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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2022
Fair Value Disclosures [Abstract] |
Fair Value Measurements | NOTE 3. FAIR VALUE MEASUREMENTS The Company’s financial assets and liabilities subject to fair value measurement on a recurring basis and the level of inputs used for such measurements were as follows as of the dates indicated (amounts in thousands):
|  | Fair Value Measured as of September 30, 2022 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets included in: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |
Money market securities |  | $ | 11,111 |  |  | $ | - |  |  | $ | - |  |  | $ | 11,111 |
Derivative asset |  |  | - |  |  |  | - |  |  |  | 78,880 |  |  |  | 78,880 |
|  | $ | 11,111 |  |  | $ | - |  |  | $ | 78,880 |  |  | $ | 89,991 |
Liabilities included in: |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability |  | $ | - |  |  | $ | - |  |  | $ | 22 |  |  | $ | 22 |
|  | $ | - |  |  | $ | - |  |  | $ | 22 |  |  | $ | 22 |
|  | Fair Value Measured as of December 31, 2021 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets included in: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |
Money market securities |  | $ | 101,004 |  |  | $ | - |  |  | $ | - |  |  | $ | 101,004 |
|  | $ | 101,004 |  |  | $ | - |  |  | $ | - |  |  | $ | 101,004 |
Liabilities included in: |  |  |  |  |  |  |  |  |  |  |  |
Warrant liability |  | $ | - |  |  | $ | - |  |  | $ | 137 |  |  | $ | 137 |
|  | $ | - |  |  | $ | - |  |  | $ | 137 |  |  | $ | 137 |
Fair values of cash and cash equivalents, accounts payable and accrued expenses approximate their recorded values due to the short-term nature of these items. There were no transfers of financial instruments between Level 1, Level 2 and Level 3 during the periods presented. Level 3 asset On July 1, 2022, the Company recorded a derivative asset, divided between current and noncurrent assets, on its condensed consolidated balance sheet related to the Luminant Power Agreement as this is when both the quantities of electricity demand were known and penalties for nonperformance under the Luminant Power Agreement became enforceable, with an offsetting amount recorded to change in the fair value of derivative asset in operating income (loss) on the accompanying condensed consolidated statements of operations. Subsequent changes in fair value are also recorded to change in fair value of derivative asset in operating income (loss). The Luminant Power Agreement was not designated as a hedging instrument. The Company does not have any other derivative contracts. The estimated fair value of the Company’s derivative asset was derived from Level 2 and Level 3 inputs (i.e., unobservable inputs) due to a lack of quoted prices for similar type assets and as such, is classified in Level 3 of the fair value hierarchy. Specifically, the discounted cash flow estimation models contain quoted spot and forward prices for electricity, as well as estimated usage rates consistent with the terms of the Luminant Power Agreement, the initial term of which is five years. The valuations performed by the third-party valuation firm engaged by the Company utilized discount rates of 7.19% and 7.39% as of the derivative effective date of July 1, 2022 and September 30, 2022, respectively, and include observable market inputs, but also include unobservable inputs based on qualitative judgment related to company-specific risk factors. Unrealized gains associated with the derivative asset within the Level 3 category include changes in fair value that were attributable to amendments to the Luminant Power Agreement, changes to the quoted forward electricity rates, as well as unobservable inputs (e.g., changes in estimated usage rates and discount rate assumptions). The following table presents the changes in the estimated fair value of the derivative asset measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 (amounts in thousands):
Balance, January 1, 2022 |  | $ | - |
Fair value on derivative asset effective date |  |  | 83,610 |
Proceeds from reduction of scheduled power |  |  | (5,056 | )
Change in fair value |  |  | 326 |
Balance, September 30, 2022 |  | $ | 78,880 |
Under the August Amendment to the Luminant Power Agreement, the Company and Luminant agreed to reduce Luminant’s obligation to provide specific amounts of scheduled power over upcoming months and, in exchange for the reduction in scheduled power supply by Luminant and as consideration for the modification to the ramp up schedule under the Luminant Power Agreement, Luminant paid the Company $5.1 million. The Company’s management determined that the August Amendment did not represent a freestanding instrument to be assessed separately from the Luminant Power Agreement and, as such, the Company reduced the derivative asset by the amount received from Luminant as shown in the table above. For the nine months ended September 30, 2022, there was a change of $0.3 million in Level 3 assets measured at fair value. Additionally, during the three months ended September 30, 2022, the Company, through Luminant, sold electricity in the ERCOT market, resulting in $1.7 million recorded to change in fair value of derivative asset in the accompanying condensed consolidated statements of operations for both the three and nine months ended September 30, 2022. Level 3 liability The Company’s Private Placement Warrants (as defined in Note 13) are its only liability classified within Level 3 of the fair value hierarchy because the fair value is based on significant inputs that are unobservable in the market. The valuation of the Private Placement Warrants uses assumptions and estimates the Company believes would be made by a market participant in making the same valuation. The Company assesses these assumptions and estimates on an on-going basis as additional data impacting the assumptions and estimates are obtained. The Company engaged a valuation firm to determine the fair value of the Private Placement Warrants using a Black-Scholes option-pricing model and the quoted price of the Company’s Common Stock. The following table presents significant assumptions utilized in the valuations of the Private Placement Warrants as of the dates indicated:
|  | September 30, 2022 |  |  | December 31, 2021 |
Risk-free rate |  |  | 4.08 | % |  |  | 1.20 | %
Dividend yield rate |  |  | 0.00 | % |  |  | 0.00 | %
Volatility |  |  | 78.2 | % |  |  | 58.8 | %
Contractual term (in years) |  |  | 3.9 |  |  |  | 4.7 |
Exercise price |  | $ | 11.50 |  |  | $ | 11.50 |
The following table presents changes in the estimated fair value of the Private Placement Warrants for the nine months ended September 30, 2022 (amounts in thousands):
Balance, January 1, 2022 |  | $ | 137 |
Change in fair value |  |  | (115 | )
Balance, September 30, 2022 |  | $ | 22 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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