The differences between GAAP net income and non-GAAP operating earnings are due to adjustments to eliminate unrealized mark-to-market gains and losses attributable to certain wholesale energy supply and retail sales contracts.
For the quarter ended June 30, 2012, non-GAAP operating earnings reflect higher realized electric margins due to increased sales volumes resulting from customer growth and favorable price conditions in the current period versus the same quarter of the prior year. Realized natural gas margins were lower primarily attributable to a less favorable pattern of margin recognition in the current quarter versus the same quarter of the prior year partially offset by higher sales volumes. The pattern of margin recognition that the retail energy-marketing segment realizes in a given quarter varies from year to year.
For the nine months ended June 30, 2012, non-GAAP operating earnings reflect higher realized electric margins attributable to higher sales volumes due to customer growth, favorable price conditions and a different pattern of margin recognition versus the prior year. Realized natural gas margins are lower primarily due to lower unit margins on portfolio optimization activities and lower retail sales volumes resulting from warm weather. As noted above, the pattern of margin recognition varies from year to year. Operating expenses in the nine month period increased primarily due to higher customer service and bad debt costs as well as other expenses.
Commercial Energy SystemsFor the quarter ended June 30, 2012, the commercial energy systems segment reported net income of $0.6 million compared to net income of $45,000 for the same quarter last year. For the nine months ended June 30, 2012, the commercial energy systems segment reported net income of $1.4 million compared to net income of $25,000 for the same period last year. The increase in earnings is primarily due to higher revenue from commercial solar projects in the current period and the timing of project work for government agency customers that was delayed in the prior year. There were no non-GAAP adjustments for this segment for any of the periods presented.
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