8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

Amendment No. 1

 CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  October 21, 2022

Hallador Energy Company

(Exact name of registrant as specified in its charter)

Colorado	001-34743	84-1014610
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1183 East Canvasback Drive, Terre Haute, Indiana 47802

(Address, including zip code, of principal executive offices)

Registrant’s telephone number, including area code: (812) 299-2800

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 

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.  ☐   

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

Item 2.01 Completion of Acquisition or Disposition of Assets.

This Amendment No. 1 on Form 8-K/A is being filed to amend the Current Report on Form 8-K filed October 21, 2022 (the “Initial 8-K”) by Hallador Energy Company ("Hallador") to include the historical carve-out financial statements of the Merom Generating Station of Hoosier Energy Rural Electric Cooperative, Inc. ("Hoosier") and certain pro forma financial information required by Item 9.01 (a) and (b) of Form 8-K.

Pursuant to the requirements of Item 9.01 of Form 8-K, Hallador hereby amends Item 9.01 of the Initial 8-K to include historical carve-out financial information of Hoosier's Merom Generating Station and pro forma financial information.  This Amendment No. 1 on Form 8-K/A should be read in conjunction with the Initial 8-K. Except as set forth herein, no modifications have been made to information contained in the Initial 8-K, and Hallador has not updated any information therein to reflect events that have occurred since the date of the Initial 8-K.

Item 9.01 Financial Statements and Exhibits.

(a)         Financial Statements of Business Acquired.

● The historical audited carve-out financial statements and related notes of Hoosier's Merom Generating Station for the years ended December 31, 2021 and 2020, which are included in Exhibit 99.2 to this Form 8-K/A, and incorporated by reference herein.

● The historical unaudited carve-out financial statements and related notes of Hoosier's Merom Generating Station as of  and for the six months ended June 30, 2022, which are included in Exhibit 99.3 to this Form 8-K/A,  and incorporated by reference herein.

(b)         Pro Forma Financial Information.

● The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2022 and for the year ended December 31, 2021, are attached as Exhibit 99.1 to this Form 8-K/A.

The Unaudited Pro Forma Condensed Combined Statements of Operations combine the historical condensed consolidated statements of operations of Hallador and the historical carve-out statements of operations and comprehensive income of Hoosier's Merom Generating Station.  The Unaudited Pro Forma Condensed Combined Balance Sheet combines the historical condensed consolidated balance sheet of Hallador and the historical carve-out balance sheet of Hoosier's Merom Generating Station.

(d) Exhibits

Exhibit No.	Description
23.1	Consent of Deloitte & Touche LLP
99.1	Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2022 and for the year ended December 31, 2021
99.2	Historical audited carve-out financial statements and related notes of Hoosier's Merom Generating Station for the years ended December 31, 2021 and 2020
99.3	Historical unaudited carve-out financial statements and related notes of  Hoosier's Merom Generating Station as of  and for the six months ended June 30, 2022
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	HALLADOR ENERGY COMPANY
Date: January 6, 2022	By:	/s/ Lawrence D. Martin
		Name:	Lawrence D. Martin
		Title:	CFO

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in Registration Statement Nos. 333-261930, 333-163431 and 333-171778 on Form S-8 of Hallador Energy Company of our report dated January 6, 2023, relating to the financial statements of Merom Generating Station appearing in this Current Report on Form 8-K/A dated January 6, 2023.

/s/ Deloitte & Touche LLP

Indianapolis, Indiana

January 6, 2023

EX-99.1

Exhibit 99.1

Hallador Energy Company

Unaudited Pro Forma Condensed Combined Financial Information

On February 14, 2022, Hallador Energy Company (“Hallador” or the “Company”), through its subsidiary Hallador Power Company, LLC, a Delaware limited liability company, signed an Asset Purchase Agreement (“APA”), with Hoosier Energy Rural Electric Cooperative, Inc. (“Seller” or “Hoosier”), a rural electric membership corporation organized and existing under the laws of the state of Indiana. Pursuant to the APA, the Company acquired the Merom one gigawatt powerplant located on 800 acres in Sullivan County, Indiana, (the “Merom Plant”), along with: equipment and machinery in the Merom Plant; materials inventory; a coal combustion certified coal ash landfill; and coal inventory (collectively, the “Merom Plant Acquisition”). The Company completed the Merom Plant Acquisition on October 21, 2022 pursuant to the APA.

The consideration for the Merom Plant Acquisition includes the assumption of certain liabilities as set forth in the APA relating to the powerplant’s closure and post-closure remediation, valued at approximately $7.2 million. In addition, consideration for the Merom Plant Acquisition includes the purchase of approximately $17.0 million in 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. Contemporaneous with entering into the APA, Hallador and Hoosier also executed a Power Purchase Agreement (“PPA”), with a liability fair value of $184.5 million, a coal purchase agreement, with an asset fair value of $34.3 million and a capacity payment reduction agreement, with a liability fair value of $11.0 million. The PPA, coal purchase agreement and capacity payment reduction agreement are also included as consideration for the Merom Plant Acquisition.

The Merom Plant Acquisition will be accounted for as an asset acquisition in accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The fair value of the consideration and the allocation of that amount to the underlying assets acquired is recorded on a relative fair value basis. Additionally, costs directly related to the Merom Plant Acquisition are capitalized as a component of the purchase price. The unaudited pro forma condensed combined financial statements presented herein have been prepared to reflect the transaction accounting adjustments to Hallador’s historical condensed consolidated financial information in order to account for the Merom Plant Acquisition.

The preliminary allocation of the total consideration in the Merom Plant Acquisition is based upon management’s estimates of and assumptions related to the fair value of assets acquired and certain liabilities assumed pursuant to the APA. The final allocation will be determined when Hallador has obtained and verified all required data necessary to perform the detailed valuations and calculations to reflect the final fair value at the acquisition date. The final allocation based on relative fair value is expected to be completed when Hallador files its report on Form 10-K for the year ended December 31, 2022. The final allocation could differ materially from the preliminary allocation used in the transaction accounting adjustments due to (1) changes in the fair value of the Merom Plant; (2) changes in the fair value of contract assets and contract liabilities; or (3) other changes to assets or liabilities.

The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022 gives effect to the Merom Plant Acquisition as if it had been completed on June 30, 2022. The Unaudited Pro Forma Condensed Combined Statements of Operations for the Six Months Ended June 30, 2022 and the Year Ended December 31, 2021 gives effect to the Merom Plant Acquisition as if it had been completed on January 1, 2021. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.

1

The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of Hallador would have been had the Merom Plant Acquisition occurred on the dates noted above, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. Future results may vary significantly from the results reflected because of various factors. In Hallador’s opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed combined financial information have been made.

The unaudited pro forma condensed combined financial information does not reflect the benefits of potential cost savings or the costs that may be necessary to achieve such savings, opportunities to increase revenue generation or other factors that may result from the Merom Plant Acquisition and, accordingly, does not attempt to predict or suggest future results.

The unaudited pro forma financial statements have been developed from and should be read in conjunction with:

• The audited financial statements and accompanying notes of Hallador contained in Hallador’s Annual Report on Form 10-K for the year ended December 31, 2021;

• The unaudited condensed financial statements and accompanying notes contained in Hallador’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022;

• The audited carve-out financial statements and related notes of the Merom Generating Station (a component of Hoosier Energy Rural Electric Cooperative, Inc.) (“Merom Station”) as of and for the year ended December 31, 2021, included elsewhere in this filing; and

• The unaudited carve-out financial statements and related notes of the Merom Generating Station (a component of Hoosier Energy Rural Electric Cooperative, Inc.) as of and for the six months ended June 30, 2022, included elsewhere in this filing.

2

Hallador Energy Company
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2022
(in thousands)
							Transaction Accounting Adjustments
	Historical						Conforming and				Merom Plant				Pro Forma
	Hallador			Merom Station			Reclassifications				Acquisition				Combined
ASSETS
Current Assets:
Cash and cash equivalents	$	8,882		$	—		$	—			$	(5,400	)	(c)	$	41,492
												38,980		(i)
												(970	)	(h)
Restricted cash		3,491			—			—				—				3,491
Accounts receivable		17,155			—			—				—				17,155
Inventory		13,806			—			—				—				13,806
Fuel		—			15,785			(15,785	)	(a)		10,219		(d)		10,219
Contract asset		—			—			—				34,300		(e)		34,300
Parts and supplies		12,247			—			—				—				12,247
Materials and supplies		—			28,978			(28,978	)	(a)		11,733		(d)		11,733
Prepaid expenses		999			—			—				—				999
Prepayments and other		—			781			(781	)	(a)		—				—
Total current assets		56,580			45,544			(45,544	)			88,862				145,442
Property, Plant and Equipment:
Land and mineral rights		115,771			—			—				—				115,771
Land		—			27,182			(27,182	)	(a)		—				—
Buildings and equipment		355,053			—			—				165,816		(d)		520,869
Plant – at original costs		—			1,389,371			(1,389,371	)	(b)		—				—
Mine development		123,274			—			—				—				123,274
Total property, plant and equipment		594,098			1,416,553			(1,416,553	)			165,816				759,914
Less – accumulated depreciation, depletion and amortization		(286,960	)		—			—				—				(286,960	)
Accumulated depreciation		—			(859,134	)		859,134		(b)		—				—
Total property, plant and equipment, net		307,138			557,419			(557,419	)			165,816				472,954
Investment in Sunrise Energy		3,883			—			—				—				3,883
Deferred charges and other		—			11,049			(11,049	)	(a)		—				—
Other assets		8,134			—			—				—				8,134
Total assets	$	375,735		$	614,012		$	(614,012	)		$	254,678			$	630,413
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of bank debt, net	$	13,222		$	—		$	—			$	—			$	13,222
Accounts payable		—			11,687			(11,687	)	(a)		—				—
Accounts payable and accrued liabilities		47,973			—			—				11,600		(c)		59,573
Contract liabilities		—			—			—				94,527		(f)		94,527
Accrued property taxes		—			4,253			(4,253	)	(a)		—				—
Deferred revenue		—			—			—				38,980		(i)		38,980
Other current liabilities		—			1,559			(1,559	)	(a)		—				—
Total current liabilities		61,195			17,499			(17,499	)			145,107				206,302
Long-term Liabilities
Bank debt, net		113,607			—			—				—				113,607
Deferred income taxes		3,094			—			—				—				3,094
Asset retirement obligations		13,437			19,700			(19,700	)	(a)		7,230		(g)		20,667
Contract liabilities		—			—			—				100,973		(f)		100,973
Deferred credits and other		—			3,139			(3,139	)	(a)		—				—
Other		1,579			—			—				—				1,579
Total long-term liabilities		131,717			22,839			(22,839	)			108,203				239,920
Total liabilities		192,912			40,338			(40,338	)			253,310				446,222
Redeemable Noncontrolling Interests		4,000			—			—				—				4,000
Stockholders’ Equity
Preferred stock		—			—			—				—				—
Common stock		330			—			—				—				330
Additional paid-in capital		114,212			—			—				—				114,212
Owner’s net investment		—			573,674			(573,674	)	(a)		—				—
Retained earnings		64,281			—			—				1,368		(h)		65,649
Total stockholders’ equity		178,823			573,674			(573,674	)			1,368				180,191
Total liabilities, redeemable noncontrolling interests, and stockholders’ equity	$	375,735		$	614,012		$	(614,012	)		$	254,678			$	630,413

3

Hallador Energy Company
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2022
(in thousands)
							Transaction Accounting Adjustments
	Historical						Conforming and				Merom Plant				Pro Forma
	Hallador			Merom Station			Reclassifications				Acquisition				Combined
Sales and Operating Revenues:
Coal sales	$	121,171		$	—		$	—			$	—			$	121,171
Electric revenues		—			164,345			—				—				164,345
Other revenues		3,665			—			141		(a)		—				3,806
Generation byproduct revenue		—			141			(141	)	(a)		—				—
Lease income		—			135			(135	)	(a)		—				—
Total Revenue		124,836			164,621			(135	)			—				289,322
Expenses:
Operating expenses		105,995			—			123,910		(b)		—				229,905
Fuel		—			87,175			(87,175	)	(b)		—				—
Other production expenses		—			20,565			(20,565	)	(b)		—				—
Depreciation, depletion and amortization		20,695			—			—				9,045		(e)		29,740
Depreciation and amortization		—			17,316			(17,316	)	(a)		—				—
Maintenance		—			16,120			(16,120	)	(b)		—				—
Asset retirement obligations accretion		496			—			—				250		(e)		746
Exploration costs		272			—			—				—				272
General and administrative		6,871			—			6,827		(a)		—				13,698
Administrative and general		—			6,827			(6,827	)	(a)		—				—
Total Operating Expenses		134,329			148,003			(17,266	)			9,295				274,361
Income (Loss) from Operations		(9,493	)		—			33,749		(a)		(9,295	)			14,961
Operating Margin Before Fixed Charges		—			16,618			(16,618	)	(a)		—				—
Fixed Charges and Other
Interest expense		(4,121	)		(11,328	)		11,328		(c)		—				(4,121	)
Other fixed charges and amortization of debt expense		—			(356	)		356		(c)		—				—
Equity method investment income		338			—			—				—				338
(Loss) Income Before Income Taxes		(13,276	)		—			33,749				(9,295	)			11,178
Operating Margin		—			4,934			(4,934	)			—				—
Nonoperating Margin
Other nonoperating expense		—			(50	)		50		(b)		—				—
Nonoperating post- employment benefits- net		—			(147	)		147		(d)		—				—
Total Nonoperating Margin		—			(197	)		197				—				—
Income Tax Expense
Current		—			—			—				6,082		(f)		6,082
Deferred		244			—			—				—				244
Total Income Tax Expense		244			—			—				6,082				6,326
Net Income (Loss)	$	(13,520	)	$	4,737		$	29,012			$	(15,377	)		$	4,852
Weighted-Average Common Shares Outstanding:
Basic		30,797			—			—				—		(g)		30,797
Diluted		30,797			—			—				—		(g)		30,797
Net Income (Loss) per Common Share:
Basic	$	(0.44	)											(g)	$	0.16
Diluted	$	(0.44	)											(g)	$	0.16

4

Hallador Energy Company
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2021
(in thousands)
							Transaction Accounting Adjustments
	Historical						Conforming and				Merom Plant				Pro Forma
	Hallador			Merom Station			Reclassifications				Acquisition				Combined
Sales and Operating Revenues:
Coal sales	$	243,903		$	—		$	(2,738	)	(h)	$	—			$	241,165
Electric revenues		—			267,456			—				—				267,456
Other revenues		3,763			—			218		(a)						3,981
Generation byproduct revenue		—			218			(218	)	(a)		—				—
Lease income		—			186			(186	)	(a)		—				—
Total Revenue		247,666			267,860			(2,924	)			—				512,602
Expenses:
Operating expenses		198,840			—			187,395		(b)		—				386,235
Fuel		—			118,303			(115,565	)	(b)		—				—
								(2,738	)	(h)
Other production expenses		—			40,677			(40,677	)	(b)		—				—
Depreciation, depletion and amortization		39,973			—			—				18,089		(e)		58,062
Depreciation and amortization		—			34,574			(34,574	)	(a)		—				—
Asset impairment		1,588			—			—				—				1,588
Maintenance		—			30,789			(30,789	)	(b)		—				—
Asset retirement obligations accretion		1,504			—			—				500		(e)		2,004
Asset retirement obligations change in estimate		(3,510	)		—			—				—				(3,510	)
Exploration costs		482			—			—				—				482
General and administrative		14,833			—			11,282		(a)		(1,368	)	(i)		24,747
Administrative and general		—			11,282			(11,282	)	(a)		—				—
Total Operating Expenses		253,710			235,625			(36,948	)			17,221				469,608
Income (Loss) from Operations		(6,044	)		—			66,259		(a)		(17,221	)			42,994
Operating Margin Before Fixed Charges		—			32,235			(32,235	)	(a)		—				—
Fixed Charges and Other
Interest expense		(8,048	)		(23,405	)		23,405		(c)		—				(8,048	)
Other fixed charges and amortization of debt expense		—			(801	)		801		(c)		—				—
Gain on extinguishment of debt		10,000			—			—				—				10,000
Equity method investment income		364			—			—				—				364
Income (Loss) Before Income Taxes		(3,728	)		—			66,259				(17,221	)			45,310
Operating Margin		—			8,029			(8,029	)			—				—
Nonoperating Margin
Other nonoperating expense		—			(364	)		364		(b)		—				—
Nonoperating post- employment benefits- net		—			(292	)		292		(d)		—				—
Total Nonoperating Margin		—			(656	)		656				—				—
Income Tax Expense
Current		—			—			—				12,196		(f)		12,196
Deferred		26			—			—				—				26
Total Income Tax Expense		26			—			—				12,196				12,222
Net Income (Loss)	$	(3,754	)	$	7,373		$	58,886			$	(29,417	)		$	33,088
Weighted-Average Common Shares Outstanding:
Basic		30,614			—			—				—		(g)		30,614
Diluted		30,614			—			—				—		(g)		30,614
Net Income (Loss) per Common Share:
Basic	$	(0.12	)											(g)	$	1.07
Diluted	$	(0.12	)											(g)	$	1.07

5

Hallador Energy Company

Notes to Unaudited Pro Forma Condensed Combined Financial Information

1.  Basis of Presentation

The accompanying unaudited pro forma condensed combined financial statements were prepared based on the historical financial statements of Hallador and the historical carve-out financial statements of Merom Station. The Merom Plant Acquisition has been accounted for as an asset acquisition in accordance with ASC 805. The fair value of the consideration and allocation of that amount to the underlying assets acquired, on a relative fair value basis, will be recorded on Hallador’s books as of the date of the closing of the Merom Plant Acquisition. Additionally, costs directly related to the Merom Plant Acquisition are capitalized as a component of the purchase price.

Presented in the unaudited pro forma condensed combined financial statements is the impact of the Merom Plant Acquisition. Certain transaction accounting adjustments have been made in order to show the effects of the acquisition in the unaudited pro forma condensed combined financial statements. The accounting adjustments related to the Merom Plant Acquisition are preliminary and based on estimates of the purchase consideration and estimates of fair value and useful lives of the assets acquired and liabilities assumed. The final allocation will be determined when Hallador has obtained and verified all required data necessary to perform the detailed valuations and calculations to reflect the final relative fair value at the acquisition date. The final allocation is expected to be completed when Hallador files its report on Form 10-K for the year ended December 31, 2022. The final allocation could differ materially from the preliminary allocation used in the transaction accounting adjustments due to (1) changes in the fair value of the Merom Plant; (2) changes in the fair value of contract assets and contract liabilities; or (3) other changes to assets or liabilities.

The unaudited pro forma condensed combined financial statements and related notes are presented for illustrative purposes only. If the Merom Plant Acquisition and other transactions contemplated herein had occurred in the past, the Company’s operating results might have been materially different from those presented in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined financial statements should not be relied upon as an indication of operating results that the Company would have achieved if the Merom Plant Acquisition and other transactions contemplated herein had taken place on the specified date. In addition, future results may vary significantly from the results reflected in the unaudited pro forma condensed combined financial statement of operations and should not be relied upon as an indication of the future results the Company will have after the contemplation of the Merom Plant Acquisition and the other transactions contemplated by these unaudited pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial information does not reflect the benefits of potential cost savings or the costs that may be necessary to achieve such savings, opportunities to increase revenue generation or other factors that may result from the Merom Plant Acquisition and, accordingly, does not attempt to predict or suggest future results. In addition, Hallador did not included a transaction accounting adjustment for ASC 842, Leases, for the Merom Plant as the adoption of this standard is not expected to be material. In Hallador’s opinion, all adjustments that are necessary to present fairly the unaudited pro forma condensed combined financial information have been made.

The Unaudited Pro Forma Condensed Combined Statements of Operations for the Six Months Ended June 30, 2022 and the Year Ended December 31, 2021 were prepared assuming the Merom Plant Acquisition occurred on January 1, 2021. The Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022 was prepared as if the Merom Plant Acquisition had occurred on June 30, 2022.

6

2. Consideration and Preliminary Allocation

The preliminary allocation of total consideration in the Merom Plant Acquisition is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities assumed as of the closing date of the transaction using currently available information and market data. Because the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ materially from the pro forma amounts included herein.

The preliminary purchase price allocation is subject to change due to several factors, including (1) changes in the fair value of the Merom Plant; (2) changes in the fair value of contract assets and contract liabilities; or (3) other changes to assets or liabilities.

The total consideration and relative fair value of assets acquired and fair value of liabilities assumed by Hallador were initially recorded as follows (in thousands):

Consideration:
Direct transaction costs	$	2,338
Contract liability – PPA		184,500
Contract liability – Capacity payment reduction		11,000
Contract asset – Coal purchase agreement		(34,300	)
Coal inventory purchased		5,400
Fair value of deferred coal inventory payment		11,600
Total consideration	$	180,538
Relative fair value of asset acquired:
Plant	$	165,816
Materials and supplies		11,733
Coal inventory		10,219
Amount attributable to assets acquired	$	187,768
Fair value of liabilities assumed:
Asset retirement obligations	$	7,230
Amount attributable to liabilities assumed	$	7,230

The fair value measurements of assets acquired and liabilities assumed are based on inputs that are not observable in the market and therefore represent Level 3 inputs. The fair value of the Merom Plant and asset retirement obligations were measured using the discounted cash flow technique of valuation.

Significant unobservable inputs to the valuation of the Merom Plant Acquisition and asset retirement obligations included estimated future electricity prices and electricity generation, future coal inventory costs and other associated operating costs, remediation costs and weighted average cost of capital.

7

3. Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet and Unaudited Pro Forma Condensed Combined Statements of Operations

Unaudited Pro Forma Condensed Combined Balance Sheet

The following adjustments were made in the preparation of the Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2022:

(a) Adjustment to remove the historical values of assets, liabilities and associated equity of Merom Station.

(b) Adjustment to eliminate the historical book value and accumulated depreciation of the Merom Station as of June 30, 2022.

(c) Represents cash paid for coal inventory on hand at closing of $5.4 million and estimated additional subsequent payments to be made for additional coal on hand of $11.6 million.

(d) Adjustment to reflect the relative fair value of assets acquired of Merom Station.

(e) Adjustment to recognize an off-market coal inventory contract executed with Hoosier contemporaneously with the Merom Plant Acquisition. The off-market coal inventory contract allows the Company to purchase coal at below market prices through May 2023.

(f) Adjustment to recognize off-market PPA and capacity reduction payment agreement executed with Hoosier contemporaneously with the Merom Plant Acquisition. The off-market PPA extends through 2025. The capacity reduction payments extend through 2023.

(g) Adjustment to reflect the fair value of asset retirement obligations assumed as part of the Merom Plant Acquisition.

(h) Represents transaction costs of $2.3 million related to the Merom Plant Acquisition, including $1.0 million to be paid after closing and $1.3 million paid prior to June 30, 2022.

(i) Represents advanced capacity payments received from Hoosier pursuant to the APA. The advanced capacity payments will be earned from October 21, 2022 through May 31, 2023.  

8

Unaudited Pro Forma Condensed Combined Statements of Operations

The following adjustments were made in the preparation of the Unaudited Pro Forma Condensed Combined Statements of Operations for the Six Months Ended June 30, 2022 and the Year Ended December 31, 2021:

(a) Adjustments to conform Merom Station’s presentation to the presentation of Hallador.

(b) Adjustment to conform Merom Station’s presentation of fuel, other production expenses, maintenance and other nonoperating expenses to the operating expense presentation used by Hallador.

(c) Adjustment to remove Merom Station’s interest expense as debt was not assumed by Hallador as part of the Merom Plant Acquisition.

(d) Adjustment to remove expenses associated with Merom Station’s post-retirement benefit plan which was not assumed by Hallador as part of the Merom Plant Acquisition.

(e) Represents depreciation, depletion, and amortization expense resulting from the change in basis of property and equipment acquired and accretion expense from new asset retirement obligations recognized as a result of the Merom Plant Acquisition. The depreciation adjustment was calculated using an approximate 9-year useful life.

(f) Represents the application of Hallador’s statutory tax rate of 24.9% to the pre-tax amount of the Merom Plant Acquisition and pro forma adjustments.

(g) The following table reconciles historical and pro forma basic and diluted earnings per share for the periods indicated (in thousands, except per share amounts):

	Six Months Ended						Year Ended
	June 30, 2022						December 31, 2021
	Historical			Pro-Forma			Historical			Pro-Forma
Net income (loss)	$	(13,520	)	$	4,852		$	(3,754	)	$	33,088
Less: (income) loss allocated to participating securities		79			(29	)		35			(246	)
Net income (loss) allocated to common shareholders	$	(13,441	)	$	4,823		$	(3,719	)	$	32,842
Weighted average shares outstanding — basic and diluted		30,797			30,797			30,614			30,614
Basic and diluted net income (loss) per share	$	(0.44	)	$	0.16		$	(0.12	)	$	1.07

(h) Represents the elimination of historical coal sales between Hallador and Hoosier.

(i) Represents the capitalization of $1.3 million of transaction costs related to the Merom Plant Acquisition that were expensed prior to June 30, 2022.

9

EX-99.2

Exhibit 99.2

Merom Generating

Station (a Component

of Hoosier Energy

Rural Electric

Cooperative, Inc.)

Carve-out Financial Statements as of and for the
Years Ended December 31, 2021 and 2020, and
Independent Auditor’s Report

MEROM GENERATING STATION

TABLE OF CONTENTS

	Page
INDEPENDENT AUDITOR’S REPORT	1–2
CARVE-OUT FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020:
Carve-out Balance Sheets	3
Carve-out Statements of Operations and Comprehensive Income	4
Carve-out Statements of Owner’s Net Investment	5
Carve-out Statements of Cash Flows	6
Notes to Carve-out Financial Statements	7-22

INDEPENDENT AUDITOR’S REPORT

Board of Directors
Hoosier Energy Electric Cooperative, Inc.
Bloomington, Indiana

Opinion

We have audited the carve-out financial statements of Merom Generating Station (the “Company” or “Merom Station”), a component of Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”), which comprise the carve-out balance sheets as of December 31, 2021 and 2020, and the related carve-out statements of operations and comprehensive income, owner’s net investment, and cash flows for the years then ended, and the related notes to the carve-out financial statements (collectively referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Emphasis of Matter

As discussed in Note 1 to the carve-out financial statements, the carve-out financial statements are derived from the accounting records of Hoosier using the historical results of operations and historical basis of assets and liabilities of the Company and include allocations of corporate expenses from Hoosier. The carve-out financial statements may not be indicative of the Company’s future performance and do not necessarily reflect the results of operations, financial position and cash flows had the Company been operated as a separate independent stand-alone entity during the periods presented. Our opinion is not modified with respect to this matter.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the financial statements are issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

● Exercise professional judgment and maintain professional skepticism throughout the audit.

● Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

● Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

● Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ Deloitte & Touche LLP

January 6, 2023
Indianapolis, Indiana

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MEROM GENERATING STATION

CARVE-OUT BALANCE SHEETS

AS OF DECEMBER 31, 2021 AND 2020

(In thousands)

	2021		2020
ASSETS
CURRENT ASSETS:
Fuel	$	25,573	$	69,906
Materials and supplies		25,324		26,816
Prepayments and other		2,256		2,171
Total current assets		53,153		98,893
PROPERTY, PLANT AND EQUIPMENT—Net		573,487		605,622
DEFERRED CHARGES AND OTHER		12,518		12,026
TOTAL ASSETS	$	639,158	$	716,541
LIABILITIES AND OWNER’S NET INVESTMENT
CURRENT LIABILITIES:
Accounts payable	$	6,846	$	10,404
Accrued property taxes		4,331		3,983
Other current liabilities		1,861		1,996
Total current liabilities		13,038		16,383
DEFERRED CREDITS AND OTHER		3,139		-
ASSET RETIREMENT OBLIGATIONS		19,502		19,106
Total liabilities		35,679		35,489
COMMITMENTS AND CONTINGENCIES (Note 8)
OWNER’S NET INVESTMENT		603,479		681,052
TOTAL LIABILITIES AND OWNER’S NET INVESTMENT	$	639,158	$	716,541

See notes to carve-out financial statements.

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MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(In thousands)

	2021			2020
OPERATING REVENUE	$	267,860		$	213,748
OPERATING EXPENSES:
Fuel		118,303			64,258
Other production expenses		40,677			36,754
Administrative and general		11,282			11,204
Maintenance		30,789			26,610
Depreciation and amortization		34,574			46,048
Total operating expenses		235,625			184,874
OPERATING MARGIN BEFORE FIXED CHARGES		32,235			28,874
FIXED CHARGES AND OTHER:
Interest expense		23,405			24,007
Other fixed charges and amortization of debt expense		801			595
Total fixed charges and other		24,206			24,602
OPERATING MARGIN		8,029			4,272
NONOPERATING MARGIN:
Other nonoperating expense		(364	)		(626	)
Nonoperating post-employment benefits—net		(292	)		(213	)
Total nonoperating margin		(656	)		(839	)
NET INCOME		7,373			3,433
OTHER COMPREHENSIVE INCOME—Unrealized gain (loss) on pension and other post-retirement benefit plans		308			(101	)
COMPREHENSIVE INCOME	$	7,681		$	3,332

See notes to carve-out financial statements.

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MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF OWNER’S NET INVESTMENT

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(In thousands)

	Owner’s
	Net
	Investment
BALANCE—December 31, 2019	$	694,968
Net income		3,433
Other comprehensive income		(101	)
Change in owner’s net investment		(17,248	)
BALANCE—December 31, 2020		681,052
Net income		7,373
Other comprehensive income		308
Change in owner’s net investment		(85,254	)
BALANCE—December 31, 2021	$	603,479

See notes to carve-out financial statements.

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MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(In thousands)

	2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,373		$	3,433
Adjustments to reconcile net margin to net cash:
Depreciation and amortization, excluding corporate allocations		32,135			43,729
Accretion of asset retirement obligation		396			330
Deferred charges and credits		2,647			2,970
Change in fuel and materials inventories		45,825			(29,332	)
Change in accounts payable		(3,558	)		(2,485	)
Change in other current assets and liabilities		128			(325	)
Net cash provided by operating activities		84,946			18,320
CASH FLOWS FROM INVESTING ACTIVITIES—Capital expenditures		-			(971	)
Net cash used in investing activities		-			(971	)
Proceeds from long-term credit lines		-			-
Payments on long-term credit lines		-			-
Proceeds from long-term borrowings		-			-
CASH FLOWS FROM FINANCING ACTIVITIES—Change in owner's net investment		(84,946	)		(17,349	)
Net cash used in financing activities		(84,946	)		(17,349	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		-			-
CASH AND CASH EQUIVALENTS—Beginning of year		-			-
CASH AND CASH EQUIVALENTS—End of year	$	-		$	-
SUPPLEMENTAL CASH FLOW INFORMATION—Non-cash investing activities due to increase in asset retirement obligation	$	-		$	12,543

See notes to carve-out financial statements.

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MEROM GENERATING STATION

NOTES TO CARVE-OUT FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020

(Dollars in thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Merom Generating Station (“Merom Station”) is a wholly owned component of Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”). Merom Station consists of an operating coal generation station located in Sullivan County, Indiana with a capacity of approximately 1,000 MW.

Hoosier is a non-profit electric generation and transmission cooperative providing wholesale electric service to 18 distribution cooperative members in central and southern Indiana and southern Illinois. Each member has entered into a wholesale power contract with Hoosier to supply all electric requirements which remains in effect until January 1, 2055 with automatic five-year extensions each five years beginning January 1, 2024 unless any member or Hoosier gives six months written notice of intent not to renew. Merom Station operates as part of Hoosier’s portfolio of resources available to provide power to its members.

On February 14, 2022, Hallador Energy Company (“Hallador”), through its subsidiary Hallador Power Company, LLC, entered into an asset purchase agreement with Hoosier to acquire Merom Station in return for assuming certain decommissioning costs and environmental liabilities. The transaction includes a 3 ½ year power purchase agreement for Hoosier to purchase up to 100% of the plant’s energy and capacity through May 2023, then reducing purchases to 22% of output and 32% of its capacity from June 2023 through 2025. Under the terms of the contract, Hallador is required to deliver a minimum of 70% of the expected energy quantities subject to the plant availability.

Basis of Accounting—Merom Station maintains its accounts in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Hoosier’s wholesale rates to its members are established by its Board of Directors (the “Board”) and are subject to approval by the Rural Utilities Service (“RUS”). The rates charged by Hoosier for power supplied to its members are based on the revenue required by Hoosier to cover the cost of supplying such power plus an appropriate margin. As a component of a rate-regulated entity, Merom Station’s financial statements reflect actions of regulators that result in the recognition of revenues and expenses in different time periods than enterprises that are not rate-regulated in accordance with ASC 980, Regulated Operations.

Basis of Presentation—The carve-out financial statements have been prepared on a carve-out basis and are derived from the accounting records of Hoosier using the historical results of operations and historical basis of assets and liabilities of Merom Station and include allocations of corporate expenses from Hoosier. Management believes the allocations of corporate expenses were determined on a reasonable basis to reflect all costs

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of operations on a consistent basis for the periods presented. The carve-out financial statements may not be indicative of Merom Station’s future performance and do not necessarily reflect the results of operations, financial position and cash flows had Merom Station been operated as a separate independent stand-alone entity during the periods presented.

These carve-out financial statements include certain adjustments required to reflect the financial statements on a carve-out basis, consisting of balances and expenses directly attributable to Merom Station and an allocation of corporate expense from Hoosier, including the following:

● The expense for certain support provided by Hoosier, such as board of directors, corporate executives, information technology, human resources, finance, purchasing, environmental services, facilities support as well as other general overhead costs have been allocated to Merom Station. The costs are included within general and administrative expenses in the carve-out statements of operations and comprehensive income as disclosed in the footnotes. Corporate expense allocations have been determined on a basis management considers to be a reasonable reflection of the utilization of services provided or benefit received by Merom Station during the periods presented. However, these allocations are not based on arms’ length transactions, and it is impractical for management to estimate costs that would be reflective if Merom Station were operating on a stand-alone basis.

● The determination of the transaction price for Merom Station’s revenue recognition has been determined consistently with historical Hoosier revenue, which is by using a recovery of cost-plus a margin. The margin is approved by Hoosier’s Board and RUS and was 3% and 2% for 2021 and 2020, respectively. The transaction price for Merom revenue recognition is therefore based on the costs determined to be related to Merom as part of these carve-out financial statements. Merom Station’s revenues are based on operating as part of a cooperative and the related contractual rights and do not necessarily reflect what Merom Station’s revenues would be if it was a stand-alone entity selling energy independently outside of the cooperative to non-member customers.

● Hoosier’s accounts receivable, unrecovered power costs, and over collected power costs balances are comingled among all lines of business and locations as the customer’s receive one combined monthly bill based on all services provided by Hoosier at the approved rates, which are determined based on the recovery of cost-plus margin for the cooperative. These assets and liabilities have not been included in the carve-out financial statements.

● Hoosier’s third-party debt and related accrued interest payable where Merom Station is not a legal obligor have not been included in the carve-out balance sheet for any of the periods presented as Merom Station is not a legal entity and is not obligated to repay any debt. Hoosier has historically allocated interest expense to Merom Station and therefore the carve-out statements of operations and comprehensive income include allocation of interest expense as well as amortization of debt expense.

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● As these carve-out financial statements present a portion of Hoosier and does not constitute a separate legal entity, the net assets of Merom Station have been presented as Owner’s net investment.

● As Merom Station is not a separate legal entity, it has no bank accounts and utilizes the centralized cash management system of Hoosier, all allocated expenses have been deemed to have been paid by Merom Station to Hoosier in the period in which the costs were incurred. Transfers of cash to and from Hoosier reflecting certain intercompany transactions and allocated expenses are represented within Owner’s net investment.

● Merom Station employees participate in the Hoosier multi-employer defined benefit pension plan, defined contribution plans and a postretirement health plan. In addition to the defined benefit pension plan, the postretirement health plan has been accounted for as a multi-employer plan in these carve-out financial statements. Consequently, no assets or liabilities related to the postretirement health plan have been included in the carve-out balance sheet, but the expenses directly attributable to employees of Merom Station as well as a portion being allocated for corporate employees’ support of the business have been included in the carve-out statements of operations and comprehensive income. The costs directly attributable to Merom Station employees are service costs. Interest costs, amortization of prior service costs, amortization of actuarial losses as well as unrecognized actuarial losses reported in other comprehensive income were allocated similar to corporate overhead costs.

● The deferred tax balances of Merom Station are calculated on a separate return basis. Current income taxes are deemed to have been remitted, in cash, by or to Hoosier in the period the related income taxes were recorded.

Use of Estimates—The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. Actual results could differ from those estimates.

Electric Plant and Maintenance—Electric plant is stated at original cost, including applicable supervisory and overhead costs, and interest on borrowed funds used during construction. Expenditures for maintenance and repairs, including renewals of minor items of property (as distinguished from units of property), are charged to operating expenses. The original cost of depreciable units replaced or retired, including cost of removal, net of salvage, is charged to accumulated depreciation.

Asset Impairment—Long-lived assets held and used by Merom Station are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Specifically, the evaluation for impairment involves comparison of an asset’s carrying value to the estimated undiscounted cash flows the asset is expected to generate over its remaining life.

If this evaluation were to conclude that the carrying value of the asset is impaired, an impairment charge would be recorded as a charge to operations based on the difference between the asset’s carrying amount and its fair value, to the extent that the Board has not taken action to establish a regulatory asset that will be recovered in future rates. Management has determined that no asset impairment existed in 2021 or 2020.

- 9 -

Fuel—Fuel inventory consists of coal and fuel oil and is valued at the lower of average cost or net realizable value.

Materials and Supplies—Materials and supplies consisting of spare parts and consumables are valued at the lower of average cost or net realizable value and charged to expense or capitalized as plant when installed.

Leases—Merom Station leases railcars and a 15.744% undivided interest in the Merom Station facility asset under long-term operating leases. Operating lease expense is recognized on a straight-line basis over the expected lease term. The lease term begins on the date Merom Station has the right to control the use of the leased property pursuant to the terms of the lease. The difference recognized between rental expense and amount payable under the lease is recorded as deferred rent. Lease payments required in advance are recorded as prepayments.

Regulatory Assets and Liabilities—In accordance with the provisions of ASC 980 certain revenues and expenses are deferred if it is probable that such amounts will be recovered from or returned to customers in future rates (Note 4). A regulatory asset is charged to earnings if and when future recovery in rates of that asset is no longer probable. Revenues and expenses that are deferred are treated as non-cash items in the Statements of Cash Flows in the year of deferral.

Asset Retirement Obligations—ASC 410, Asset Retirement and Environmental Obligations, requires legal obligations associated with the retirement of long-lived assets to be recognized at fair value when incurred and capitalized as part of the related long-lived asset, including conditional asset retirements where an obligation exists even though the method or timing of settlement may be conditional. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. When the asset is retired, the entity settles the obligation for its recorded amount or incurs a gain or loss. Merom Station’s asset retirement obligations primarily reflect requirements related to landfill closure costs and coal pile remediation.

The following table represents the details of Merom Station’s asset retirement obligations as reported on the Balance Sheets.

	Beginning		Liabilities		Liabilities				Cash Flow		Ending
	Balance		Incurred		Settled		Accretion		Revisions		Balance
2021	$	19,106	$	-	$	-	$	396	$	-	$	19,502
2020		6,233		-		-		330		12,543		19,106

Income Taxes—Deferred tax assets and liabilities are recognized on the basis of the future tax consequences attributable to temporary differences that exist between the financial statement carrying value of the assets and liabilities and the respective tax values as well as net operating losses and tax credit carryforwards on a tax jurisdiction basis. Deferred tax assets and liabilities are measured using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. The effect on deferred tax assets and liabilities of a change in tax rates is recorded in the results of operations in the period that includes the enactment date under law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Merom Station’s net deferred tax assets have been fully offset by a valuation allowance for all periods presented.

- 10 -

Management establishes reserves for income taxes when, despite the belief that tax positions are fully supportable, there remain certain positions that do not meet the minimum recognition threshold. The approach for evaluating certain and uncertain tax positions is defined by the authoritative guidance which determines when a tax position is more likely than not to be sustained upon examination by the applicable taxing authority. Merom Station regularly assesses the potential outcomes of examinations for the current or prior years in determining the adequacy of Merom Station’s provision for income taxes. No reserves for uncertain tax positions have been recorded. Merom Station does not expect its unrecognized tax benefits to change significantly over the next twelve months.

Revenue Recognition—The revenue recognition principle in Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (Topic 606) is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires expanded disclosures to enable users of the financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. See related disclosures below.

The revenues of Merom Station are primarily derived from generating wholesale electricity for its customer, Hoosier, who provides the electricity to its customers. Merom Station’s performance obligations are satisfied over time; Hoosier simultaneously receives and consumes the benefits of Merom Station’s performance as electricity is generated. The transaction price for Hoosier and Merom Station’s revenue has been determined using a recovery of cost-plus a margin which is approved by Hoosier’s Board and RUS and is 3% and 2% for 2021 and 2020, respectively. Hoosier bills its customers based on the approved costs plus margin for all facilities, including Merom, on a commingled basis. Merom Station’s revenues are summarized as follows:

Revenue	2021		2020
Electric revenue	$	267,456	$	213,395
Generation byproduct revenue		218		153
Lease income		186		200
Total revenue	$	267,860	$	213,748

Electric revenues consist of generating wholesale electricity for its customer, Hoosier, who provides the electricity to its customers.

- 11 -

Generation byproduct revenue consist of the sale of utility plant byproducts including fly ash. Plant byproducts are marketed and sold to external customers and revenue is recognized at the time the goods are transferred.

Lease income consist of rental income from land surrounding the Merom Station plant to the lessee for use in farming. These leases qualify as operating leases with the land remaining on the balance sheet and rental income recognized on a straight-line basis over the life of the lease.

Recently Issued Accounting Standards—In February 2016, the FASB issued ASU 2016‑02 Leases, intended to improve financial reporting involving leasing transactions. The update will require organizations that lease assets to recognize on the Balance Sheets the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months. Implementation of the update will primarily impact the Balance Sheets. It does not include provisions that would significantly impact the Statements of Operations and Comprehensive Income or Statements of Cash Flows. Under ASU 2017-13 and ASU 2020-05, the guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022. Lease obligations subject to the new standard are described in Note 8. Merom Station has not adopted the standard for the carve-out financial statements.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, intended to amend guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For Merom Station, the guidance is effective for annual reporting periods beginning after December 15, 2022 and interim periods within that fiscal year. Management does not expect the adoption of this guidance to have a material impact on Merom Station’s carve-out financial statements or disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, intended to simplify the accounting for income taxes by removing certain exceptions to general tax accounting principles. For nonpublic entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within that fiscal year. The adoption of this guidance did not have a material impact on Merom Station’s carve-out financial statements or disclosures.

No other new accounting pronouncements issued or effective during the period had or is expected to have a material impact on the carve-out financial statements or disclosures.

2. COVID-19

During the first quarter of 2020, the outbreak of COVID-19 was declared a pandemic by the World Health Organization, a national emergency by the President of the United States, Donald Trump, and spread throughout the United States. Effects from the COVID-19 pandemic began at the end of the first quarter 2020, when certain commercial and industrial customers served by Hoosier’s members suspended operations. Commercial and industrial loads began to recover near the end of the second quarter 2020 and returned to pre-pandemic levels by 2020 year-end and throughout 2021. Impacts of the pandemic are reflected in the Statements of Operations and Comprehensive Income and include reduced revenue and operating costs in the 2020 financials.

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On March 6, 2020, Indiana Governor Eric Holcomb issued Executive Order 20-02 declaring a public health disaster emergency in Indiana attributable to COVID-19. To address the social and economic impacts of COVID-19, Governor Holcomb issued several other executive orders, including Executive Orders 20-05 and 20-33 on March 19, 2020 and June 30, 2020, respectively. Executive Order 20-05 provided that providers of gas and electric utilities, broadband, telecommunication, water and wastewater services were prohibited from disconnecting service to any customer in the State, because these services are essential to Indiana residents and businesses, particularly during this state of public health emergency. Executive Order 20-33 extended the prohibition on utility disconnections until August 14, 2020 pursuant to an order issued by the Indiana Utility Regulatory Commission (“IURC”). On August 12, 2020, the IURC issued an order directing that the disconnect moratorium prohibiting disconnections would not be extended beyond August 16, 2020.

Business disruptions attributable to the pandemic resulted in a reduction in demand for electricity during 2020. Reduced demand resulted in low market power prices for much of 2020. Merom Station was impacted by market conditions and produced less energy as a result. Hoosier’s tariffs include adjustment mechanisms resulting in full recovery of the Merom Station’s costs and are reflected in the revenues in these financial statements.

3. PROPERTY, PLANT AND EQUIPMENT—NET

Property, plant and equipment—net, at December 31, 2021 and 2020, consists of the following:

	2021			2020
Plant—at original costs	$	1,389,371		$	1,389,371
Accumulated depreciation		(843,066	)		(810,931	)
Plant expected to be retired—net		546,305			578,440
Land		27,182			27,182
Property, plant and equipment—net	$	573,487		$	605,622

Plant expected to be retired—net of $546,305 and $578,440 at December 31, 2021 and 2020, respectively, represents the net unrecovered cost of Merom Station. In November 2020, the Board took action to establish a regulatory asset, pursuant to ASC 980-360-35, for the unrecovered cost of Merom Station. The Board and RUS approved full recovery of the regulatory asset in future rates. The unrecovered costs will be amortized through 2038. Merom Station was depreciated prior to the establishment of the regulatory asset and subsequently amortized.

Depreciation for the Merom Station generating plant is provided on the basis of estimated useful lives at straight-line composite rates, which were 3.10 percent for 2020. Amortization for the Merom Station regulatory asset is provided from 2021 over the period through the end of 2038. Depreciation and amortization expense was $32,136 and $43,729 for 2021 and 2020, respectively.

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4. DEFERRED CHARGES AND CREDITS

Deferred charges, net of accumulated amortization, at December 31, 2021 and 2020, consist of the following:

	2021		2020
Deferred charge for selective catalyst reduction equipment	$	1,129	$	1,714
Regulatory asset for major outage costs		8,250		10,312
Regulatory asset for plant decommissioning		3,139		-
Deferred charges	$	12,518	$	12,026

Merom Station recognizes maintenance of certain selective catalyst reduction equipment in deferred charges and amortizes over an expected useful life of two years.

In 2018, a regulatory asset was established to defer major outage costs incurred at Merom Station. The costs are being amortized over eight years, which represents the expected cycle of major maintenance activities at the time the asset was established.

In 2021, a regulatory asset was established to defer the Merom Station employee exit cost settlements related to the expected plant retirement in May 2023. The costs will be amortized over fifteen years beginning in 2023 which is the board-approved recovery period.

Amortization expense related to selective catalyst reduction costs was reported in other production expense in the amount of $585 and $907 in 2021 and 2020, respectively. Amortization expense related to the major outage costs was reported in maintenance expense in the amount of $2,062 and $2,063 in 2021 and 2020, respectively.

In 2021, a liability of $3,139 was recognized to correspond with the regulatory asset established to defer the Merom Station employee exit cost settlements related to the expected plant retirement in May 2023.

5. INCOMES TAXES

The income taxes for Merom Station have been presented on a separate return basis for the purposes of the carve-out financial statements. Merom Station is not a separate legal entity but is contained within Hoosier. In conjunction with Hoosier’s sale of Merom Station to Hallador, the tax basis for Merom Station presented below will not carryover to Hallador.

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The components of income tax expense consist of the following:

	2021		2020
Current tax expense:
Federal	$	-	$	-
State		-		-
Total income tax expense (benefit)	$	-	$	-
Deferred tax expense:
Federal	$	-	$	-
State		-		-
Total income tax expense (benefit)	$	-	$	-

A reconciliation of income taxes computed at the statutory U.S. federal income tax rate (21%) to the income tax expense reflected in the carve-out statements of operations and comprehensive income is as follows:

	2021			2020
Statutory U.S. federal income tax rate (21%)	$	1,548		$	721
Increase (reductions) resulting from:
State taxes—net of federal benefits		287			9
Patronage distribution		-			(685	)
Other permanent differences		10			12
Expiration of net operating loss carryforwards		4,955			3,286
Change in valuation allowance		(6,800	)		(3,343	)
Total income tax expense	$	-		$	-

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Significant components of Merom Station’s net deferred tax asset as of December 31, 2021, and 2020 consist of the following:

	2021			2020
Deferred tax asset:
Net operating loss carryforwards (NOLs)	$	62,053		$	66,498
Difference between book and tax basis of property		21,264			24,283
Asset retirement obligation		4,850			4,752
Other		769			718
Total deferred tax asset		88,936			96,251
Deferred charges		(2,052	)		(2,565	)
Total deferred tax liability		(2,052	)		(2,565	)
Net deferred tax asset		86,884			93,686
Valuation allowance		(86,884	)		(93,686	)
Total deferred tax asset—net of valuation allowance	$	-		$	-

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2021, and 2020, Merom Station has net operating loss carryforwards for federal income tax purposes of $249,563 and $267,648, respectively, which are available to offset future taxable income. As of December 31, 2021, and 2020, Merom Station has net operating loss carryforwards for state income tax purposes of $249,145 and $265,872, respectively, which are available to offset future taxable income. These net operating loss carryforwards will expire between 2022 and 2038. A full valuation allowance has been established to offset these deferred tax assets since management does not expect to realize these net operating loss carryforwards before they expire.

Hoosier files income tax returns in the U.S. jurisdiction and various states. The tax years 2017 through 2021 remain open to examination by the major taxing jurisdictions to which Hoosier is subject. Merom Station has no uncertain tax positions recognized in the financial statements.

6. RETIREMENT PLANS

Certain employees of Merom Station participate in Hoosier’s retirement plans. In addition to the defined benefit pension plan, the post-retirement health plan has been accounted for as multi-employer plan in the carve-out financial statements in accordance with ASC 715-30-55-64 “Retirement Plans”, which provides that a subsidiary that participates in a parent’s single-employer pension plan should account for its participation in the parent’s plan as a multiemployer pension plan and is not required to report a liability beyond contributions currently due and unpaid in the plan or provide the disclosures required by section 715-80-50. Therefore, no actuarial assets or liabilities related to the post-retirement health plan has been included in the carve-out balance sheet. The costs associated with retirement plans have been based on costs directly attributable to Merom Station employees or allocated to Merom Station based on the relative participation of employees of Merom Station in those plans. A description of these Hoosier retirement plans and the amounts directly attributable to Merom Station are as follows:

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Multiemployer Plan—The National Rural Electric Cooperative Association (“NRECA”) Retirement Security Plan (“RS Plan”) is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. It is a multiemployer plan under the accounting standards. A unique characteristic of a multiemployer plan compared to a single employer plan is that all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers. The costs of these benefits directly attributable to Merom Station employees was $3,345 and $3,598 in 2021 and 2020, respectively.

In 2013, Hoosier elected to participate in a voluntary prepayment option offered to participants in the RS Plan. Hoosier contributed $19,334 under the prepayment program during 2013. According to RUS guidelines, the amount will be amortized to benefit costs over a ten-year period, which represents the remaining service lives of all plan participants. The prepayment amount is Hoosier’s share, as of January 1, 2013, of future contributions required to fund the RS Plan’s unfunded value of benefits earned to date using RS Plan actuarial valuation assumptions. After making the prepayment, Hoosier’s annual contribution rate was reduced by approximately 25%, retroactive to January 1, 2013. The 25% differential in contribution rates is expected to continue for approximately fifteen years but is subject to change as a result of actual plan experience. Total contributions include amortization of payments made under the voluntary prepayment option. Amortization of the prepayment directly attributable to Merom Station employees was $764 and $830 in 2021 and 2020, respectively.

Retirement Savings Plan―Employees of Hoosier are also eligible to participate in the Retirement Savings Plan of Hoosier Energy Rural Electric Cooperative, Inc. This is a defined contribution, 401(k) plan. Eligible employees are eligible for employer matching contributions. The costs of these benefits directly attributable to Merom Station employees was $465 and $456 in 2021 and 2020, respectively.

Long-Term Disability Plan—Hoosier provides long-term disability benefits to its employees. Prior to September 2016, benefits included payment of 100% of single coverage premiums and 80% of dependent coverage premiums. Following changes to the plan, employees will receive benefits for a maximum of two years or until reaching age 62 and then are required to pay 100% of the retiree-appropriate premium. The costs of these benefits directly attributable to Merom Station employees was $120 and $264 in 2021 and 2020, respectively.

Post-Retirement Health Plan―Hoosier provides post-retirement health benefits to eligible retirees, which include payment of 100% of single coverage premiums and 50% of dependent coverage premiums to age 65 for those eligible employees hired before December 31, 2007. Hoosier funds the plan as health care claims are required to be paid. The service costs directly attributable to Merom Station employees was $60 and $67 in 2021 and 2020, respectively. The interest costs and amortization of actuarial losses as well as the unrecognized actuarial losses in comprehensive income have been allocated as part of corporate overhead allocations as these items were not directly attributable to Merom Station employees. See Note 7 for the corporate overhead allocations.

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7. RELATED PARTY TRANSACTIONS

Merom Station has not historically operated as a separate entity, but a component of Hoosier whereby Hoosier has provided services to support the operations of Merom Station as described below.

Retirement Benefits—The employees of Merom Station participate in retirement benefit plans sponsored by Hoosier. The costs of such plans directly attributable to the employees of Merom Station are disclosed in Note 6. Those amounts do not include employee benefit costs allocated as part of the corporate overhead allocations, which are included in the amounts disclosed below.

Intercompany Transactions—Intercompany transactions between Merom Station and Hoosier have been included in these financial statements and are forgiven at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the statements of cash flows in Change in owner’s net investment as a financing activity and in the balance sheets as Owner’s net investment.

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Corporate Overhead Allocations—The financial information in these carve-out financial statements does not necessarily include all the expense that would have been incurred had Merom Station been a separate, independent entity. As Merom Station is not a separate legal entity, it has no bank accounts and utilizes the centralized cash management system of Hoosier. All allocated expenses have been deemed to have been paid by Merom Station to Hoosier in the period in which the costs were incurred. Hoosier provides Merom Station certain services, including, but not limited to, board of directors, corporate executives, information technology, human resources, finance, purchasing, environmental services, facilities support as well as other support from Hoosier headquarters. The carve-out financial statements of Merom Station reflect an allocation of these costs. When specific identification was not practicable, a proportional cost method was used based on headcount, total operating expense, total generation operating expense, or total generation and transmission & distribution operating expense. All allocated expenses have been deemed to have been paid by Merom Station to Hoosier in the period in which the costs were incurred. Corporate overhead allocations for 2021 and 2020 in the carve-out statements of operations and comprehensive income were as follows:

	2021			2020
Administrative and general	$	11,282		$	11,204
Maintenance		1,553			1,628
Depreciation and amortization		2,438			2,319
Interest expense		23,405			24,007
Other fixed charges and amortization of debt expense		801			595
Other nonoperating expense		364			626
Nonoperating post-employment benefits—net		292			213
Corporate allocations impact on net income		40,135			40,592
Other comprehensive income—unrealized (gain) loss on pension and other post-retirement benefit plans		(308	)		101
Corporate allocations impact on comprehensive income	$	40,443		$	40,491

8. COMMITMENTS AND CONTINGENCIES

Coal Supply Agreements—Hoosier has entered into long-term contracts for the supply of coal for Merom Station. Certain of these contracts extend through 2023, and provide for price escalation under certain terms, primarily based on the market price of fuel oil. Coal payments under contracts for 2021 and 2020 were $72,120 and $92,752, respectively, and total minimum payments for the contracts through the year 2023 are:

Years Ending
December 31
2022	$	90,705
2023		32,340
	$	123,045

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Rail Car Leases—Hoosier leases one hundred ninety-eight railroad cars used in transporting coal to the Merom Station generating facility. The lease terms range from twelve to fifteen months and rental expense related to rail car leases reported in fuel expense was $492 and $493 in 2021 and 2020, respectively.

Merom Station Facility Asset Lease—In 1986 Hoosier executed a sale lease back transaction related to a portion of the Merom Station assets. The initial 30-year term of the lease was accounted as a capital lease, which ended June 30, 2017. Under a settlement agreement with the Lessor executed on September 28, 2018, the following amendments were made to the original lease agreement:

● the undivided interest of the Lessor was fixed at 15.744% of the Merom Station,

● a fixed purchase option at July 1^st of each future year was established (these options are in addition to and do not limit or supersede the renewal and purchase options under the original lease),

● methodology of valuation was agreed to be based on value of Merom Station as a whole multiplied by 15.744%,

● a 5-year renewal was agreed from July 1, 2017, through June 30, 2022, requiring semi-annual payments, which was accounted for as an operating lease, and

● dismissal of a lawsuit and mutual release through the date of the settlement agreement.

On December 15, 2021, Hoosier elected to exercise the fair market sales value purchase option. See Note 9 regarding a settlement agreement with the Lessor.

Rental expense related to Merom Station facility asset lease reported in other production expenses was $995 in both 2021 and 2020.

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Future annual rental payments under the operating leases for both the rail cars and Merom Station facility asset are:

Years Ending
December 31
2022	$	1,199
2023		78
	$	1,277

Self-Insurance—Hoosier has adopted a self-insured medical plan for the benefit of its employees. Stop loss insurance is maintained for individual claims for each policy year. Merom Station’s expense under the self-insured medical plan was $3,595 and $3,532 for 2021 and 2020, respectively. Liabilities associated with the plan were $166 and $395 as of December 31, 2021, and 2020, respectively, and are included in Other current liabilities in the Balance Sheets.

Environmental—On April 17, 2015, the Environmental Protection Agency (“EPA”) published regulations which include requirements for the disposal of coal combustion residuals (“CCRs”), commonly known as coal ash, from coal-fired power plants. The rule establishes technical requirements for CCR landfills and surface impoundments under subtitle D of the Resource Conservation and Recovery Act. On August 21, 2018, District of Columbia (“DC”) Circuit Court of Appeals vacated and remanded back to EPA provisions in the final CCR Rule that pertained to the exemption from regulation of inactive impoundments at inactive facilities.

On April 22, 2021, the Biden administration announced the Zero Carbon Plan, which requires the United States to achieve 50-52 percent reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030, and to reach 100 percent carbon pollution-free electricity by 2035. Due to the uncertainty of the rule, Merom Station is unable to estimate the cost of compliance at this time.

The EPA published the Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category rule (“ELG Rule”) on November 3, 2015. The rule sets federal limits on the levels of metals in wastewater that can be discharged from power plants. In April 2017, the EPA issued an administrative stay to delay the compliance deadlines for the ELG Rule while the agency reviews the rule. On August 31, 2020, EPA published the final Steam Electric Reconsideration Rule. The limitations established in the rule could require capital investments at Merom Station if the plant operates beyond planned retirement (Note 3). On August 3, 2021, the EPA initiated a supplemental rulemaking to strengthen discharge limits. The rule did not have a material impact on Merom Station’s financial statements or disclosures.

There are many current environmental and energy policy issues, including those mentioned above, that have the potential to affect electric utilities, including Hoosier. The effect of the outcome of these issues on Merom Station’s operations cannot be estimated.

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Legal—Hoosier is occasionally involved in various other claims and lawsuits arising in the normal course of business at Merom Station. While the ultimate results of these other lawsuits or proceedings cannot be estimated with certainty, management does not expect these matters will have a material adverse effect on Merom Station’s financial position, results of operations, or cash flows. See Note 9 for discussion of a lawsuit filed in January 2022 and related settlement in October 2022.

9. SUBSEQUENT EVENTS

On January 25, 2022, Cyterna, 15.744% owner of Hoosier’s Merom Generating Station, filed a lawsuit in New York Supreme Court claiming Hoosier owes it approximately $79 million in damages for breach of contract related to an alleged decision to retire Merom Station. On October 21, 2022, Cyterna and Hoosier entered into a settlement agreement to terminate the lease and transfer Cyterna’s 15.744% undivided ownership to Hoosier for the payment of $30 million.

On October 21, 2022, Hoosier consummated an agreement to transfer ownership of Merom Station to Hallador Power Company, LLC in return for the assumption of certain decommissioning costs and environmental responsibilities. The transaction includes a 3 ½ year power purchase agreement for Hoosier to purchase certain percentages of the plant’s energy output and capacity.

The financial statements include a review of subsequent events through January 6, 2023, the date the Merom Station financial statements were available to be issued.

******

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EX-99.3

Exhibit 99.3

Merom Generating

Station (a Component

of Hoosier Energy

Rural Electric

Cooperative, Inc.)

Condensed Carve-out Financial Statements as of

June 30, 2022 and December 31, 2021 and for the
Six Months Ended June 30, 2022 and 2021

MEROM GENERATING STATION

TABLE OF CONTENTS

	Page
UNAUDITED CONDENSED CARVE-OUT FINANCIAL STATEMENTS AS OF JUNE 30, 2022 AND DECEMBER 31, 2021 AND FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021:
Carve-out Balance Sheets	2
Carve-out Statements of Operations and Comprehensive Income	3
Carve-out Statements of Owner’s Net Investment	4
Carve-out Statements of Cash Flows	5
Notes to Unaudited Condensed Carve-out Financial Statements	6-14

MEROM GENERATING STATION

CARVE-OUT BALANCE SHEETS (UNAUDITED)

AS OF JUNE 30, 2022 AND DECEMBER 31, 2021

(In thousands)

	June 30,		December 31,
	2022		2021
ASSETS
CURRENT ASSETS:
Fuel	$	15,785	$	25,573
Materials and supplies		28,978		25,324
Prepayments and other		781		2,256
Total current assets		45,544		53,153
PROPERTY, PLANT AND EQUIPMENT—Net		557,419		573,487
DEFERRED CHARGES AND OTHER		11,049		12,518
TOTAL ASSETS	$	614,012	$	639,158
LIABILITIES AND OWNER’S NET INVESTMENT
CURRENT LIABILITIES:
Accounts payable	$	11,687	$	6,846
Accrued property taxes		4,253		4,331
Other current liabilities		1,559		1,861
Total current liabilities		17,499		13,038
DEFERRED CREDITS AND OTHER		3,139		3,139
ASSET RETIREMENT OBLIGATIONS		19,700		19,502
Total liabilities		40,338		35,679
COMMITMENTS AND CONTINGENCIES (Note 8)
OWNER’S NET INVESTMENT		573,674		603,479
TOTAL LIABILITIES AND OWNER’S NET INVESTMENT	$	614,012	$	639,158

See notes to condensed carve-out financial statements.

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MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands)

	2022			2021
OPERATING REVENUE	$	164,621		$	142,083
OPERATING EXPENSES:
Fuel		87,175			58,789
Other production expenses		20,565			19,421
Administrative and general		6,827			10,231
Maintenance		16,120			19,818
Depreciation and amortization		17,316			17,466
Total operating expenses		148,003			125,725
OPERATING MARGIN BEFORE FIXED CHARGES		16,618			16,358
FIXED CHARGES AND OTHER:
Interest expense		11,328			11,696
Other fixed charges and amortization of debt expense		356			403
Total fixed charges and other		11,684			12,099
OPERATING MARGIN		4,934			4,259
NONOPERATING MARGIN:
Other nonoperating expense		(50	)		(264	)
Nonoperating post-employment benefits—net		(147	)		(129	)
Total nonoperating margin		(197	)		(393	)
NET INCOME		4,737			3,866
OTHER COMPREHENSIVE INCOME—Unrealized gain (loss) on pension and other post-retirement benefit plans		155			(61	)
COMPREHENSIVE INCOME	$	4,892		$	3,805

See notes to condensed carve-out financial statements.

- 3 -

MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF OWNER’S NET INVESTMENT (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands)

	Owner’s
	Net
	Investment
BALANCE—December 31, 2020	$	681,052
Net income		3,866
Other comprehensive income		(61	)
Change in owner’s net investment		(43,291	)
BALANCE—June 30, 2021		641,566
BALANCE—December 31, 2021		603,479
Net income		4,737
Other comprehensive income		155
Change in owner’s net investment		(34,697	)
BALANCE—June 30, 2022	$	573,674

See notes to carve-out financial statements.

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MEROM GENERATING STATION

CARVE-OUT STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands)

	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,737		$	3,866
Adjustments to reconcile net margin to net cash:
Depreciation and amortization, excluding corporate allocations		16,068			16,067
Accretion of asset retirement obligation		198			198
Deferred charges and credits		1,469			1,177
Change in fuel and materials inventories		6,134			21,319
Change in accounts payable		4,841			11
Change in other current assets and liabilities		1,095			714
Net cash provided by operating activities		34,542			43,352
CASH FLOWS FROM FINANCING ACTIVITIES—Change in owner’s net investment		(34,542	)		(43,352	)
Net cash used in financing activities		(34,542	)		(43,352	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		-			-
CASH AND CASH EQUIVALENTS—Beginning of year		-			-
CASH AND CASH EQUIVALENTS—End of year	$	-		$	-

See notes to condensed carve-out financial statements.

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MEROM GENERATING STATION

NOTES TO UNAUDITED CONDENSED CARVE-OUT FINANCIAL STATEMENTS

AS OF JUNE 30, 2022, AND DECEMBER 31, 2021, AND FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Dollars in thousands)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2022, there were no changes in the nature of our significant accounting policies from those reported in our audited carve-out financial statements for the year ended December 31, 2021.

Merom Generating Station (“Merom Station”) is a wholly owned component of Hoosier Energy Rural Electric Cooperative, Inc. (“Hoosier”). Merom Station consists of an operating coal generation station located in Sullivan County, Indiana with a capacity of approximately 1,000 MW.

Hoosier is a non-profit electric generation and transmission cooperative providing wholesale electric service to 18 distribution cooperative members in central and southern Indiana and southern Illinois. Each member has entered into a wholesale power contract with Hoosier to supply all electric requirements which remains in effect until January 1, 2055 with automatic five-year extensions each five years beginning January 1, 2024 unless any member or Hoosier gives six months written notice of intent not to renew. Merom Station operates as part of Hoosier’s portfolio of resources available to provide power to its members.

On February 14, 2022, Hallador Energy Company (“Hallador”), through its subsidiary Hallador Power Company, LLC, entered into an asset purchase agreement with Hoosier to acquire Merom Station in return for assuming certain decommissioning costs and environmental liabilities. The transaction includes a 3 ½ year power purchase agreement for Hoosier to purchase up to 100% of the plant’s energy and capacity through May 2023, then reducing purchases to 22% of output and 32% of its capacity from June 2023 through 2025. Under the terms of the contract, Hallador is required to deliver a minimum of 70% of the expected energy quantities subject to plant availability.

Basis of Accounting—Merom Station maintains its accounts in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Hoosier’s wholesale rates to its members are established by its Board of Directors (the “Board”) and are subject to approval by the Rural Utilities Service (“RUS”). The rates charged by Hoosier for power supplied to its members are based on the revenue required by Hoosier to cover the cost of supplying such power plus an appropriate margin. As a component of rate-regulated entity, Merom Station’s financial statements reflect actions of regulators that result in the recognition of revenues and expenses in different time periods than enterprises that are not rate-regulated in accordance with ASC 980, Regulated Operations.

Basis of Presentation—The condensed carve-out financial statements have been prepared on a carve-out basis and are derived from the accounting records of Hoosier using the historical results of operations and historical basis of assets and liabilities of Merom Station and include allocations of corporate expenses from Hoosier. Management believes the allocations of corporate expenses were determined on a reasonable basis to reflect all costs of operations on a consistent basis for the periods presented. The condensed carve-out financial statements may not be indicative of Merom Station’s future performance and do not necessarily reflect the results of operations, financial position and cash flows had Merom Station been operated as a separate independent stand-alone entity during the periods presented.

- 6 -

These condensed carve-out financial statements include certain adjustments required to reflect the financial statements on a carve-out basis, consisting of balances and expenses directly attributable to Merom Station and an allocation of corporate expense from Hoosier, including the following:

● The expense for certain support provided by Hoosier, such as board of directors, corporate executives, information technology, human resources, finance, purchasing, environmental services, facilities support as well as other general overhead costs have been allocated to Merom Station. The costs are included within general and administrative expenses in the carve-out statements of operations and comprehensive income as disclosed in the footnotes. Corporate expense allocations have been determined on a basis management considers to be a reasonable reflection of the utilization of services provided or benefit received by Merom Station during the periods presented. However, these allocations are not based on arms’ length transactions, and it is impractical for management to estimate costs that would be reflective if Merom Station were operating on a stand-alone basis.

● The determination of the transaction price for Merom Station’s revenue recognition has been determined consistently with historical Hoosier revenue, which is by using a recovery of cost-plus a margin. The margin is approved by Hoosier’s Board and RUS and was 3% for the six months ended June 30, 2022, and 2021. The transaction price for Merom revenue recognition is therefore based on the costs determined to be related to Merom as part of these condensed carve-out financial statements. Merom Station’s revenues are based on operating as part of a cooperative and do not necessarily reflect what Merom Station’s revenues would be if it was a stand-alone entity selling energy independently outside of the cooperative to non-member customers.

● Hoosier’s accounts receivable, unrecovered power costs, and over collected power costs balances are comingled among all lines of business and locations as the customer’s receive one combined monthly bill based on all services provided by Hoosier at the approved rates, which are determined based on the recovery of cost-plus margin for the cooperative. These assets and liabilities have not been included in the condensed carve-out financial statements.

● Hoosier’s third-party debt and related accrued interest payable where Merom Station is not a legal obligor have not been included in the carve-out balance sheet for any of the periods presented as Merom Station is not a legal entity and is not obligated to repay any debt. Hoosier has historically allocated interest expense to Merom Station in evaluating its performance and therefore the carve-out statements of operations and comprehensive income include allocation of interest expense as well as amortization of debt expense.

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● As these condensed carve-out financial statements present a portion of Hoosier and does not constitute a separate legal entity, the net assets of Merom Station have been presented as Owner’s net investment.

● As Merom Station is not a separate legal entity, it has no bank accounts and utilizes the centralized cash management system of Hoosier, all allocated expenses have been deemed to have been paid by Merom Station to Hoosier in the period in which the costs were incurred. Transfers of cash to and from Hoosier reflecting certain intercompany transactions and allocated expenses are represented within Owner’s net investment.

● Merom Station employees participate in the Hoosier multi-employer defined benefit pension plan, defined contribution plans and a postretirement health plan. In addition to the defined benefit pension plan, the postretirement health plan has been accounted for as a multi-employer plan in these condensed carve-out financial statements. Consequently, no assets or liabilities related to the postretirement health plan have been included in the carve-out balance sheet, but the expenses directly attributable to employees of Merom Station as well as a portion being allocated for corporate employees’ support of the business have been included in the carve-out statements of operations and comprehensive income. The costs directly attributable to Merom Station employees are service costs. Interest costs, amortization of prior service costs, amortization of actuarial losses as well as unrecognized actuarial losses reported in other comprehensive income were allocated similar to corporate overhead costs.

● The deferred tax balances of Merom Station are calculated on a separate return basis. Current income taxes are deemed to have been remitted, in cash, by or to Hoosier in the period the related income taxes were recorded.

Unaudited Interim Condensed Carve-Out Financial Statements—The accompanying interim condensed carve-out financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements include all adjustments, consisting of normal recurring adjustments, management believes are necessary to fairly state the financial position, results of operations and comprehensive income, changes in net investments and cash flows. Management believes the disclosures are adequate to make the information presented not misleading when read in conjunction with the audited carve-out financial statements. The results of operations and comprehensive income for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or any other periods.

Asset Retirement Obligations—The only changes in the asset retirement obligations for the periods presented were for the accretion of the liability. Accretion expense was $198 for both the six months ended June 30, 2022 and 2021.

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Revenue Recognition—Merom Station’s revenues are summarized as follows:

	Six Months Ended
	June 30,
Revenue	2022		2021
Electric revenue	$	164,345	$	141,936
Generation byproduct revenue		141		53
Lease income		135		94
Total revenue	$	164,621	$	142,083

Recently Issued Accounting Standards—In February 2016, the FASB issued ASU 2016‑02 Leases, intended to improve financial reporting involving leasing transactions. The update will require organizations that lease assets to recognize on the Balance Sheets the assets and liabilities for the rights and obligations created by those leases. Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than twelve months. Implementation of the update will primarily impact the Balance Sheets. It does not include provisions that would significantly impact the Statements of Operations and Comprehensive Income or Statements of Cash Flows. Under ASU 2017-13 and ASU 2020-05, the guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods beginning after December 15, 2022. Lease obligations subject to the new standard are described in Note 7. Merom Station has not adopted the standard for the condensed carve-out financial statements.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, intended to amend guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For Merom Station, the guidance is effective for annual reporting periods beginning after December 15, 2022 and interim periods within that fiscal year. Management does not expect the adoption of this guidance to have a material impact on Merom Station’s condensed carve-out financial statements or disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, intended to simplify the accounting for income taxes by removing certain exceptions to general tax accounting principles. For nonpublic entities, the amendments in this update are effective for fiscal years beginning after December 15, 2020, and interim periods within that fiscal year. The adoption of this guidance did not have a material impact on Merom Station’s condensed carve-out financial statements or disclosures.

No other new accounting pronouncements issued or effective during the period had or is expected to have a material impact on the condensed carve-out financial statements or disclosures.

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2. PROPERTY, PLANT AND EQUIPMENT—NET

Property, plant and equipment—net consists of the following:

	June 30,			December 31,
	2022			2021
Plant—at original costs	$	1,389,371		$	1,389,371
Accumulated depreciation		(859,134	)		(843,066	)
Plant expected to be retired—net		530,237			546,305
Land		27,182			27,182
Property, plant and equipment—net	$	557,419		$	573,487

Plant expected to be retired - net of $530,237 and $546,305 at June 30, 2022 and December 31, 2021, respectively, represents the net unrecovered cost of Merom Station. In November 2020, the Board took action to establish a regulatory asset, pursuant to ASC 980-360-35, for the unrecovered cost of Merom Station. The Board and RUS approved full recovery of the regulatory asset in future rates. The unrecovered costs will be amortized through 2038. Merom Station was depreciated prior to the establishment of the regulatory asset and subsequently amortized.

Amortization expense was $16,068 for both the six months ended June 30, 2022 and 2021, respectively.

3. DEFERRED CHARGES AND CREDITS

Deferred charges, net of accumulated amortization consist of the following:

	June 30,		December 31,
	2022		2021
Deferred charge for selective catalyst reduction equipment	$	692	$	1,129
Regulatory asset for major outage costs		7,218		8,250
Regulatory asset for plant decommissioning		3,139		3,139
Deferred charges	$	11,049	$	12,518

Merom Station recognizes maintenance of certain selective catalyst reduction equipment in deferred charges and amortizes over an expected useful life of two years.

In 2018, a regulatory asset was established to defer major outage costs incurred at Merom Station. The costs are being amortized over eight years, which represents the expected cycle of major maintenance activities at the time the asset was established.

In 2021, a regulatory asset was established to defer the Merom Station employee exit cost settlements related to the expected plant retirement in May 2023. The costs will be amortized over fifteen years beginning in 2023 which is the board-approved recovery period.

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Amortization expense related to selective catalyst reduction costs was reported in other production expense in the amount of $438 and $513 for the six months ended June 30, 2022 and 2021, respectively. Amortization expense related to the major outage costs was reported in maintenance expense in the amount of $1,031 for both the six months ended June 30, 2022 and 2021.

In 2021, a liability of $3,139 was recognized to correspond with the regulatory asset established to defer the Merom Station employee exit cost settlements related to the expected plant retirement in May 2023.

4. INCOMES TAXES

The income taxes for Merom Station have been presented on a separate return basis for the purposes of the condensed carve-out financial statements. Merom Station is not a separate legal entity but is contained within Hoosier. In conjunction with Hoosier’s sale of Merom Station to Hallador, the tax basis for Merom Station will not carryover to Hallador.

Merom Station has a valuation allowance against the full amount of its net deferred tax asset. Merom Station provides a valuation allowance against deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets, will not be realized. Merom Station deferred tax asset valuation allowance increased by $1,089 and $968 during the six months ended June 30, 2022 and 2021, respectively.

5. RETIREMENT PLANS

Certain employees of Merom Station participate in Hoosier’s retirement plans. In addition to the defined benefit pension plan, the post-retirement health plan has been accounted for as multi-employer plans in the condensed carve-out financial statements in accordance with ASC 715-30-55-64 “Retirement Plans”, which provides that a subsidiary that participates in a parent’s single-employer pension plan should account for its participation in the parent’s plan as a multiemployer pension plan and is not required to report a liability beyond contributions currently due and unpaid in the plan or provide the disclosures required by section 715-80-50. Therefore, no actuarial assets or liabilities related to these plans have been included in the carve-out balance sheets. The costs associated with retirement plans have been based on costs directly attributable to Merom Station employees or allocated to Merom Station based on the relative participation of employees of Merom Station in those plans. A description of these Hoosier retirement plans and the amounts directly attributable to Merom Station are as follows:

Multiemployer Plan—The National Rural Electric Cooperative Association (“NRECA”) Retirement Security Plan (“RS Plan”) is a defined benefit pension plan qualified under Section 401 and tax-exempt under Section 501(a) of the Internal Revenue Code. It is a multiemployer plan under the accounting standards. A unique characteristic of a multiemployer plan compared to a single employer plan is that all plan assets are available to pay benefits of any plan participant. Separate asset accounts are not maintained for participating employers. This means that assets contributed by one employer may be used to provide benefits to employees of other participating employers. The costs of these benefits directly attributable to Merom Station employees was $1,238 and $1,371 for the six months ended June 30, 2022 and 2021, respectively.

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In 2013, Hoosier elected to participate in a voluntary prepayment option offered to participants in the RS Plan. Hoosier contributed $19,334 under the prepayment program during 2013. According to RUS guidelines, the amount will be amortized to benefit costs over a ten-year period, which represents the remaining service lives of all plan participants. The prepayment amount is Hoosier’s share, as of January 1, 2013, of future contributions required to fund the RS Plan’s unfunded value of benefits earned to date using RS Plan actuarial valuation assumptions. After making the prepayment, Hoosier’s annual contribution rate was reduced by approximately 25%, retroactive to January 1, 2013. The 25% differential in contribution rates is expected to continue for approximately fifteen years but is subject to change as a result of actual plan experience. Total contributions include amortization of payments made under the voluntary prepayment option. Amortization of the prepayment directly attributable to Merom Station employees was $358 and $398 for the six months ended June 30, 2022 and 2021, respectively.

Retirement Savings Plan―Employees of Hoosier are also eligible to participate in the Retirement Savings Plan of Hoosier Energy Rural Electric Cooperative, Inc. This is a defined contribution, 401(k) plan. Eligible employees are eligible for employer matching contributions. The costs of these benefits directly attributable to Merom Station employees was $378 and $396 for the six months ended June 30, 2022 and 2021, respectively.

Long-Term Disability Plan—Hoosier provides long-term disability benefits to its employees. Prior to September 2016, benefits included payment of 100% of single coverage premiums and 80% of dependent coverage premiums. Following changes to the plan, employees will receive benefits for a maximum of two years or until reaching age 62 and then are required to pay 100% of the retiree-appropriate premium. The costs of these benefits directly attributable to Merom Station employees was $50 and $57 for the six months ended June 30, 2022 and 2021, respectively.

Post-Retirement Health Plan―Hoosier provides post-retirement health benefits to eligible retirees, which include payment of 100% of single coverage premiums and 50% of dependent coverage premiums to age 65 for those eligible employees hired before December 31, 2007. Hoosier funds the plan as health care claims are required to be paid. The service costs directly attributable to Merom Station employees was $30 and $34 for the six months ended June 30, 2022 and 2021, respectively. The interest costs and amortization of actuarial losses as well as the unrecognized actuarial losses in comprehensive income have been allocated as part of corporate overhead allocations as these items were not directly attributable to Merom Station employees. See Note 6 for the corporate overhead allocations.

6. RELATED PARTY TRANSACTIONS

Merom Station has not historically operated as a separate entity, but a component of Hoosier whereby Hoosier has provided services to support the operations of Merom Station as described below.

Retirement Benefits—The employees of Merom Station participate in retirement benefit plans sponsored by Hoosier. The costs of such plans directly attributable to the employees of Merom Station are disclosed in Note 5. Those amounts do not include employee benefit costs allocated as part of the corporate overhead allocations, which are included in the amounts disclosed below.

Intercompany Transactions—Intercompany transactions between Merom Station and Hoosier have been included in these financial statements and are forgiven at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the statements of cash flows in Change in owner’s net investment as a financing activity and in the balance sheets as Owner’s net investment.

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Corporate Overhead Allocations—The financial information in these condensed carve-out financial statements does not necessarily include all the expense that would have been incurred had Merom Station been a separate, independent entity. As Merom Station is not a separate legal entity, it has no bank accounts and utilizes the centralized cash management system of Hoosier. All allocated expenses have been deemed to have been paid by Merom Station to Hoosier in the period in which the costs were incurred. Hoosier provides Merom Station certain services, including, but not limited to, board of directors, corporate executives, information technology, human resources, finance, purchasing, environmental services, facilities support as well as other support from Hoosier headquarters. The condensed carve-out financial statements of Merom Station reflect an allocation of these costs. When specific identification was not practicable, a proportional cost method was used based on headcount, total operating expense, total generation operating expense, or total generation and transmission & distribution operating expense. Corporate overhead allocations for the six months ended June 30, 2022 and 2021 in the carve-out statements of operations and comprehensive income were as follows:

	Six Months Ended
	June 30,
	2022			2021
Administrative and general	$	6,827		$	10,231
Maintenance		805			768
Depreciation and amortization		1,248			1,398
Interest expense		11,328			11,696
Other fixed charges and amortization of debt expense		356			403
Other nonoperating expense		50			264
Nonoperating post-employment benefits—net		147			129
Corporate allocations impact on net income		20,761			24,889
Other comprehensive income—unrealized (gain) loss on pension and other post-retirement benefit plans		(155	)		61
Corporate allocations impact on comprehensive income	$	20,606		$	24,950

7. COMMITMENTS AND CONTINGENCIES

Rail Car Leases—Hoosier leases one hundred ninety-eight railroad cars used in transporting coal to the Merom Station generating facility. Rental expense related to rail car leases reported in fuel expense was $351 and $287 six months ended June 30, 2022 and 2021, respectively.

Merom Station Facility Asset Lease—On December 15, 2021, Hoosier elected to exercise the fair market sales value purchase option. See Note 8 regarding a settlement agreement with the Lessor.

Rental expense related to Merom Station facility asset lease reported in other production expenses was $498 in both six months ended June 30, 2022 and 2021.

Self-Insurance—Hoosier has adopted a self-insured medical plan for the benefit of its employees. Stop loss insurance is maintained for individual claims for each policy year. Merom Station’s expense under the self-insured medical plan was $1,511 and $1,827 for 2021 and 2020, respectively. Liabilities associated with the plan were $274 as of June 30, 2022 and $166 as of December 31, 2021, and are included in Other current liabilities in the Balance Sheets.

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Legal—Hoosier is occasionally involved in various other claims and lawsuits arising in the normal course of business at Merom Station. While the ultimate results of these other lawsuits or proceedings cannot be estimated with certainty, management does not expect these matters will have a material adverse effect on Merom Station’s financial position, results of operations, or cash flows.

On January 25, 2022, Cyterna, 15.744% owner of Hoosier’s Merom Generating Station, filed a lawsuit in New York Supreme Court claiming Hoosier owes it approximately $79 million in damages for breach of contract related to an alleged decision to retire Merom Station. See Note 8 for a discussion of the related settlement in October 2022.

8. SUBSEQUENT EVENTS

On October 21, 2022, Cyterna and Hoosier entered into a settlement agreement to terminate the lease and transfer Cyterna’s 15.744% undivided ownership to Hoosier for the payment of $30 million.

On October 21, 2022, Hoosier consummated an agreement to transfer ownership of Merom Station to Hallador Power Company, LLC in return for the assumption of certain decommissioning costs and environmental responsibilities. The transaction includes a 3 ½ year power purchase agreement for Hoosier to purchase certain percentages of the plant’s energy output and capacity.

The financial statements include a review of subsequent events through January 6, 2023, the date the Merom Station financial statements were available to be issued.

******

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XML

Document And Entity Information	Oct. 21, 2022
Document Information [Line Items]
Entity, Registrant Name	Hallador Energy Company
Document, Type	8-K/A
Document, Period End Date	Oct. 21, 2022
Entity, Incorporation, State or Country Code	CO
Entity, File Number	001-34743
Entity, Tax Identification Number	84-1014610
Entity, Address, Address Line One	1183 East Canvasback Drive
Entity, Address, City or Town	Terre Haute
Entity, Address, State or Province	IN
Entity, Address, Postal Zip Code	47802
City Area Code	812
Local Phone Number	299-2800
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity, Emerging Growth Company	false
Title of 12(b) Security	Common Shares
Trading Symbol	HNRG
Security Exchange Name	NASDAQ
Amendment Description	Form 8-K/A Merom Transaction
Amendment Flag	true
Entity, Central Index Key	0000788965