On February 14, 2022, Hallador Power signed an Asset Purchase Agreement (“APA”) with Hoosier, a rural electric membership corporation organized and existing under the laws of the state of Indiana.

 

Under the APA, Hallador acquired the Merom power plant, along with equipment and machinery in the power plant; materials inventory; a coal purchase agreement; a coal combustion certified coal ash landfill, certain Generation Interconnection Agreements, and coal inventory (collectively, the “Acquired Assets”). Additionally, contemporaneous with entering into the APA, Hallador entered into three other agreements with Hoosier comprised of (1) a Power Purchase Agreement (the "PPA”), (2) a Coal Supply Purchase Agreement (the "Coal Purchase Agreement"), and (3) a Closing Side Letter agreeing to a reduction in future capacity payments of $15.0 million (“Capacity Payment Reduction”).  The purchase price for the Acquired Assets also consists of the assumption of the power plant’s closure and post-closure remediation, valued at approximately $7.2 million; no cash will be paid by Hallador to Hoosier to effectuate the APA other than payments totaling approximately $17.0 million for coal inventory on hand, with an initial payment of $5.4 million and subsequent periodic payments over time, subject to post-close adjustments based on actual on-site inventories. The acquisition closed on October 21, 2022.

 

 

The acquisition was accounted for as an asset acquisition under ASC 805-50 as substantially all of the fair value of the gross assets acquired are concentrated in a group of similar identifiable assets. As such, the total purchase consideration (which includes $2.9 million of transaction costs) was allocated to the assets acquired on a relative fair value basis.

   

Consideration:		(in thousands)
Direct transaction costs		$	2,855
Contract liability - PPA			184,500
Contract liability - Capacity payment reduction			11,000
Contract asset - Coal purchase agreement			(34,300	)
Coal inventory purchased			5,400
Deferred coal inventory payment			11,600
Total consideration		$	181,055
Relative fair value of assets acquired:
Plant		$	165,816
Materials and supplies			12,009
Coal inventory			10,460
Amount attributable to assets acquired		$	188,285
Fair value of liabilities assumed:
Asset retirement obligations		$	7,230
Amount attributable to liabilities assumed		$	7,230

 

 

Operating revenue for the Electric Operations segment is derived from a power purchase agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices below market prices on the date we closed the transaction.  The power purchase agreement expires in 2025 and requires us to provide a fixed amount of power over the term of the agreement.  As a result of the below-market contract, we recorded a contract liability at the close of the acquisition totaling $184.5 million that will be amortized over the term of the agreement as the contract is fulfilled.  For the three and six months ended June 30, 2023, we recorded $19.6 million and $52.9 million, respectively, of revenue as a result of amortizing the contract liability resulting in an ending balance as of June 30, 2023, of $113.8 million that is recorded as current and long-term liabilities in our condensed consolidated balance sheets.

 

Operating expenses for the Electric Operations segment include coal purchased under an agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices which were below market prices at the date we entered into the agreement.  The coal purchase agreement expired in May 2023 that required us to purchase a fixed amount of coal over the term of the agreement.  As a result of the below-market contract, we recorded a contract asset at the close of the acquisition totaling $34.3 million that was amortized over the term of the agreement as the contract was fulfilled.  For the three and six months ended June 30, 2023, we recorded $13.0 million and $30.7 million in additional operating expenses for coal purchased and used and a reduction of $6.8 million and $11.2 million, respectively, to inventory for coal purchased and unused as a result of amortizing the contract asset, thereby eliminating the remaining balance of the contract asset as of June 30, 2023.