HALLADOR ENERGY CO - Quarter Report: 2023 June (Form 10-Q)

UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

  

FORM 10-Q

 

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2023
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

  

Commission file number:001-34743

 

HALLADOR ENERGY COMPANY (www.halladorenergy.com)

Colorado (State of incorporation)		84-1014610 (IRS Employer Identification No.)
1183 East Canvasback Drive, Terre Haute, Indiana (Address of principal executive offices)		47802 (Zip Code)

  

Registrant’s telephone number, including area code: 812.299.2800

  

Securities registered pursuant to Section 12(b) of the Act:
Title of each class		Trading Symbol		Name of each exchange on which registered
Common Shares, $.01 par value		HNRG		Nasdaq

  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

  

Large accelerated filer ☐		Accelerated filer ☑
Non-accelerated filer ☐		Smaller reporting company ☑
		Emerging growth company ☐

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

As of August 7, 2023, we had 33,142,403 shares of common stock outstanding.

 

 

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Table of Contents

 

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS  

Hallador Energy Company 

Condensed Consolidated Balance Sheets 

(in thousands, except per share data) 

(unaudited) 

See accompanying notes to the condensed consolidated financial statements.

Hallador Energy Company 

Condensed Consolidated Statements of Operations

(in thousands, except per share data) 

(unaudited) 

See accompanying notes to the condensed consolidated financial statements.

Hallador Energy Company 

Condensed Consolidated Statements of Cash Flows 

(in thousands) 

(unaudited)

See accompanying notes to the condensed consolidated financial statements.

 Hallador Energy Company 

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands) 

(unaudited)

See accompanying notes to the condensed consolidated financial statements.

Hallador Energy Company

Notes to Condensed Consolidated Financial Statements

(unaudited) 

The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the Securities and Exchange Commission's (the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted.

The results of operations and cash flows for the three and six months ended June 30, 2023, are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2023.

Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our 2022 Annual Report on Form 10-K. This quarterly report should be read in conjunction with such Annual Report on Form 10-K.

The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly owned subsidiaries Sunrise Coal, LLC ("Sunrise"), Hallador Power Company, LLC ("Hallador Power"), as well as Sunrise and Hallador Power's wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 

As the result of Hallador Power’s acquisition of the Merom one gigawatt power plant in Sullivan County, Indiana (the “Merom Power Plant”) from Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”) on  October 21, 2022 (the “Merom Acquisition”), as further described in Note 14, beginning in the fourth quarter of 2022 we began to strategically view and manage our operations through two reportable segments:  Coal Operations and Electric Operations.  The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" and primarily are comprised of unallocated corporate costs and activities, the elimination of coal sales from coal operations to electric operations, a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.  Prior periods have been recast to reflect Corporate and Other and Eliminations apart from Coal Operations, which previously were aggregated into a single reportable segment.

The Coal Operations reportable segment includes currently operating mining complexes Oaktown 1 and 2 underground mines, Prosperity surface mine, Freelandville surface mine, and Carlisle wash plant.

The Electric Operations reportable segment includes electric power generation facilities of the Merom Power Plant.

Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable.  For the three and six-month periods ended June 30, 2023 and for the three and six-month periods ended June 30, 2022, no impairment charges were recorded for long-lived assets.

Inventory is valued at a lower of average cost or net realizable value (NRV).  As of June 30, 2023, and December 31, 2022, coal inventory includes NRV adjustments of $3.0 million and $4.9 million, respectively.

On March 13, 2023, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit agreement, which was accounted for as a debt modification. The primary purpose of the amendment was to convert $35 million of the outstanding balance on the revolver into a new term loan with a maturity of March 31, 2024, and extend the maturity date of the revolver to May 31, 2024. The amendment reduced the total capacity under the revolver to $85 million from $120 million, waived the maximum annual capital expenditure covenant for 2022, and increased the covenant for 2023 to $75 million.

On August 2, 2023, we executed an additional amendment to our credit agreement with PNC, which was accounted for as a debt extinguishment. The primary purpose of the amendment was to convert $65 million of the outstanding funded debt into a new term loan with a maturity of March 31, 2026, and enter into a revolver of $75 million with a maturity of July 31, 2026. The amendment increased the maximum annual capital expenditure limit to $100 million.

Bank debt was reduced by $11.0 million during the six months ended June 30, 2023.  Under the terms of the August 2, 2023 amendment, bank debt is comprised of term debt ($65.0 million as of June 30, 2023) and a $75 million revolver ($9.2 million borrowed as of June 30, 2023).  The term debt requires payments of $3.3 million each quarter commencing in September 2023, increasing to $6.5 million in March 2024 through maturity. Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement, and is collateralized primarily by our assets.

Liquidity

Under the terms of the August 2, 2023 amendment, as of June 30, 2023, we had an additional borrowing capacity of $54.6 million and total liquidity of $56.9 million.  Our additional borrowing capacity is net of $11.2 million in outstanding letters of credit as of June 30, 2023, that were required to maintain surety bonds.  Liquidity consists of our additional borrowing capacity and cash and cash equivalents.

Fees

Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $2.5 million as of December 31, 2022. Additional costs incurred with the March 13, 2023 amendments totaled $1.6 million.  These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of June 30, 2023, and December 31, 2022, were $1.9 million and $2.5 million, respectively.

Bank debt, less debt issuance costs, is presented below (in thousands):

Covenants

The credit facility includes a Maximum Leverage Ratio (consolidated funded debt/trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed the amounts below:

As of June 30, 2023, our Leverage Ratio of 0.94 was in compliance with the 2.25 covenant defined in the credit agreement.

The credit facility requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA/annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.25 to 1.00 through the maturity of the credit facility. As of June 30, 2023, our Debt Service Coverage Ratio of 3.05 was in compliance with the requirements of the credit agreement.

As of June 30, 2023, we were in compliance with all other covenants defined in the credit agreement.

Interest Rate

The interest rate on the facility ranges from SOFR plus 4.00% to SOFR plus 5.00%, depending on our Leverage Ratio.  As of  June 30, 2023, we are paying SOFR plus 4.25% on the outstanding bank debt.

Revenue from Contracts with Customers

We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and it is probable substantially all of the consideration will be collected. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer.

Coal operations

Our coal revenue is derived from sales to customers of coal produced at our facilities. Our customers typically purchase coal directly from our mine sites or our rail facility in Princeton, Indiana, where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts or include a pre-determined escalation in price for each year. Price re-opener and index provisions  may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions  may automatically set a new price based on the prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer.

Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content, and can result in either increases or decreases in the value of the coal shipped.

Electric operations

The Company concluded that the definition of a contract and the criteria in ASC 606, Revenue from Contracts with Customers ("ASC 606"), is met at the time a Power Purchase Agreement ("PPA") is executed by the parties, as this is the point at which enforceable rights and obligations are established. Accordingly, the Company concluded that a PPA constitutes a valid contract under ASC 606.

The Company will recognize revenue daily for the actual capacity made available as part of any stand-ready obligations to provide electricity for contract capacity performance obligations and daily for actual delivered electricity, plus the amortization of the contract liability as a result of the Asset Purchase Agreement with Hoosier, for the delivered energy performance obligation.

Disaggregation of Revenue

Revenue is disaggregated by primary geographic markets for our coal operations and by revenue source for our electric operations, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors.

Coal operations

52% and 52% of our coal revenue for the three and six months ended June 30, 2023, was sold to customers in the State of Indiana, with the remainder sold to customers in Florida, North Carolina, Georgia, and Alabama.  83% and 85% of our coal revenue for the three and six months ended June 30, 2022, respectively, was sold to customers in the State of Indiana, with the remainder sold to customers in Florida.

Electric operations

100% of our electric revenue for the three and six months ended June 30, 2023, was sold to Hoosier or the Midcontinent Independent System Operator ("MISO") wholesale market.  MISO is the independent system operator managing the flow of high-voltage electricity across 15 U.S. states and the Canadian province of Manitoba.  100% of our electric revenue through May 31, 2023, was sold to Hoosier in the state of Indiana.  32% of our electric revenue for the month of June 2023 was sold to Hoosier.  For the three and six months ended June 30, 2023, revenue from delivered energy was $53.9 million and $130.3 million, respectively.  For the three and six months ended June 30, 2023, revenue from capacity payments was $17.1 million and $33.1 million, respectively.

Performance Obligations

Coal operations

A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our coal contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased, for quality adjustments.

We recognize revenue at a point in time as the customer does not have control over the asset during the contract's fulfillment. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal.  

We have remaining coal sales performance obligations relating to fixed-priced contracts of approximately $470 million, which represent the average fixed prices on our committed contracts as of June 30, 2023. Approximately 49% of this relates to committed obligations in 2023, with the remainder committed in 2024 and 2025.

We have remaining performance obligations relating to unpriced coal sales contracts of approximately $122 million, which represents our estimate of the expected price on committed contracts as of June 30, 2023. We expect to recognize all of this coal sales revenue beginning in 2024.

The coal tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such an option exists in the customer contract.

Electric operations

The Company concluded that each megawatt-hour ("MWh") of delivered energy is capable of being distinct as a customer could benefit from each on its own by using/consuming it as a part of its operations.  The Company also concluded that the stand-ready obligation to be available to provide electricity to Hoosier is capable of being distinct as each unit of capacity provides an economic benefit to the holder and could be sold by the customer.

We have remaining delivered energy obligations through 2025 totaling $139 million as of June 30, 2023.

In addition to delivered energy, Hallador provides stand-ready obligations to provide electricity, also known as contract capacity.  We have remaining capacity obligations through 2025 totaling $83 million as of June 30, 2023.

Contract Balances

Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional.

Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for quality adjustments, electricity, or capacity. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our consolidated balance sheets. As of  January 1, 2022, accounts receivable for coal sales billed to customers was $12.8 million. We do not currently have any contracts in place where we would transfer coal, electricity, or capacity in advance of knowing the final price, and thus do not have any contract assets recorded. Contract liabilities also arise when consideration is received in advance of performance. As of January 1, 2023, deferred revenue for payments related to coal operations in advance of performance was $8.9 million, and deferred revenue for payments related to electric operations in advance of performance was $26.6 million.  Additional payments for electric operations in advance of performance for the three and six months ended June 30, 2023 were $22.3 million and $43.8 million, respectively.  For the three and six months ended  June 30, 2023, we recognized revenue from coal operations of $2.5 million and $5.0 million, respectively, as tons of outstanding coal delivery obligations were fulfilled, and we recognized revenue from electric operations of $17.2 million and $33.1 million, respectively, as outstanding capacity obligations were fulfilled.  Pursuant to the terms of the underlying contracts, performance obligations representing $3.8 million and $24.9 million will be satisfied and recognized as revenue related to our coal operations and electric operations, respectively, during the six-month period ending December 31, 2023.

For the six months ended June 30, 2023, and 2022, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate.  The effective tax rate for the six months ended June 30, 2023, and 2022 was ~11% and ~(2)%, respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.

For the three and six months ended June 30, 2023, our stock compensation was $0.8 million and $2.0 million, respectively. For the three and six months ended June 30, 2022, our stock compensation was $0.1 million and $0.1 million, respectively.  

Non-vested RSU grants will vest as follows:

The outstanding RSUs have a value of $8.9 million based on the June 30, 2023 closing stock price of $8.57.

As of June 30, 2023, unrecognized stock compensation expense is $5.5 million, and we had 391,049 RSUs available for future issuance.  RSUs are not allocated earnings and losses as they are considered non-participating securities.

The following table (in thousands) relates to our operating leases:

Future minimum lease payments under non-cancellable leases as of June 30, 2023, were as follows:

As of  June 30, 2023 and December 31, 2022, we had approximately $0.1 million and $0.2 million, respectively, of right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.

We self-insure our underground mining equipment. Such equipment is allocated among seven mining units dispersed over ten miles. The historical cost of such equipment was approximately $293 million and $280 million as of June 30, 2023, and December 31, 2022, respectively.

Restricted cash of $4.0 million and $3.4 million as of June 30, 2023, and December 31, 2022, respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments and cash collateral to provide power in the MISO grid.

We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We have no Level 1 instruments.

Level 2: Quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). We have no Level 3 instruments.

We own a 50% interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment and generates revenue from gas sales. Sunrise Energy plans to continue developing and exploring for oil, gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our condensed consolidated balance sheets as of June 30, 2023, and December 31, 2022, was $3.2 million and $4.0 million, respectively.

On May 2, 2022, and May 20, 2022, we issued senior unsecured convertible notes (the "Notes") to five parties, in the aggregate principal amount of $10 million, with $9 million going to related parties affiliated with independent members of our board of directors and the remainder to a non-affiliated party. The Notes were scheduled to mature on December 29, 2028, and accrue interest at 8% per annum, with interest payable on the date of maturity. Pursuant to the terms of the Notes, the holders of the Notes were entitled to convert the entire principal balance and all accrued and unpaid interest then outstanding during the period beginning June 1, 2022, and ending on May 31, 2027, into shares of the Company Common Stock at a conversion price the greater of (i)$3.33 and (ii) the 30-day trailing volume-weighted average sales price for the Common Stock on the Nasdaq Capital Market ending on and including the date on which the Note was converted.

In June 2022, the four holders of the $9 million related party Notes converted them into 1,965,841 shares of common stock of the Company, and the one holder of the $1 million Note converted it into 231,697 shares of common stock pursuant to the terms of the Notes and their related agreements.

On July 29, 2022, we issued $5 million of a senior unsecured convertible note to a related party affiliated with an independent member of our board of directors.  The note carries an interest rate of 8% per annum with a maturity date of December 29, 2028.  For the period August 18, 2022, through August 17, 2024, the holder has the option to convert the notes into shares of the Company's common stock at a conversion price of $6.254.  Beginning August 18, 2025, the Company may elect to redeem the note, and the holder shall be obligated to surrender the note at 100% of the outstanding principal balance, together with any accrued unpaid interest.  Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into the Company's common stock.

On August 8, 2022, we issued $4 million of senior unsecured convertible notes to related parties affiliated with independent members of our board of directors.  The notes carry an interest rate of 8% per annum with a maturity date of December 29, 2028.  For the period August 18, 2022, through August 17, 2024, the holder has the option to convert the notes into shares of the Company's common stock at a conversion price of $6.254.  Beginning August 8, 2025, the Company may elect to redeem the note, and the holder shall be obligated to surrender the note at 100% of the outstanding principal balance together with any accrued unpaid interest.  Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into the Company's common stock.

On August 12, 2022, we issued a $10 million senior unsecured convertible note to an unrelated party.  The note carries an interest rate of 8% per annum with a maturity date of December 31, 2026.  For the period August 18, 2022, through the maturity date, the holder has the option to convert the notes into shares of the Company's common stock at a conversion price of $6.15.  Beginning August 12, 2025, the Company may elect to redeem the note, and the holder shall be obligated to surrender the note at 100% of the outstanding principal balance together with any accrued unpaid interest.  Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into the Company's common stock.

The funds received from the notes described above were used to provide additional working capital to the Company.  Each Conversion Share will consist of one share of our common stock. The conversion price and number of shares of the Company’s Common Stock issuable upon conversion of the notes are subject to adjustment from time to time for any subdivision or consolidation of the Company’s shares and other standard dilutive events.

On  August 2, 2023, we executed an amendment to our credit agreement with PNC as discussed in Note 4 to these condensed consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2022 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.

Our condensed consolidated financial statements should also be read in conjunction with this discussion. The following analysis includes a discussion of metrics on a per-ton basis derived from the condensed consolidated financial statements, which are considered non-GAAP measurements.  These metrics are significant factors in assessing our operating results and profitability.

The highlight of the quarter was our coal segment. Record coal sales prices led to record margins, despite higher production costs. Net income for the quarter was $16.9 million and a record for the first half of the year at $39.0 million. This has enabled us to make great strides toward our goal of deleveraging our balance sheet. Under this lens, Hallador has dramatically improved both the quality of our business, with the addition of Hallador Power last October, and the quality of our balance sheet by reducing our Debt to EBITDA multiple to less than 1X.

During Q2, coal production was healthy, allowing us to grow coal inventories at our coal operations by $2.0 million.  Our plan is to ship this additional inventory to Hallador Power enabling us to generate more MWh in the second half of the year than previously planned.  Hallador Power contributed $9.2 million net income during the quarter due to existing energy commitments through May 2023, that were associated with the purchase of the Merom Power Plant.  Starting in June 2023, approximately 80% of the output of the plant became available to sell on the open market.

OVERVIEW

LIQUIDITY AND CAPITAL RESOURCES

CAPITAL EXPENDITURES (capex)

For the first six months of 2023, capex was $30.6 million allocated as follows (in millions):

Results of Operations

Presentation of Segment Information (before eliminations)

Our operations are divided into two primary reportable segments:  coal operations and electric operations.  The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" within the Notes to the Consolidated Financial Statements and primarily are comprised of unallocated corporate costs and activities, including a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.

Coal Operations

2023 vs. 2022 (second quarter)

Operating revenues from coal operations increased 73% over 2022 due largely to an increase in the average sales price for coal. As a result, higher-priced contracts sold in the summer of 2022 and delivered in Q2 of 2023 increased our average sales price by over $25 per ton from Q2 2022. We also sold 119,000 additional tons over Q2 2022 at higher average prices.  Operating revenues for Q2 2023 include $23.6 million in sales to the Merom plant which are eliminated in the consolidation, but increased the average price per ton of coal sold for the quarter by approximately 3.4%. 

Operating expenses, however, increased $9.69 per ton over Q2 2022. The addition of the higher-cost Freelandville and Prosperity surface mines as well as continued significant inflationary pressures, have elevated the costs.

Depreciation, depletion, and amortization increased by 12%.  Inflationary pressures have also contributed to the higher capital asset additions over the past couple of years contributing to the increase.

General and administrative expenses increased 25% over Q2 2022 due to performance and production bonuses paid and accrued to employees, additional professional fees, and additional IT costs related to enhanced security and compliance activities.

2023 vs. 2022 (first six months)

Operating revenues from coal operations increased 69% over 2022 due largely to an increase in the average sales price for coal. As a result, higher-priced contracts increased our average sales price by over $19 per ton from the first six months of 2022. We also sold 435,000 additional tons over the first six months of 2022 at higher average prices. Operating revenues for the first six months of 2023 include $23.6 million in sales to the Merom plant which are eliminated in the consolidation but increased the average price per ton of coal sold for the first six months by approximately 2.5%. 

Operating expenses increased by $4.77 per ton over the first six months of 2022. The addition of the higher-cost Freelandville and Prosperity surface mines as well as continued significant inflationary pressures have elevated the costs.

Depreciation, depletion, and amortization increased by 25% as a significant amount of our assets were depreciated and amortized based on production, which increased approximately 18% over the first six months of 2022.  Inflationary pressures have also contributed to the higher capital asset additions over the past couple of years contributing to the increase.

General and administrative expenses increased 47% over the first six months of 2022 due to performance, production, and discretionary bonuses paid to employees, additional professional fees related to the 2022 audit, and additional IT costs related to enhanced security and compliance activities.

Quarterly coal sales and cost data (in thousands, except per ton and percentage data) are provided below. Per ton calculations below are based on tons sold.

Electric Operations

A comparative discussion is not relevant as the Electric Operations did not begin until the Merom Acquisition was completed in October 2022.

Operating revenue is derived from a power purchase agreement signed with Hoosier in conjunction with the Merom Acquisition at fixed prices 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 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.

Operating expenses 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.

Quarterly electric sales and cost data (in thousands, except per MWh data) are provided below.  Fixed costs in the table are considered "non-GAAP" and are a component of operating expenses, the most comparable GAAP measure. We consider fixed costs to be costs associated with the plant whether or not the plant is in operation.

Presentation of Consolidated Information

EARNINGS (LOSS) PER SHARE