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Note 14 - Merom Acquisition | 3 Months Ended
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Mar. 31, 2023
Notes to Financial Statements |
Business Combination Disclosure [Text Block] |
(14) | MEROM ACQUISITION
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 which were below market prices at 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 quarter ended March 31, 2023, we recorded $33.3 million of revenue as a result of amortizing the contract liability resulting in an ending balance as of March 31, 2023 of $127.9 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 expires in May 2023 and requires 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 will be amortized over the term of the agreement as the contract is fulfilled. For the quarter ended March 31, 2023, we recorded $17.8 million in additional operating expenses for coal purchased and used and a reduction of $4.4 million to inventory for coal purchased and unused as a result of amortizing the contract asset resulting in an ending balance as of March 31, 2023 of $6.2 million that is recorded as a current asset in our condensed consolidated balance sheets.

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