Unaudited Pro Forma Condensed Combined Financial Information

Unaudited Pro Forma Condensed Combined Financial Information

On May 3, 2016, Spark HoldCo and Spark Energy, Inc. (collectively, “Spark”, except where the context indicates a reference only to Spark Energy, Inc.) entered into a Membership Interest Purchase Agreement (the “Major Energy Purchase Agreement”), with Retailco, LLC and National Gas & Electric, LLC (“NG&E”), pursuant to which Spark has agreed to purchase, and NG&E has agreed to sell, all of the outstanding membership interests in Major Energy Services LLC, a New York limited liability company, Major Energy Electric Services LLC, a New York limited liability company, and Respond Power LLC, a New York limited liability company (collectively, the “Major Energy Companies”). NG&E is owned by X. Xxxxx Xxxxxxx XXX, our Chairman of the Board, founder and majority shareholder. The closing of the acquisition is anticipated in the third quarter of 2016.

The unaudited pro forma financial information considers the aggregation of financial statement impacts for the following two transactions, collectively referred to in this document as "the acquisition transactions":

• The acquisition of the Major Energy Companies by NG&E, which closed on April 15, 2016 and was accounted for as a business combination using the acquisition method of accounting. NG&E paid $40 million in cash and assumed liabilities for litigation settlements of $5 million at closing of the acquisition. The purchase also included $15 million in installment consideration subject to achievement of certain performance targets and up to an estimated $20 million in earnouts over the next 33 months subject to achievement of certain performance targets.

• The pending acquisition of the Major Energy Companies by Spark from NG&E, which is an entity under common control with Spark, will be accounted for as a transfer of equity interests of entities under common control using the pooling of interests method. This transaction will be financed through the issuance of two million shares of Class B common stock (and a corresponding number of Spark HoldCo units) at the closing and will include Spark assuming the $5 million litigation settlements and the installment consideration and earnouts described above in addition to a potential earnout of an additional 200,000 Class B common shares depending on achievement of performance targets.

This unaudited pro forma condensed combined financial information reflects Xxxxx's future acquisition and related events taking into consideration the above accounting treatments, and they apply the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information based on currently available information. Further, these adjustments could materially change as both the determination of the purchase price and the allocation of the purchase price accounting for the acquisition have not been finalized. The pro forma financial information includes certain assumptions deemed reasonable by management at the time of preparation. There can be no assurance that these assumptions and the pro forma financial information will be indicative of actual combined performance or final purchase price accounting by Spark. Subsequent to the acquisition, Spark will control all of the business of the Major Energy Companies and as a result will consolidate the results, including a recast of operating results from the date that NG&E acquired the Major Energy Companies.

The unaudited pro forma condensed combined balance sheet as of March 31, 2016 reflects the acquisition and related events as if they had been consummated on March 31, 2016. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2015 and the three months ended March 31, 2016, reflect the acquisition and related events as if they had been consummated on January 1, 2015.

The historical financial information has been adjusted to give pro forma effect to events that are directly attributable to the acquisition transactions, are expected to have an ongoing effect on our consolidated results and are factually supportable. Pro forma adjustments related to the unaudited condensed combined balance sheet give effect to events that are directly attributable to the acquisition transactions and are factually supportable regardless of whether they have a ongoing effect or are non-recurring. Total fees and costs of the acquisition include legal, accounting and other fees and costs that have or will be expensed. The charges directly attributable to the acquisition transactions represent non-recurring costs and were therefore excluded from the unaudited pro forma financial information. The unaudited pro forma financial information does not reflect the cost of integration activities or benefits from the acquisitions and synergies that may be derived, both of which may have a material effect on the consolidated results of operations in periods following completion of the acquisition by Spark. Our unaudited pro forma condensed combined financial information and explanatory notes present how our financial statements may have appeared had the acquisition occurred on the dates noted above.

The unaudited pro forma condensed combined financial statements and related notes are presented for informational purposes only and do not purport to represent the financial position or results of operations as if the transactions had occurred on the dates discussed above. They do not include any adjustments for any other pending or contemplated acquisitions of the Company except as described herein. They also do not project or forecast the consolidated financial positions or results of operations for any future date or period. The unaudited financial information set forth herein is preliminary and subject to adjustments and modifications. The audited financial statements and related notes are to be included in Spark's Annual Report on Form 10-K for the year ending December 31, 2016. Adjustments and modifications to the financial statements may be

identified during the course of this audit work, which could result in significant differences from this preliminary unaudited financial information. The unaudited pro forma condensed combined financial statements and related notes should be read together with:

•	the separate historical audited financial statements of Spark as of and for the year ended December 31, 2015 included in Spark's Annual Report on Form 10-K for the year ended December 31, 2015;
•	the separate historical unaudited financial statements of Xxxxx as of and for the three months ended March 31, 2016 included in Spark's Quarterly Report on Form 10-Q for the three months ended March 31, 2016;
•	the separate historical audited combined financial statements of the Major Energy Companies as of and for the year ended December 31, 2015, which are included as Exhibit 99.1 to this Current Report on Form 8-K; and
•	the separate historical unaudited combined financial statements of the Major Energy Companies as of and for the three months ended March 31, 2016, which are included as Exhibit 99.2 to this current Report on Form 8-K.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2016

(In thousands of U.S. Dollars)

	Historical Spark			Major Energy Companies				Reclassification				Acquisition Adjustments				Spark Pro Forma
Assets
Currents assets:
Cash and cash equivalents	$	2,949		$	13,537			$	—			$	—			$	16,486
Restricted cash	—			77				—				—				77
Accounts receivable	53,968			24,521				—				—				78,489
Accounts receivable—affiliates	2,112			—				—				—				2,112
Inventory	181			—				78			(g)	—				259
Natural gas inventories	—			78				(78		)	(g)	—				—
Fair value of derivative assets	240			—				—				—				240
Customer acquisition costs, net	13,026			—				—				—				13,026
Deferred advertising costs, current	—			1,558								(1,558		)	(a)	—
Customer relationships, net	5,698			—				—				8,076			(a1)	13,774
Prepaid assets	1,597			—				—				—				1,597
Deposits	7,073			—				—				—				7,073
Other current assets	4,537			9,686				—				—				14,223
Total current assets	91,381			49,457				—				6,518				147,356
Property and equipment, net	4,755			—				—				15			(a2)	4,770
Fixed asset, net of accumulated depreciation	—			14				—				(14		)	(a2)	—
Customer acquisition costs, net	2,381			—				—				—				2,381
Customer acquisition costs, net of accumulated amortization	—			4,762				—				(4,762		)	(a)	—
Deferred advertising costs	—			613				—				(613		)	(a)	—
Customer relationships, net	5,512			—				—				24,228			(a1)	29,740
Deferred tax assets	34,531			—				—				—			(h)	34,531
Goodwill	18,379			—				—				43,552			(a4)	61,931
Other assets	2,501			—				47			(g)	3,957			(a3), (a)	6,505
Security deposits and other assets	—			47				(47		)	(g)	—				—
Total assets	159,440			54,893				—				72,881				287,214
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable	23,207			9,185				—				—				32,392
Accounts payable—affiliates	3,910			—				—				—				3,910
Accrued liabilities	11,885			15,547				—				367			(b)	27,799
Loans payable	—			14,622			(d)	—				—				14,622
Fair value of derivative liabilities	9,719			—				—				6,553			(f)	16,272
Current portion of Senior Credit Facility	10,306			—				—				13,178			(i)	23,484
Current deferred tax liability	1,407			—				—				—				1,407
Other current liabilities	2,878			—				—				6,420			(c)	9,298
Total current liabilities	63,312			39,354				—				26,518				129,184
Long-term liabilities:
Fair value of derivative liabilities	546			—				—				706			(f)	1,252
Long-term payable pursuant to tax receivable agreement - affiliates	29,592			—				—				—				29,592
Long-term portion of Senior Credit Facility	13,266			—				—				—				13,266
Non-current deferred tax liability	854			—				—				—			(h)	854
Convertible subordinated notes to affiliates	6,466			—				—				—				6,466
Other long-term liabilities	1,723			—				—				21,196			(c)	22,919
Total liabilities	115,759			39,354				—				48,420				203,533
Stockholders' equity:
Common stock Class A	41			—				—				—				41
Common stock Class B	98			—				—				20			(e)	118
Member's equity	—			15,539				—				(15,539		)	(a)	—
Additional paid-in capital	16,600			—				—				—				16,600
Retained earnings	1,314			—				—				—				1,314
Total stockholders' equity	18,053			15,539				—				(15,519		)		18,073
Non-controlling interest in Spark HoldCo, LLC	25,628			—				—				39,980			(e)	65,608
Total equity	43,681			15,539				—				24,461				83,681
Total liabilities and equity	$	159,440		$	54,893			$	—			$	72,881			$	287,214

Notes to unaudited pro forma condensed combined balance sheet

(a)	To remove the Major Energy Companies' equity, capitalized advertising costs, capitalized customer acquisition costs and non-current other assets as well as to record the Purchase Price Allocation for identifiable assets of the acquisition as listed in items 1 through 4 below.
1	To record the fair value of Customer Intangibles, which includes: -- The asset corresponding to the MTM liability value in Note (f), which is not an increase to the purchase price but rather an assumption of a liability valued at fair value. -- The value of customer contracts.
2	To record change in Property and Equipment to fair value the assets.
3	To record the fair value of Trademarks acquired of $4.0 million.
4	To record the assembled workforce and remaining assets to Goodwill.
(b)	To record the remainder of the $5.0 million contingency assumed in the acquisition transactions in calculating the consideration transferred. The contingent liability represents future litigation settlements of which $4.6 million was recorded on the Major Energy Companies' financial statements as of March 31, 2016.
(c)	To record the estimated future earnout and installment payments, of which $6.4 million will be due within one year after the acquisition by NG&E with the remaining $21.2 million recorded as a long-term liability.
(d)	To note that the current loans payable on the Major Energy Companies' balance sheet represents the amount owed to the sleeve contract provider, which will stay in place upon acquisition by Spark.
(e)	To record the equity issuance of two million Class B common shares at $20 per share as initial purchase consideration by Spark, which also equals the cash consideration transferred upon closing of the acquisition by NG&E on April 15, 2016.
(f)	To record the fair value derivative liability position of derivatives acquired in the acquisition by NG&E, valued as of April 15, 2016. The Major Energy Companies historically took the normal purchase normal sale exemption and did not have its mark to market position on its balance sheet.
(g)	Represents the reclassification of line items of the Major Energy Companies' financials to the comparable Spark financial statement line item.
(h)	The initial purchase of membership interests in the Major Energy Companies will be treated as an asset purchase for tax purposes. Management has assumed that book basis will be substantially equal to tax basis. Further, management gave no consideration to the effect of the acquisition transactions on the deferred tax assets that result from Spark’s tax receivable agreement.
(i)	To record the borrowings Spark will incur against its existing Senior Credit Facility line to purchase working capital.

In addition to the notes above, please see the table below for purchase consideration transferred and the forecasted allocation of the purchase price (which is not yet complete) upon the acquisition of the Major Energy Companies by NG&E:

Cash	$	13,614
Net working capital, net of cash acquired	(436		)
Regulatory liability assumed	(5,000		)
Property and equipment	15
Intangible assets - customer relationships	32,304
Intangible assets - trademarks	4,004
Goodwill	43,552
Fair value of derivative liabilities	(7,259		)
Total purchase price, including working capital	80,794
Earnouts and contingent payments	(27,616		)
Total cash purchase price, including working capital	53,178
Xxxx borrowed to acquire working capital	(13,178		)
Total cash purchase price, excluding working capital	$	40,000

The total consideration to be given upon closing of the acquisition by Spark to NG&E will be two million Class B common shares with a total value of $40 million, which equals the total cash consideration transferred to the Major Energy Companies by NG&E upon acquisition.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2015

(In thousands of U.S. Dollars, except per share data)

	Historical Spark			Major Energy Companies				Reclassification				Acquisition Adjustments				Spark Pro Forma
Revenues:																—
Retail revenues	$	356,659		$	—			$	189,228		(e)	$	—			$	545,887
Sale of natural gas and electricity	—			189,228				(189,228		)	(e)	—				—
Net asset optimization	1,494			—				—				—				1,494
Total revenues	358,153			189,228				—				—				547,381
Operating expenses:
Retail cost of revenues	241,188			—				144,154			(e)	(4,111		)	(a)	381,231
Cost of natural gas and electricity	—			144,154				(144,154		)	(e)					—
General and administrative	61,682			—				22,894			(e)	3,200			(b)	87,776
Depreciation and amortization	25,378			—				9,121			(e)	8,477			(c)	42,976
Operating expenses	—			32,015				(32,015		)	(e)					—
Total operating expenses	328,248			176,169				—				7,566				511,983
Operating income (loss)	29,905			13,059				—				(7,566		)		35,398
Other (expense)/income:
Interest expense	(2,280		)	(468		)		—				—				(2,748		)
Interest and other income	324			35				—				—				359
Total other expenses	(1,956		)	(433		)		—				—				(2,389		)
Income (loss) before income tax expense	27,949			12,626				—				(7,566		)		33,009
Income tax expense	1,974			90								373			(d)	2,437
Net income (loss)	25,975			12,536				—				(7,939		)		30,572
Less: Net income (loss) attributable to non-controlling interests	22,110			—				—				(6,401		)	(g)	15,709
Net income (loss) attributable to Spark Energy, Inc. stockholders	3,865			12,536				—				(1,538		)		14,863
Other comprehensive income (loss):																—
Deferred gain (loss) from cash flow xxxxxx	—			—				—				—				—
Reclassification of deferred gain (loss) from cash flow xxxxxx into net income	—			—				—				—				—
Comprehensive income (loss)	$	25,975		$	12,536			$	—			$	(7,939	)		$	30,572
Net income attributable to Spark Energy, Inc. per share of Class A common stock
Basic	$	1.26		N/A												$	4.85
Diluted	$	1.06		N/A												$	1.27
Weighted average shares of Class A common stock
Basic	3,064			N/A											(f)	3,064
Diluted	3,327			N/A											(f)	16,078

Notes to unaudited pro forma condensed combined statement of operations for the year ended December 31, 2015

(a)	Represents the mark to market change of derivatives during the period presented for the Major Energy Companies, who historically took the normal purchase normal sale exemption and did not have its mark to market impacts on the statement of operations.
(b)	Represents expenses incurred as a result of the acquisition, including payments of bonuses and legal fees that arose in connection with the acquisition by NG&E.
(c)	Represents depreciation and amortization on property, plant and equipment and amortizable intangible assets, respectively, recorded in connection with the acquisition transactions. Note that the following useful lives were utilized for calculating depreciation and amortization on a straight-line basis: 4 years for Customer Intangibles, 10 years for Trademarks, and 3 years for Property, Plant and Equipment.
(d)	To record the provision for income tax expense. The pro forma adjustment to income tax expense differs from the statutory rate primarily based on income attributable to the noncontrolling interest for the period ended December 31, 2015. Prior to the acquisition by Spark, the Major Energy Companies were treated as partnerships for federal and state income tax purposes and therefore did not have a provision for income taxes. The pro forma combined income tax expense does not reflect the amount that would have resulted had Spark and the Major Energy Companies filed a consolidated income tax return during the period presented. The effective tax rate of the combined company could be significantly different depending on post-acquisition activities, including changes in noncontrolling interest, geographical mix of income and effects of the tax receivable agreement that were not considered in these pro forma statements.
(e)	Represents the reclassification of line items of the Major Energy Companies' financials to the comparable Spark financial statement line item.
(f)	To reflect the impact on weighted average shares outstanding used in calculating basic and diluted earnings per share for the issuance of the two million Class B common shares in the Spark acquisition of the Major Energy Companies from NG&E for the year ended December 31, 2015.
(g)	Represents the split of net income to the non-controlling interest based on the weighted average non-controlling interest ownership during the period presented.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Three Months Ended March 31, 2016

(In thousands of U.S. Dollars, except per share data)

	Historical Spark			Major Energy Companies				Reclassification				Acquisition Adjustments				Spark Pro Forma
Revenues:																—
Retail revenues	$	110,019		$	—			$	51,144		(d)	$	—			$	161,163
Sale of natural gas and electricity	—			51,144				(51,144		)	(d)	—				—
Net asset optimization	527			—				—				—				527
Total revenues	110,546			51,144				—				—				161,690
Operating expenses:
Retail cost of revenues	68,800			—				36,899			(d)	2,544			(a)	108,243
Cost of natural gas and electricity	—			36,899				(36,899		)	(d)					—
General and administrative	17,380			—				5,394			(d)					22,774
Depreciation and amortization	6,789			—				2,299			(d)	2,119			(b)	11,207
Operating expenses	—			7,693				(7,693		)	(d)					—
Total operating expenses	92,969			44,592				—				4,663				142,224
Operating income (loss)	17,577			6,552				—				(4,663		)		19,466
Other (expense)/income:
Interest expense	(753		)	(123		)		—				—				(876		)
Interest and other income	(95		)	11				—				—				(84		)
Total other expenses	(848		)	(112		)		—				—				(960		)
Income (loss) before income tax expense	16,729			6,440				—				(4,663		)		18,506
Income tax expense	988			23				—				160			(c)	1,171
Net income (loss)	15,741			6,417				—				(4,823		)		17,335
Less: Net income (loss) attributable to non-controlling interests	11,568			—				—				(3,682		)	(f)	7,886
Net income (loss) attributable to Spark Energy, Inc. stockholders	$	4,173		$	6,417			$	—			$	(1,141	)		$	9,449
Net income attributable to Spark Energy, Inc. per share of Class A common stock
Basic	$	1.11		N/A												$	2.52
Diluted	$	0.68		N/A												$	0.66
Weighted average shares of Class A common stock
Basic	3,756			N/A											(e)	3,756
Diluted	14,520			N/A											(e)	16,519

Notes to unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2016

(a)	Represents the mark to market change of derivatives during the period presented for the Major Energy Companies, who historically took the normal purchase normal sale exemption and did not have its mark to market impacts on the statement of operations.
(b)	Represents depreciation and amortization on property, plant and equipment and amortizable intangible assets, respectively, recorded in connection with the acquisition transactions. Note that the following useful lives were utilized for calculating depreciation and amortization on a straight-line basis: 4 years for Customer Intangibles, 10 years for Trademarks, and 3 years for Property, Plant and Equipment.
(c)	To record the provision for income tax expense. The pro forma adjustment to income tax expense differs from the statutory rate primarily based on income attributable to the noncontrolling interest for the period ended March 31, 2016. Prior to the acquisition by Spark, the Major Energy Companies were treated as partnerships for federal and state income tax purposes and therefore did not have a provision for income taxes. The pro forma combined income tax expense does not reflect the amount that would have resulted had Spark and the Major Energy Companies filed a consolidated income tax return during the period presented. The effective tax rate of the combined company could be significantly different depending on post-acquisition activities, including changes in noncontrolling interest, geographical mix of income and effects of the tax receivable agreement that were not considered in these pro forma statements.
(d)	Represents the reclassification of line items of the Major Energy Companies' financials to the comparable Spark financial statement line item.
(e)	To reflect the impact on weighted average shares outstanding used in calculating basic and diluted earnings per share for the issuance of the two million Class B common shares in the Spark acquisition of the Major Energy Companies from NG&E for the quarter ended March 31, 2016.
(f)	Represents the split of net income to the non-controlling interest based on the weighted average non-controlling interest ownership during the period presented.