and are generally based upon the difference between the contract price and the settlement price as quoted on New York Mercantile Exchange (“NYMEX”) or other published index.

Commodity Price Risk Management Activities

The Company utilizes swap instruments and, to a lesser extent, option instruments to economically hedge the anticipated natural gas and electricity commodity purchases required to meet expected customer demand for all accounts served under fixed price contracts (up to 110% in the winter months with respect to customer demand in certain natural gas utility service areas with daily balancing requirements and up to 110% in the summer months with respect to customer demand in certain electricity utility service areas).

The Company utilizes the Commodity Supply Facility to enter into swaps, basis swaps and options to economically hedge the risk of variability in the cost of natural gas and electricity. As of March 31, 2011, the Company has the ability to enter into new derivative transactions through August 2012 under the Commodity Supply Facility, and the terms of such transactions may extend through October 2013. On May 12, 2011, the Company entered into the Termination Agreement with RBS Sempra that is contingent upon the successful completion of the Merger. Refer to Note 2.

As of March 31, 2011, the Company had entered into forward physical contracts with RBS Sempra to purchase natural gas and electricity beginning in April 2011 and ending in September 2012. Based on the terms of these purchases, most of these contracts are accounted for as derivative instruments under U.S. GAAP, and are therefore included in the fair value measurements reported by the Company as of March 31, 2011. Certain of the Company’s forward physical contracts qualify as “normal purchases” under U.S. GAAP and are therefore not reported on the consolidated balance sheets at March 31, 2011.

Weather Risk Management Activities

The Company is exposed to weather-related risk during its peak seasonal operating periods for natural gas and electricity. Unusually warm temperatures during the winter months or unusually cool temperatures during the summer months can have a negative impact on the Company’s results of operations. For fiscal year 2011, the Company entered into a heating degree day (“HDD”) derivative agreement for its largest natural gas market during the month of January to mitigate the risk that actual temperatures experienced could be warmer than normally experienced in that market based on historical weather data. As of March 31, 2011, the Company has no outstanding weather derivative agreements.

Interest Rate Risk Management Activities

The Company manages its exposure to interest rate fluctuations by utilizing interest rate swaps to effectively convert the interest rate exposure from a variable rate to a fixed rate of interest. Under the Commodity Supply Facility, the Company is subject to variable interest rates in connection with cash borrowings and credit support, primarily in the form of letters of credit, provided by RBS Sempra. The total amount of letters of credit outstanding under the Commodity Supply Facility will fluctuate throughout the Company’s fiscal year due to the seasonality of its business. As of March 31, 2011, approximately $27.8 million of letters of credit were outstanding under the Commodity Supply Facility. The Company is also exposed to interest rate fluctuations in connection with the $6.4 million aggregate principal amount of Floating Rate Notes due 2011 that was outstanding at March 31, 2011.

As of March 31, 2011, an $80.0 million fixed-for-floating interest rate swap was outstanding, which expires on August 1, 2011, and which effectively fixes the six-month LIBOR rate at 5.72% per annum. During the fiscal year ended June 30, 2010, the $80.0 million interest rate swap agreement was novated to RBS Sempra from the previous counterparty, as required by the terms of the Commodity Supply Facility. Such novation did not have any impact on the Company’s rights, obligations, risks or accounting methodology associated with the interest rate swap agreement.

As of March 31, 2011 and June 30, 2010, the total unrealized loss from risk management activities on the consolidated balance sheets related to interest rate swaps was approximately $2.1 million and $6.0 million, respectively. The Company

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was required to post $2.1 million and $6.0 million of cash collateral at March 31, 2011 and June 30, 2010, respectively, which is recorded in other current assets on the consolidated balance sheets, for its mark-to-market exposure related to the outstanding interest rate swap agreement.

Derivatives Activity

Gross volumes associated with commodity derivative contracts and the notional value of interest rate derivative contracts that are recorded at fair value on the consolidated balance sheets are summarized in the following table. The volumes in the table do not quantify risk or represent assets or liabilities of the Company, but are used in the calculations of fair value and cash settlements under the contracts.

	Open Positions as of
	March 31, 2011		June 30, 2010

Natural gas instruments (amounts reflected in MMBtus) (1):
Financial forward derivative contracts:
NYMEX-referenced over the counter contracts	15,097,000		21,358,000
Basis contracts	9,088,000		18,794,000
Option contracts	—		550,000
Physical forward contracts (2):
Physical fixed contracts	447,000		4,218,000
Physical basis contracts	245,000		276,000
Physical index contracts	282,000		1,375,000

Electricity instruments (amounts reflected in MWhrs) (3):
Financial forward derivative contracts:
Swaps and fixed price contracts	835,000		677,000
Physical forward contracts (2)	96,000		139,000

Interest rate swaps (in millions)	$	80.0	$	80.0

(1) MMBtus represent a standard unit of heating equivalent measure for natural gas. A unit of heat equal to 1,000,000 Btus, or 1 MMBtu, is the thermal equivalent of approximately 1,000 cubic feet of natural gas.

(2) Represents agreements for the purchase and sale of natural gas or electricity that are accounted for as derivatives because the Company did not elect the “normal purchases and sales” exclusion under U.S. GAAP.

(3) Megawatt Hours (“MWhrs”) represent 1 million watt hours or a thousand kilowatt hours, which is the amount of electric energy produced or consumed in a period of time.

The fair value of derivative instruments recorded on the Company’s consolidated balance sheets is summarized in the following table.

Type of Derivative	Location on the Consolidated Balance Sheet	Prior to Netting		Impact of Master Netting Agreements			After Netting
		(in thousands)
Fair value as of March 31, 2011:
Asset derivatives:
Commodity derivatives	Unrealized gains from risk management activities, net	$	6,129	$	(6,129	)	$	—
Total		$	6,129	$	(6,129	)	$	—

Liability Derivatives:
Commodity derivatives	Unrealized losses from risk management activities, net	$	9,095	$	(6,129	)	$	2,966
Interest rate derivatives	Unrealized losses from risk management activities, net	2,118		—			2,118
Total		$	11,213	$	(6,129	)	$	5,084
Fair value as of June 30, 2010:
Asset derivatives:
Commodity derivatives	Unrealized gains from risk management activities, net	$	13,756	$	(13,756	)	$	—
Total		$	13,756	$	(13,756	)	$	—

Liability Derivatives:
Commodity derivatives	Unrealized losses from risk management activities, net	$	26,315	$	(13,756	)	$	12,559
Interest rate derivatives	Unrealized losses from risk management activities, net	6,029		—			6,029
Total		$	32,344	$	(13,756	)	$	18,588

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The effect of derivative instruments on the Company’s consolidated statements of operations is summarized in the following tables.

Type of Derivative	Location of (Gains) Losses Recognized on the	Amount of (Gains) Losses Recognized for the Three Months Ended March 31,
Instrument	Consolidated Statement of Operations	2011			2010
		(in thousands)

Commodity	Cost of goods sold — realized (gains) losses from risk management activities, net	$	(7,198	)	$	1,269
Weather	Cost of goods sold — realized losses from risk management activities, net	640			—
Commodity	Cost of goods sold — unrealized losses from risk management activities, net	4,680			26,001
Interest rate	Interest expense, net of interest income	(2,024		)	(1,313		)
Total		$	(3,902	)	$	25,957

Type of Derivative	Location of (Gains) Losses Recognized on the	Amount of (Gains) Losses Recognized for the Nine Months Ended March 31,
Instrument	Consolidated Statement of Operations	2011			2010
		(in thousands)

Commodity	Cost of goods sold — realized losses from risk management activities, net	$	7,878		$	34,504
Weather	Cost of goods sold — realized losses from risk management activities, net	640			—
Commodity	Cost of goods sold — unrealized gains from risk management activities, net	(9,594		)	(2,451		)
Interest rate	Interest expense, net of interest income	(3,911		)	(2,352		)
Total		$	(4,987	)	$	29,701

The Company is exposed to credit risk associated with its economic hedging program and derivative financial instruments. Credit risk relates to the potential loss resulting from the nonperformance of a contractual obligation by a derivative counterparty. Historically, the Company has executed its fixed price derivative positions to include a master netting agreement that mitigates the outstanding credit exposure. Under the Commodity Supply Facility, the Company’s risk management activities are with a financial institution that has an investment grade credit rating. The Company’s risk management policy sets forth guidelines for monitoring, managing and mitigating credit risk exposures, establishes credit limits and requires ongoing financial reviews of counterparties.

Note 12. Fair Value of Financial Instruments

The Company measures assets and liabilities associated with various financial forward derivative instruments and physical forward purchase and sale agreements at fair value on a recurring basis. The recorded values of derivative instruments reflect management’s best estimate of fair value. The Company generally utilizes a market approach for its recurring fair value measurements. In forming its fair value estimates, the Company utilizes the most observable inputs available for the respective valuation technique. If a fair value measurement reflects inputs from different levels within the fair value hierarchy, the measurement is classified based on the lowest level of input that is significant to the fair value measurement. The key inputs and assumptions utilized for the fair value measurements recorded by the Company are summarized as follows:

Financial natural gas derivative contracts — NYMEX-referenced swaps are valued utilizing unadjusted market commodity quotes from a pricing service, which are considered to be quotes from an active market, but are deemed to be Level 2 inputs because the swaps are not an identical instrument to the NYMEX-referenced commodity. Basis swaps and options are generally valued using observable broker quotes. Other inputs and assumptions include contract position volume, price volatility, commodity delivery location, credit quality of the Company and of derivative counterparties, credit enhancements, if any, and time value.

Financial electricity derivative contracts — Electricity swaps are valued utilizing market commodity quotes from a pricing service, which are deemed to be observable inputs. Other inputs and assumptions include contract position volume, price volatility, commodity delivery location, credit quality of the Company and of derivative counterparties, credit enhancements, if any, and time value.

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Physical forward natural gas and electricity derivative contracts — The Company utilizes market commodity quotes from a pricing service to value these instruments, which are deemed to be observable inputs. Other inputs and assumptions include contract position volume, commodity delivery location, credit quality of the Company and of derivative counterparties, credit enhancements, if any, and time value.

Heating degree day swaps — Heating degree day swaps are valued by multiplying an agreed-upon dollar value by the number of HDDs that are projected to be in excess of or less than an agreed-upon HDD strike amount.

Interest rate swaps — Interest rate swaps are valued utilizing quotes received directly from swap counterparties. Key inputs and assumptions include interest rate curves, credit quality of the Company and of derivative counterparties, credit enhancements, if any, and time value.

The Company categorizes its fair value measurements in accordance with a fair value hierarchy that prioritizes the assumptions, or “inputs,” used in applying valuation techniques. The three levels of inputs within the fair value hierarchy are:

· Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets and liabilities in active markets as of the reporting date.

· Level 2 — Inputs other than quoted prices included in Level 1 that represent observable market-based inputs, such as quoted market prices for similar assets or liabilities in active markets or quoted market prices for identical assets or liabilities in markets that are not considered to be active. Level 2 also includes unobservable inputs that are corroborated by market data.

· Level 3 — Inputs that are not observable from objective sources and therefore cannot be corroborated by market data.

The fair value of the Company’s assets and liabilities that are measured at fair value on a recurring basis is summarized by level within the fair value hierarchy in the following tables.

Balance at March 31, 2011

Level 1

Level 2

Level 3

Total

(in thousands)

Liabilities:

Commodity derivatives

—

2,966

—

2,966

Interest rate derivatives

—

2,118

—

2,118

Total

—

5,084

—

5,084

	Balance at June 30, 2010
	Level 1		Level 2		Level 3		Total
	(in thousands)
Liabilities:
Commodity derivatives	$	—	$	12,559	$	—	$	12,559
Interest rate derivatives	—		6,029		—		6,029
Total	$	—	$	18,588	$	—	$	18,588

The aggregate principal amount of long-term debt recorded on the consolidated balance sheets, before original issue discount, is $73.7 million at March 31, 2011 (refer to Note 14). The Company has elected not to record the Fixed Rate Notes due 2014 or the Floating Rate Notes due 2011 at fair value. Utilizing observable market data, the aggregate fair value of long-term debt was approximately $75.7 million as of March 31, 2011.

Note 13. Commodity Supply Facility

On May 12, 2011, Holdings, certain of its subsidiaries and Constellation entered into a Termination Agreement with RBS Sempra that is contingent upon the successful completion of the Merger. The Company agreed, subject to the closing of the Merger, to pay just over $16.0 million in exchange for RBS Sempra’s Class B Common Stock, Class C Common Stock and unvested RSUs in the Company as well as any early termination obligation under the Commodity Supply Facility with RBS Sempra. The termination obligation portion of the settlement is estimated to be approximately $4.0 million based on the minimum volume commitments under the ISDA Master Agreements. Refer to Note 2.

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In September 2009, the Company completed a debt and equity restructuring (the “Restructuring”), which included a number of transactions and amendments to corporate documents. In connection with the Restructuring, all of the Company’s former supply and commodity hedging facilities were terminated and were replaced by the Commodity Supply Facility. The Commodity Supply Facility provides for the exclusive supply of physical (other than as needed for balancing) and financial natural gas and electricity, credit support (including letters of credit and guarantees) for certain collateral needs, cash advances for natural gas inventory and seasonal financing as needed, and associated hedging transactions in order to maintain the balanced trading book required by the Company’s risk management policies.

The Restructuring resulted in the following material sources and uses of cash during the nine months ended March 31, 2010:

· $75.0 million of restricted cash was released to operating cash upon maturity of the Company’s former supply and hedging facilities;

· $26.7 million was paid to holders of Holdings’ Floating Rate Notes due 2011 in partial exchange for their notes;

· $12.0 million of principal outstanding, plus accrued and unpaid interest, under the credit facility (the “Denham Credit Facility”) with Denham Commodity Partners Fund LP (“Denham”) was repaid and the Denham Credit Facility was terminated;

· $9.0 million was transferred from cash and cash equivalents to an escrow account (the “Fixed Rate Notes Escrow Account”), which is maintained as security for future interest payments related to holders of the Fixed Rate Notes due 2014

· $6.4 million of legal, consulting and other fees directly related to various Restructuring transactions were paid and recorded as deferred debt issuance costs ($6.1 million) and stock issuance costs ($0.3 million). The deferred debt issuance costs will be amortized as an increase to interest expense over the remaining terms of the related agreements; and

· $5.4 million of principal outstanding of bridge financing loans under the Company’s former credit facility (the “Bridge Financing Loans”), plus accrued and unpaid interest, were repaid and the Bridge Financing Loans were terminated.

The Commodity Supply Facility is governed by separate master supply and hedge agreements for natural gas and electricity (the “ISDA Master Agreements”). Under the Commodity Supply Facility, the primary obligors are Holdings’ two significant operating subsidiaries, MXenergy Inc. and MXenergy Electric Inc. All obligations under the Commodity Supply Facility are guaranteed by Holdings and its other domestic subsidiaries and are secured by a first priority lien on substantially all existing and future assets of Holdings and its domestic subsidiaries other than the Fixed Rate Notes Escrow Account. The maturity date of the Commodity Supply Facility is August 31, 2012, provided that RBS Sempra will have the right to extend such maturity date by one year in its sole discretion. RBS Sempra may give such notice no earlier than April 30, 2011 and no later than 180 days prior to the then current termination date.

RBS Sempra has indicated its intent to complete an orderly sale of its assets including, but not limited to, the entity that provides the Commodity Supply Facility. The Company has received assurances from RBS Sempra that it will continue to fulfill its obligations under the Commodity Supply Facility.

In accordance with the terms of the ISDA Master Agreements, the Company is required to maintain a minimum collateral coverage ratio (the “Collateral Coverage Ratio”) of 1.25:1.00 for the months of October through March (inclusive) and 1.40:1.00 for any other calendar month. The Collateral Coverage Ratio is calculated as the ratio of: (1) certain assets of the Company, primarily including cash, amounts due from RBS Sempra representing the Company’s operating cash, accounts receivable from customers and LDCs and natural gas inventories; to (2) certain liabilities of the Company, primarily arising from exposure and/or amounts due to RBS Sempra (including amounts due for the purchase of natural gas and electricity, accrued but unpaid financing fees and settlements arising from derivative contracts).

As of March 31, 2011, the Company had a Collateral Coverage Ratio of approximately 3.1:1.00. The calculation of the Collateral Coverage Ratio as of March 31, 2011 resulted in available liquidity of approximately $79.6 million, of which $45.0 million represents the maximum credit available for cash advances and $34.6 million represents excess liquidity that can be used for additional letters of credit, commodity purchases and other operating purposes. At March 31, 2011, the Company had no outstanding cash advances and had $27.8 million of letters of credit outstanding under the Commodity Supply Facility.

Under the Commodity Supply Facility, the Company is obligated to purchase a minimum of 130,000,000 MMBtus of natural gas from RBS Sempra, for physical delivery in accordance with the following schedule: (1) 39,000,000 MMBtus during the first contract year; (2) 44,000,000 MMBtus during the second contract year; and (3) 47,000,000 MMBtus during the third contract year. In addition, the Company is obligated to purchase a minimum of 1,850,000 MWhrs of electricity from RBS Sempra, for physical delivery in accordance with the following schedule: (1) 500,000 MWhrs during the first contract year; (2) 650,000 MWhrs during the second contract year; and (3) 700,000 MWhrs during the third contract year. The estimated total value of these purchases will depend upon the market price of natural gas and electricity at the time of purchase. The Company will be obligated to pay a volumetric fee for any unused balance of the minimum volume purchase requirement for any contract year, or if the agreement is terminated prior to the end of the contract.

During the first contract year of the Commodity Supply Facility, the Company’s actual purchases of natural gas and electricity from RBS Sempra exceeded the minimum purchase obligations. Under the terms of the ISDA Master Agreements, such excess of actual purchases over the minimum purchase obligations are deducted from the minimum purchases requirement for the second contract year of the Commodity Supply Facility. As of March 31, 2011, the commodity to be purchased for delivery to the Company’s customers during the second contract year of the Commodity Supply Facility is expected to exceed the minimum purchase obligation for natural gas and electricity for that year.

With regard to the Company’s fixed price customer mix, the Company may not, without the prior written consent of RBS Sempra, enter into any fixed price contracts, excluding renewals of existing fixed price contracts, if:

· During any 12-month period, more than 75% of all residential customer equivalents (“RCEs”) have been added under fixed price contracts;

· During any 12-month period, more than 235,000 RCEs have been added under fixed price contracts; and

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· The Company’s fixed price RCEs exceeds 325,000 at any time.

The Company received a limited waiver from RBS Sempra, which allowed the Company to add more than 235,000 RCEs under fixed price contracts during the first contract year of the Commodity Supply Facility.

During the quarter ended September 30, 2009, the Company incurred approximately $10.8 million of legal fees, consulting fees and other costs directly related to the Commodity Supply Facility, which were recorded as deferred debt issuance costs on the consolidated balance sheets, and which are being amortized as an increase to interest expense over the remaining term of the Commodity Supply Facility. These deferred costs include the value of 4,002,290 shares of Class B Common Stock issued to RBS Sempra in connection with the Restructuring (refer to Note 15). Amortization expense associated with these deferred costs was approximately $0.9 million for the three months ended March 31, 2011 and 2010 and $2.8 million and $1.9 million for the nine months ended March 31, 2011 and 2010, respectively.

Transaction fees and interest expense associated with activity under the Commodity Supply Facility are included in interest expense, net of interest income on the consolidated statements of operations. The Company recorded approximately $3.0 million and $2.9 million of fee and interest expense during the three months ended March 31, 2011 and 2010, respectively, and $7.6 million and $6 million of fee and interest expense during the nine months ended March 31, 2011 and 2010, respectively, in connection with activity under the Commodity Supply Facility.

Other key provisions of the ISDA Master Agreements are described in the consolidated financial statements included in the Company’s 2010 Form 10-K. As of March 31, 2011, the Company was in compliance with all provisions of the ISDA Master Agreements.

Accounts Receivable from RBS Sempra, Net and Accounts Payable to RBS Sempra, Net

The ISDA Master Agreements include provisions that allow for net settlement of various amounts due from or due to RBS Sempra resulting from activity under the Commodity Supply Facility. Amounts due from or due to RBS Sempra are summarized in the following table.

	Balances at
	March 31,			June 30,
Amount receivable from (payable to) RBS Sempra for:	2011			2010
	(in thousands)

Cash received and held by RBS Sempra (1)	$	64,871		$	64,819
Commodity purchases from RBS Sempra	(35,333		)	(19,030		)
Transportation costs, derivative settlements, interest and fees charged by RBS Sempra	(2,298		)	(2,735		)
Accounts receivable from RBS Sempra, net on the consolidated balance sheet	$	27,240		$	43,054

(1) In connection with the Commodity Supply Facility, certain banking relationships that previously belonged to the Company are now under RBS Sempra’s name and control. RBS Sempra releases cash to the Company as required to meet the Company’s ongoing operating cash requirements.

Note 14. Long-Term Debt

Long-term debt is summarized in the following table.

	Balance at March 31, 2011
	Aggregate Debt Balance		Unamortized Discount		Net Book Value
	(in thousands)

Current portion of long-term debt:
Floating Rate Notes due 2011	$	6,413	$	11	$	6,402

Long-term debt:
Fixed Rate Notes due 2014	67,293			12,204		55,089
Total debt	$	73,706	$	12,215	$	61,491

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	Balance at June 30, 2010
	Aggregate				Net
	Debt		Unamortized		Book
	Balance		Discount		Value
	(in thousands)
Long-term debt:
Fixed Rate Notes due 2014	$	67,293	$	14,949	$	52,344
Floating Rate Notes due 2011	6,413		35		6,378
Total debt	$	73,706	$	14,984	$	58,722

In connection with the Restructuring, the Company exchanged $158.8 million aggregate principal amount of outstanding Floating Rate Notes due 2011 for $26.7 million of cash, $67.8 million aggregate principal amount of Fixed Rate Notes due 2014 and 33,940,683 shares of newly authorized Class A Common Stock. This debt exchange transaction was accounted for as a troubled-debt restructuring in accordance with U.S. GAAP.

As part of the Merger Agreement entered into on May 12, 2011, the Company has agreed to pay in full all amounts owed on its outstanding Floating Rate Notes due 2011 and will redeem any and all outstanding Fixed Rate Notes due 2014 at a redemption price of 106.625% plus accrued interest through August 1, 2011 (the earliest redemption date and stated redemption percentage per the bond agreement). If the Company successfully closes the Merger, the full amount of redemption cost of the Fixed Rate Notes due 2014 and accrued interest will be set aside with the trustee in satisfaction of the bonds. In the event the Company is not able to successfully close the Merger, the Company will pay the full amounts owed on the outstanding Floating Rate Notes due 2011 out of current funds on the August 1, 2011 due date. Refer to Note 2.

Fixed Rate Notes due 2014

The Fixed Rate Notes due 2014 will mature on August 1, 2014 and bear interest at the rate of 13.25% per annum, which is payable in cash semi-annually on February 1 and August 1 of each year. Interest expense associated with the Fixed Rate Notes due 2014 was approximately $2.2 million and $2.1 million for the three months ended March 31, 2011 and 2010 and approximately $6.7 million and $4.6 million for the nine months ended March 31, 2011 and 2010, respectively.

The Fixed Rate Notes due 2014 were issued at a discount of approximately $17.8 million, which was recorded as a reduction from the Fixed Rate Notes due 2014 balance on the Company’s consolidated balance sheets, and which is being amortized as an increase to interest expense over the remaining life of the Fixed Rate Notes due 2014. Total interest expense associated with amortization of this discount was approximately $0.9 million for the three months ended March 31, 2011 and 2010 and $2.7 million and $1.9 million for the nine months ended March 31, 2011 and 2010, respectively.

The Company incurred approximately $5.3 million of legal fees, consulting fees and other costs directly related to issuance of the Fixed Rate Notes due 2014, which were recorded as deferred debt issuance costs on the consolidated balance sheets, and which are being amortized as an increase to interest expense over the remaining term of the Fixed Rate Notes due 2014. Total interest expense associated with amortization of these deferred costs was approximately $0.3 million for the three months ended March 31, 2011 and 2010 and approximately $0.9 million and $0.6 million for the nine months ended March 31, 2011 and 2010, respectively.

The Fixed Rate Notes due 2014 are senior subordinated secured obligations of the Company, subordinated in right of payment to obligations of the Company under the Commodity Supply Facility. The Fixed Rate Notes due 2014 are senior in priority to the Company’s unsecured senior obligations, including the Floating Rate Notes due 2011, to the extent of the aggregate value of the assets securing the Fixed Rate Notes due 2014 that is in excess of the aggregate amount of the outstanding Commodity Supply Facility obligations.

The Fixed Rate Notes due 2014 are secured by a first priority security interest in the Fixed Rate Notes Escrow Account and by a second priority security interest in substantially all other existing and future assets of the Company. The Fixed Rate Notes Escrow Account balance of approximately $9.0 million approximates the interest payable by the Company on the Fixed Rate Notes due 2014 for a 12-month period.

The key provisions of the indenture that governs the Fixed Rate Notes due 2014 are fully described in the consolidated financial statements included in the Company’s 2010 Form 10-K. As of March 31, 2011, the Company was in compliance with all provisions of the indenture.

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Holdings has no significant independent operations. Each of Holdings’ domestic subsidiaries jointly and severally, fully and unconditionally guarantees the Fixed Rate Notes due 2014. Refer to Note 19 for consolidating financial statements for Holdings and its guarantor and non-guarantor subsidiaries.

On December 15, 2010, the Company commenced an offer to exchange its outstanding original Fixed Rate Notes due 2014 (the “Original Fixed Rate Notes”), which were not registered under the Securities Act, for an equal principal amount of new Fixed Rate Notes due 2014 (the “Registered Fixed Rate Notes”) that are registered under the Securities Act. On January 18, 2011, the Company exchanged $66.6 million aggregate principal amount of Original Fixed Rate Notes for an equal principal amount of Registered Fixed Rate Notes. Holders of approximately $1.2 million of Original Fixed Rate Notes did not exchange their notes for Registered Fixed Rate Notes.

Pursuant to the terms of the registration rights agreement relating to the Original Fixed Rate Notes, the interest rate applicable to the Original Fixed Rate Notes increased by 0.25% per annum effective as of September 30, 2010, and by an additional 0.25% effective as of December 29, 2010, because the Company did not complete an exchange offer for the Original Fixed Rate Notes within five business days following the one year anniversary of the issue date of the Original Fixed Rate Notes. When the exchange offer was completed on January 18, 2011, the Company ceased accruing additional interest on the Original Fixed Rate Notes. The Company recorded less than $0.1 million of incremental interest expense through the closing date of the exchange offer on January 18, 2011.

Floating Rate Notes due 2011

On August 4, 2006, Holdings issued $190.0 million aggregate principal amount of Floating Rate Notes due 2011, which mature on August 1, 2011. The Floating Rate Notes due 2011 were issued at 97.5% of par value and bear interest at LIBOR plus 7.5% per annum. Each of Holdings’ domestic subsidiaries jointly and severally, fully and unconditionally guarantees the Floating Rate Notes due 2011. Interest is reset and payable semi-annually on February 1 and August 1 of each year. The interest rate on the Floating Rate Notes due 2011 was 8.03% and 7.88% at March 31, 2011 and June 30, 2010, respectively.

During fiscal years 2007 and 2008, the Company purchased $24.8 million aggregate principal amount of outstanding Floating Rate Notes due 2011, plus accrued interest, from noteholders for amounts less than face value.

In connection with the Restructuring, the Company consummated an exchange offer of $158.8 million aggregate principal amount of outstanding Floating Rate Notes due 2011 for $26.7 million of cash, $67.8 million aggregate principal amount of Fixed Rate Notes due 2014 and 33,940,683 shares of newly authorized Class A Common Stock. Holders of approximately $6.4 million aggregate principal amount of Floating Rate Notes due 2011 did not tender their notes pursuant to the Restructuring. These Floating Rate Notes due 2011 will remain outstanding until their maturity date in August 2011 unless acquired or retired by the Company sooner. The indenture governing the Floating Rate Notes due 2011 was amended to eliminate substantially all of the restrictive covenants and certain events of default from such indenture.

As a result of the exchange offer consummated during the Restructuring, the average aggregate outstanding balance of Floating Rate Notes due 2011 decreased to $6.4 million for the first nine months of fiscal year 2011 from $78.0 million for the same period in the prior fiscal year. The weighted-average interest rate was 8.10% and 8.39% for the nine months ended March 31, 2011 and 2010, respectively. Interest expense accrued in connection with the Floating Rate Notes due 2011 was approximately $0.1 million for the three months ended March 31, 2011 and 2010 and approximately $0.4 million and $3.6 million for the nine months ended March 31, 2011 and 2010, respectively.

The aggregate total amortization of original issue discount and deferred debt issuance costs associated with the Floating Rate Notes due 2011 was less than $0.1 million for the three months ended March 31, 2011 and 2010 and less than $0.1 million and $3.6 million for the nine months ended March 31, 2011 and 2010, respectively. Amortization for the nine months ended March 31, 2010 includes the pro rata portion of discount and deferred costs associated with the Floating Rate Notes due 2011 exchanged in connection with the Restructuring.

The Company has entered into interest rate swap agreements to economically hedge the floating rate interest expense on the Floating Rate Notes due 2011 (refer to Note 11).

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Note 15. Common Stock

On September 22, 2009, the Company’s certificate of incorporation and bylaws were amended and restated, and the Company entered into new stockholder agreements with holders of various classes of newly authorized common stock. Effective July 27, 2010, the Company’s certificate of incorporation and bylaws were further amended and restated and the stockholders agreement among holders of all classes of common stock, dated September 22, 2009 (the “Stockholders Agreement”), was amended. The second amended and restated certificate of incorporation, dated September 22, 2009, authorized issuance of new classes of common stock and changed the size and composition of the Company’s Board of Directors. The third amended and restated certificate of incorporation, dated July 27, 2010 (the “Third Amended and Restated Certificate of Incorporation”), lowered director and committee member compensation, reduced the number of committees of the Board of Directors and revised the definitions of “Financial Expert” and “Independent Director.” The fourth amended and restated certificate of incorporation, dated November 17, 2010 (the “Certificate of Incorporation”), (i) changed the Company’s registered agent and registered office, (ii) provided that the levels of compensation for directors and committee members specified in the Third Amended and Restated Certificate of Incorporation apply to all non-management directors and (iii) clarified that a director will only be paid one meeting attendance fee per day regardless of the number of Board of Directors or Board of Director committee meetings attended by such director on a given day.

The Certificate of Incorporation authorizes 200,000,000 shares of $0.01 par value common stock. The number of authorized shares and significant rights, as provided in the Stockholders Agreement, of each class of common stock include:

· 50,000,000 shares of Class A Common Stock. Holders of the Class A Common Stock are not subject to any transfer restrictions and are entitled to nominate and elect five directors to the Board of Directors, at least two of whom shall be independent and qualify as a “financial expert”, as such term is defined in the Certificate of Incorporation.

· 10,000,000 shares of Class B Common Stock. Shares of Class B Common Stock will convert to shares of Class C Common Stock if RBS Sempra sells any of its shares (subject to certain exceptions defined in the Certificate of Incorporation) or if all of the Company’s obligations under the Commodity Supply Facility have been paid in full and all commitments pursuant to the Commodity Supply Facility have been terminated. RBS Sempra is entitled to nominate and elect one director to the Board of Directors.

· 40,000,000 shares of Class C Common Stock. Holders of Class C Common Stock who are current or former employees of the Company or any of its subsidiaries may not transfer their shares (except by will or in connection with customary estate planning) until the third anniversary of the closing date of the Restructuring and, in the case of shares acquired pursuant to the 2010 Stock Incentive Plan implemented by the Company (the “2010 SIP”), as otherwise provided in the 2010 SIP. Transfers of shares of Class C Common Stock are subject to a right of first refusal in favor of the holders of shares of Class A Common Stock and holders of shares of Class B Common Stock. Holders of Class C Common Stock are entitled to nominate and elect two directors to the Board of Directors.

· 100,000,000 shares of Class D Common Stock, which will only be issued by Holdings if certain transactions specified in the Certificate of Incorporation occur.

In connection with the Restructuring, Holdings issued the following shares of common stock:

· 33,940,683 shares of Class A Common Stock to holders of the Fixed Rate Notes due 2014, which represented 62.5% of the aggregate shares of common stock outstanding after the consummation of the Restructuring.

· 4,002,290 shares of Class B Common Stock to RBS Sempra, as a condition to the entry into the agreements governing the Commodity Supply Facility, which represented 7.37% of the aggregate shares of common stock outstanding after consummation of the Restructuring. The aggregate $9.0 million fair value of Class B Common Stock issued to RBS Sempra (par value of less than $0.1 million, recorded as Class B Common Stock; and $9.0 million recorded as additional paid in capital on the consolidated balance sheets) was recorded as deferred debt issuance costs on the consolidated balance sheets and is being amortized as an increase to interest expense over the remaining term of the Commodity Supply Facility.

· 11,862,551 shares of Class C Common Stock to holders of redeemable convertible preferred stock issued and outstanding prior to the Restructuring, which represented 21.84% of the aggregate shares of the common stock outstanding after consummation of the Restructuring.

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· 4,499,588 shares of Class C Common Stock to the remaining holders of Holdings’ common stock issued and outstanding prior to the Restructuring, which represented 8.29% of the aggregate shares of common stock outstanding after the consummation of the Restructuring. All 4,681,219 shares of Holdings’ common stock issued and outstanding prior to the Restructuring were retired as a result of the Restructuring.

As disclosed in Note 2, on May 12, 2011, the Company entered into the Merger Agreement pursuant to which it will be acquired by Constellation in an all-cash transaction subject to shareholder and regulatory approvals. The transaction is expected to close in the quarter ending September 30, 2011, provided all necessary approvals have been received.

The total base purchase price of the transaction is $175.0 million, subject to normal adjustments. Shareholders can expect to receive between $3.00 and $3.28 per share in cash at closing. Additional payments of up to $0.93 per share may be paid to shareholders upon settlement of escrow holdbacks, aggregating to total potential cash consideration of up to approximately $4.21 per share. The final price per share will be subject to a number of factors, including final working capital balances and the amount of escrowed contingency reserves ultimately released.

In addition, on May 12, 2011, Holding, certain of its subsidiaries, Constellation and RBS Sempra entered into the Termination Agreement pursuant to which the Company agreed, subject to the closing of the Merger, to pay just over $16.0 million in exchange for RBS Sempra’s Class B Common Stock, Class C Common Stock and unvested RSUs in the Company as well as any early termination obligation under the Commodity Supply Facility with RBS Sempra. The termination obligation portion of the settlement is estimated to be approximately $4.0 million based on the minimum volume commitments under the ISDA Master Agreements.

Stock-Based Compensation Activity

As approved by Holdings’ stockholders in connection with the Restructuring, in January 2010, Holdings’ Board of Directors authorized the creation of the 2010 SIP, pursuant to which the Company may issue Class C Common Stock not to exceed 10% of Holdings’ outstanding common stock (on a fully diluted basis) after giving effect to the Restructuring. Also in January 2010, Holdings’ Board of Directors approved grants of RSUs to certain senior officers, directors and a former director, pursuant to which the Company may issue 2,960,204 shares of Class C Common Stock, representing 5% of Holdings’ outstanding common stock (on a fully-diluted basis), as follows:

· 2,858,164 RSUs, with a grant date fair value of approximately $6.3 million, were granted to certain senior officers of the Company, subject to vesting according to the following schedule: (i) one-third vested in September 2010; (ii) one-third will vest in September 2011; and (iii) one-third will vest in September 2012;

· 102,040 RSUs, with a grant date fair value of approximately $0.2 million, were granted to directors and a former director of Holdings, subject to vesting according to the following schedule: (i) 25% vested in January 2010; (ii) 25% vested in April 2010; (iii) 25% vested in July 2010; and (iv) 25% vested in October 2010. As a result of the resignation and replacement of a director during fiscal year 2010, 5,102 previously granted RSUs were forfeited by the original grantee in July 2010 and 5,102 RSUs were granted to the new director of Holdings in August 2010 subject to vesting according to the following schedule: (i) 50% vested in August 2010; and (ii) 50% vested in October 2010.

On September 22, 2010, the Company issued 952,721 shares of Class C Common Stock to certain senior officers of the Company when a portion of their RSUs vested without restrictions. Pursuant to the cashless exercise provisions of the 2010 SIP, senior officers surrendered 408,936 shares of Class C Common Stock back to the Company to offset the taxable nature of the shares to the senior officers. The Company paid approximately $1.2 million of employer and employee payroll taxes in connection with this issuance of Class C Common Stock.

The Company issued an aggregate total of 25,510 shares of Class C Common Stock to directors of the Company on July 1, 2010 and October 1, 2010 and 2,551 shares of Class C Common Stock to a director on August 22, 2010 when a portion of their RSUs vested without restrictions.

In accordance with the Holdings’ certificate of incorporation, on March 1, 2011, Holdings’ Board of Directors approved grants of RSUs to certain directors and a former director for 82,780 shares of Class C Common Stock, subject to vesting according to the following schedule: (i) one-fourth vested on the grant date; (ii) one-fourth vested on April 1, 2011; (iii) one-fourth vested on July 1, 2011; and (iv) one-fourth vested on October 1, 2011. The Company issued 64,156 shares of Class C Common Stock of the March 2011 grant with restrictions requiring continuous service to be met before the particular vesting date.

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The Company recorded approximately $0.6 million and $1.1 million of non-cash compensation expense during the three months ended March 31, 2011 and 2010, respectively, and $2.3 million and $1.0 million of non-cash compensation expense during the nine months ended March 31, 2011 and 2010, respectively, in connection with outstanding RSUs. The Company expects to record approximately $0.6 million, $1.2 million and $0.2 million of compensation expense related to outstanding RSU awards during the remainder of fiscal year 2011 and during fiscal years 2012 and 2013, respectively.

Note 16. Related Party Transactions

Amounts paid or accrued to related parties are summarized in the following table.

	Three Months ended March 31,				Nine Months ended March 31,
	2011		2010		2011		2010
	(in thousands)
Amount paid or accrued for:
Legal services	$	781	$	290	$	1,619	$	2,239
Management and consulting fees	34		30		143		97
Interest expense — Denham Credit Facility (1)	—		—		—		246
Interest expense — Bridge Financing Loans (1)	—		—		—		197
Financial advisory services (1)	—		—		—		32

(1) Includes activity related to agreements in place at June 30, 2009, all of which were terminated in September 2009 in connection with the Restructuring. Refer to the Company’s 2010 Form 10-K for additional information regarding these arrangements.

A former director and current stockholder of the Company is senior counsel to Paul, Hastings, Janofsky & Walker LLP (“Paul Hastings”), a law firm that provides legal services to the Company. Paul Hastings provides the Company with general legal services, which are recorded in general and administrative expenses, and has provided legal services associated with the Restructuring and amendments to the Company’s supply and hedging facilities that existed prior to the Restructuring, which were deferred on the consolidated balance sheets, to be amortized over the estimated useful lives associated with the related agreements. Paul Hastings is expected to continue to provide legal services to the Company in future periods.

The Company has entered into agreements with various stockholders, directors, former directors and other related parties for management and consulting services. None of these agreements had a material impact on the Company’s results of operations during the nine months ended March 31, 2011 or 2010. As of March 31, 2011, the Company does not anticipate that any outstanding management and consulting agreement will have a material impact on results of operations for the remainder of fiscal year 2011 or for fiscal year 2012.

Note 17. Commitments and Contingencies

Capacity Commitments

The Company enters into agreements for transportation and storage of natural gas. Since the demand for natural gas in the winter is high, the Company agreed to pay for certain capacity on the transportation systems utilized for up to a 12-month period. These take-or-pay type agreements obligate the Company to pay for the capacity committed even if it does not use that capacity. For contracts outstanding as of March 31, 2011, the total committed capacity charges were approximately $1 million. Total amounts purchased under such agreements were approximately $10.2 million and $8.4 million for the three months ended March 31, 2011 and 2010, respectively, and approximately $29.8 million and $24.8 million for the nine months ended March 31, 2011 and 2010, respectively. These agreements are due to expire during various months during the twelve months ending March 31, 2012, and will be replaced with new contracts as necessary.

Physical Commodity Purchase Commitments

Under the Commodity Supply Facility, the Company is obligated to purchase minimum annual amounts of natural gas and electricity from RBS Sempra. Refer to Note 13 for additional information regarding the minimum purchase obligations under the Commodity Supply Facility.

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Operating Leases

In September 2010, the Company entered into an amendment to an expiring operating lease agreement for its Maryland office, which extended the term of the lease to September 2016. As of March 31, 2011, future annual minimum lease payments associated with the extended lease are expected to be less than $0.1 million for the remainder of fiscal year 2011, $0.2 million for fiscal years 2012 through 2014 and $0.6 million thereafter.

Legal Proceedings and Environmental Matters

From time-to-time, the Company is a party to claims and legal proceedings that arise in the ordinary course of business, including investigations of product pricing and billing practices, sales practices and employment matters. The Company does not believe that any such proceedings to which it is currently a party will have a material adverse impact on its results of operations, financial position or cash flows.

During fiscal years 2011 and 2010, the Company does not have physical custody or control of the natural gas provided to its customers, or any facilities used to produce or transport natural gas or electricity. Although the Company holds title to natural gas in interstate pipelines and storage tanks, it believes that the carriers have the liability risk associated with infrastructure failures that could cause environmental issues. Therefore, the Company does not believe that it has significant exposure to legal claims or other liabilities associated with environmental concerns.

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Note 18. Business Segments

The Company’s core business is the retail sale of natural gas and electricity to end-use customers in deregulated markets. Accordingly, the Company’s business is classified into two business segments: natural gas and electricity. Through these business segments, natural gas and electricity are sold at fixed and variable contracted prices based on the demand or usage of customers.

The Company’s principal operations are located in the U.S. Its foreign operations, which are located in Canada, comprised less than 1% of the Company’s consolidated total assets at March 31, 2011 and June 30, 2010, and less than 1% of consolidated sales of natural gas and electricity for the nine months ended March 31, 2011 and 2010.

Financial information for the Company’s business segments is summarized in the following table. Only those assets allocated to the Company’s business segments are included in the table. The Company does not allocate operating expenses, interest expense or income taxes to its business segments.

Three Months Ended March 31,	Natural Gas			Electricity			Total
	(in thousands)
2011:
Sales	$	199,909		$	49,925		$	249,834
Cost of goods sold (excluding unrealized gains from risk management activities, net) (1)	(145,019		)	(39,799		)	(184,818		)
Gross profit (excluding unrealized gains from risk management activities, net) (1)	$	54,890		$	10,126		65,016

Add (less) items to reconcile total segment gross profit to income before income tax expense:
Unrealized losses from risk management activities, net							(4,680		)
Operating expenses							(26,006		)
Interest expense, net of interest income							(7,369		)
Income before income taxes							$	26,961

Assets allocated to business segments at period end:
Accounts receivable, net	$	73,242		$	21,265		$	94,507
Natural gas inventories	2,517			—			2,517
Goodwill	3,810			—			3,810
Customer acquisition costs, net	15,612			19,539			35,151
Total assets allocated to business segments	$	95,181		$	40,804		$	135,985

2010:
Sales	$	208,253		$	25,383		$	233,636
Cost of goods sold (excluding unrealized gains from risk management activities, net) (1)	(146,595		)	(19,671		)	(166,266		)
Gross profit (excluding unrealized gains from risk management activities, net) (1)	$	61,658		$	5,712		67,370

Add (less) items to reconcile total segment gross profit to income before income tax expense:
Unrealized losses from risk management activities, net							(26,001		)
Operating expenses							(24,768		)
Interest expense, net of interest income							(7,778		)
Income before income taxes							$	8,823

Assets allocated to business segments at period end:
Accounts receivable	$	86,660		$	12,980		$	99,640
Natural gas inventories	6,625			—			6,625
Goodwill	3,810			—			3,810
Customer acquisition costs, net	17,392			8,731			26,123
Total assets allocated to business segments	$	114,487		$	21,711		$	136,198

(1) Includes realized gains (losses) from risk management activities, but excludes unrealized gains (losses) from risk management activities. As the underlying customer contracts are not marked to market, the unrealized gains (losses) from risk management activities do not offer an accurate indication of the ultimate cash impact to the business, as the ultimate cash impact to the business is not determinable until delivery of natural gas under the customer contracts and the associated gain (loss) on risk management activity is realized.

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Nine Months Ended March 31,	Natural Gas			Electricity			Total
	(in thousands)
2011:
Sales	$	381,620		$	146,394		$	528,014
Cost of goods sold (excluding unrealized gains from risk management activities, net) (1)	(294,954		)	(116,293		)	(411,247		)
Gross profit (excluding unrealized gains from risk management activities, net) (1)	$	86,666		$	30,101		116,767

Add (less) items to reconcile total segment gross profit to income before income tax expense:
Unrealized gains from risk management activities, net							9,594
Operating expenses							(76,649		)
Interest expense, net of interest income							(21,326		)
Income before income taxes							$	28,386

2010:
Sales	$	393,817		$	68,560		$	462,377
Cost of goods sold (excluding unrealized gains from risk management activities, net) (1)	(293,839		)	(52,329		)	(346,168		)
Gross profit (excluding unrealized gains from risk management activities, net) (1)	$	99,978		$	16,231		116,209

Add (less) items to reconcile total segment gross profit to income before income tax expense:
Unrealized gains from risk management activities, net							2,451
Operating expenses							(67,133		)
Interest expense, net of interest income							(28,942		)
Income before income taxes							$	22,585

Note 19. Condensed Consolidating Financial Information

Each of the following wholly owned domestic subsidiaries of Holdings (the “Guarantor Subsidiaries”) jointly, severally and unconditionally guarantee the Fixed Rate Notes due 2014 and Floating Rate Notes due 2011 on a senior unsecured basis:

· MXenergy Capital Holdings Corp.

· MXenergy Capital Corp.

· Online Choice Inc.

· MXenergy Gas Capital Holdings Corp.

· MXenergy Gas Capital Corp.

· MXenergy Inc.

· MXenergy Electric Capital Holdings Corp.

· MXenergy Electric Capital Corp.

· MXenergy Electric Inc.

· MXenergy Services Inc.

· Infometer.com Inc.

The only wholly owned subsidiary that is not a guarantor for the Fixed Rate Notes due 2014 and Floating Rate Notes due 2011 (the “Non-guarantor Subsidiary”) is MXenergy (Canada) Ltd.

Consolidating balance sheets, consolidating statements of operations and consolidating statements of cash flows for Holdings, the combined Guarantor Subsidiaries and the Non-guarantor Subsidiary are provided in the following tables. Elimination entries necessary to consolidate the entities are also presented.

Table of Contents

MXENERGY HOLDINGS INC.

Consolidating Balance Sheet

March 31, 2011

(in thousands)

	MXenergy Holdings Inc.			Non-guarantor Subsidiary			Guarantor Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	83		$	129		$	2,854		$	—		$	3,066
Restricted cash	—			—			1,547			—			1,547
Fixed Rate Notes Escrow Account	8,977			—			—			—			8,977
Accounts receivable, net	—			39			94,468			—			94,507
Accounts receivable from RBS Sempra, net	—			—			27,240			—			27,240
Natural gas inventories	—			—			2,517			—			2,517
Income taxes receivable	—			—			4,078			—			4,078
Deferred income taxes	—			—			369			—			369
Intercompany note receivable	6,413			—			—			(6,413		)	—
Intercompany accounts receivable	115,250			374			—			(115,624		)	—
Other current assets	21			94			12,513			—			12,628
Total current assets	130,744			636			145,586			(122,037		)	154,929
Goodwill	—			—			3,810			—			3,810
Customer acquisition costs, net	—			—			35,151			—			35,151
Fixed assets, net	—			1			5,157			—			5,158
Deferred income taxes	—			—			1,520			—			1,520
Deferred debt issue costs	—			—			8,979			—			8,979
Intercompany notes receivable	67,282			—			—			(67,282		)	—
Investment in subsidiaries	(29,094		)	—			—			29,094			—
Other assets	—			55			474			—			529
Total assets	$	168,932		$	692		$	200,677		$	(160,225	)	$	210,076

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	28		$	154		$	30,718		$	—		$	30,900
Current portion of unrealized losses from risk management activities, net	—			—			5,005			—			5,005
Deferred revenue	—			—			1,432			—			1,432
Current portion of long-term debt	6,402			—			—			—			6,402
Intercompany note receivable	—			—			6,413			(6,413		)	—
Intercompany accounts payable	—			1,852			113,772			(115,624		)	—
Total current liabilities	6,430			2,006			157,340			(122,037		)	43,739
Unrealized losses from risk management activities	—			—			79			—			79
Long-term debt	55,089			—			—			—			55,089
Other long-term liabilities	—			—			3,756			—			3,756
Intercompany notes payable	—			—			67,282			(67,282		)	—
Total liabilities	61,519			2,006			228,457			(189,319		)	102,663

Commitments and contingencies	—			—			—			—			—

Stockholders’ equity (deficit):
Common stock:
Class A Common Stock	339			—			—			—			339
Class B Common Stock	40			—			—			—			40
Class C Common Stock	170			—			—			—			170
Common stock	—			1			—			(1		)	—
Total common stock	549			1			—			(1		)	549
Additional paid-in-capital	140,873			—			—			—			140,873
Class A treasury stock	(99		)	—			—			—			(99		)
Accumulated other comprehensive loss	(294		)	(294		)	—			294			(294		)
Accumulated deficit	(33,616		)	(1,021		)	(27,780		)	28,801			(33,616		)
Total stockholders’ equity	107,413			(1,314		)	(27,780		)	29,094			107,413
Total liabilities and stockholders’ equity	$	168,932		$	692		$	200,677		$	(160,225	)	$	210,076

Table of Contents

MXENERGY HOLDINGS INC.

Consolidating Balance Sheet

June 30, 2010

(in thousands)

	MXenergy Holdings Inc.			Non-guarantor Subsidiary			Guarantor Subsidiaries			Eliminations			Consolidated

Assets
Current assets:
Cash and cash equivalents	$	22		$	384		$	5,814		$	—		$	6,220
Restricted cash	—			—			1,574			—			1,574
Fixed Rate Notes Escrow Account	8,977			—			—			—			8,977
Accounts receivable, net	—			44			48,881			—			48,925
Accounts receivable from RBS Sempra, net	—			—			43,054			—			43,054
Natural gas inventories	—			—			15,861			—			15,861
Income taxes receivable	—			—			6,063			—			6,063
Deferred income taxes	—			—			1,378			—			1,378
Intercompany accounts receivable	111,769			—			—			(111,769		)	—
Other current assets	29			11			16,232			—			16,272
Total current assets	120,797			439			138,857			(111,769		)	148,324
Goodwill	—			—			3,810			—			3,810
Customer acquisition costs, net	—			—			30,425			—			30,425
Fixed assets, net	—			1			2,738			—			2,739
Deferred income taxes	—			—			3,629			—			3,629
Deferred debt issue costs	—			—			12,552			—			12,552
Intercompany notes receivable	73,706			—			—			(73,706		)	—
Investment in subsidiaries	(48,826		)	—			—			48,826			—
Other assets	—			50			491			—			541
Total assets	$	145,677		$	490		$	192,502		$	(136,649	)	$	202,020

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities	$	4		$	125		$	30,173		$	—		$	30,302
Current portion of unrealized losses from risk management activities, net	—			—			16,731			—			16,731
Deferred revenue	—			—			7,457			—			7,457
Intercompany accounts payable	—			1,799			109,970			(111,769		)	—
Total current liabilities	4			1,924			164,331			(111,769		)	54,490
Unrealized losses from risk management activities, net	—			—			1,857			—			1,857
Long-term debt	58,722			—			—			—			58,722
Intercompany notes payable	—			—			73,706			(73,706		)	—
Total liabilities	58,726			1,924			239,894			(185,475		)	115,069

Commitments and contingencies	—			—			—			—			—

Stockholders’ equity (deficit):
Common stock:
Class A Common Stock	339			—			—			—			339
Class B Common Stock	40			—			—			—			40
Class C Common Stock	164			—			—			—			164
Common stock	—			1			—			(1		)	—
Total common stock	543			1			—			(1		)	543
Additional paid-in-capital	139,702			—			—			—			139,702
Class A treasury stock	(99		)	—			—			—			(99		)
Accumulated other comprehensive loss	(156		)	(156		)	—			156			(156		)
Accumulated deficit	(53,039		)	(1,279		)	(47,392		)	48,671			(53,039		)
Total stockholders’ equity	86,951			(1,434		)	(47,392		)	48,826			86,951
Total liabilities and stockholders’ equity	$	145,677		$	490		$	192,502		$	(136,649	)	$	202,020

Table of Contents

MXENERGY HOLDINGS INC.

Consolidating Statement of Operations

Three Months Ended March 31, 2011

(in thousands)

	MXenergy Holdings Inc.			Non-guarantor Subsidiary			Guarantor Subsidiaries			Eliminations			Consolidated

Sales of natural gas and electricity	$	—		$	109		$	249,725		$	—		$	249,834
Cost of goods sold (excluding depreciation and amortization):
Cost of natural gas and electricity sold	—			43			191,333			—			191,376
Realized gains from risk management activities	—			—			(6,558		)	—			(6,558		)
Unrealized losses from risk management activities	—			—			4,680			—			4,680
	—			43			189,455			—			189,498
Gross profit	—			66			60,270			—			60,336

Operating expenses:
General and administrative expenses	558			(92		)	15,360			—			15,826
Management service fees	—			(72		)	72			—			—
Advertising and marketing expenses	—			—			804			—			804
Reserves and discounts	—			—			3,004			—			3,004
Depreciation and amortization	—			—			6,372			—			6,372
Equity in operations of consolidated subsidiaries	(17,710		)	—			—			17,710			—
Total operating expenses	(17,152		)	(164		)	25,612			17,710			26,006

Operating profit (loss)	17,152			230			34,658			(17,710		)	34,330
Interest expense, net	—			3			7,366			—			7,369
Income (loss) before income tax expense	17,152			227			27,292			(17,710		)	26,961
Income tax expense	—			—			(9,809		)	—			(9,809		)
Net income (loss)	$	17,152		$	227		$	17,483		$	(17,710	)	$	17,152

MXENERGY HOLDINGS INC.

Consolidating Statement of Operations

Three Months Ended March 31, 2010

(in thousands)

	MXenergy Holdings Inc.			Non-guarantor Subsidiary			Guarantor Subsidiaries			Eliminations			Consolidated

Sales of natural gas and electricity	$	—		$	141		$	233,495		$	—		$	233,636
Cost of goods sold (excluding depreciation and amortization):
Cost of natural gas and electricity sold	—			104			164,893			—			164,997
Realized losses from risk management activities	—			—			1,269			—			1,269
Unrealized losses from risk management activities	—			—			26,001						26,001
	—			104			192,163			—			192,267
Gross profit	—			37			41,332			—			41,369

Operating expenses:
General and administrative expenses	1,175			66			13,213			—			14,454
Management service fees	—			(82		)	82			—			—
Advertising and marketing expenses	—			—			1,707			—			1,707
Reserves and discounts	—			—			2,628			—			2,628
Depreciation and amortization	—			9			5,970			—			5,979
Equity in operations of consolidated subsidiaries	(6,435		)	—			—			6,435			—
Total operating expenses	(5,260		)	(7		)	23,600			6,435			24,768

Operating profit (loss)	5,260			44			17,732			(6,435		)	16,601
Interest expense, net	—			—			7,778			—			7,778
Income (loss) before income tax expense	5,260			44			9,954			(6,435		)	8,823
Income tax expense	—			—			(3,563		)	—			(3,563		)
Net income (loss)	$	5,260		$	44		$	6,391		$

MxEnergy Holdings Inc 10-Q