Q3 2023 Hallador Energy Co Earnings Call
Okay.
Hello, everyone and welcome to the Holly Energy third quarter 2023 earnings call. My name is M&A and I'll be coordinating your coach day. After the presentation, there will be opportunity if any questions, but you can ask by pressing star followed by the number one on just how to think he pets.
I will now turn the call over twice Rebecca Palumbo. Please go ahead.
Okay.
Thank you Emily.
Thank you everybody for joining us today.
Yesterday afternoon, we released our third quarter 2023 financial and operating results and thank you.
It is now posted on our website with me today on this call is Brent Bill Flynn, our president and CEO and Larry Martin our CFO.
After their prepared remarks, we will open up the call to your question.
Before we begin.
Please note that the discussion today may contain certain forward looking statements that.
That is statements related to the future not past events in this context.
We're looking statements often address our expected future business and financial performance. While these forward looking statements are based on information currently available to us if one or more of these risks and uncertainties materialize or if our assumptions prove incorrect actual results may vary materially.
Kelly from those we projected or expected.
For example, our estimates of mining costs future fail legislation or regulation.
In providing these remarks, we have no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events or otherwise that may be required by law.
A discussion of those risks and uncertainties that may affect our future results. Please review the risk factors described from time to time and the reports we filed with the SEC.
A reminder, this call is being recorded in addition, we will have an archived webcast of this earnings call on our website.
I encourage you to ask questions during the Q&A and if you're on the webcast and would like to ask a question you will need to dial into the conference line that toll free number is 183347014 to eight.
Access code two two for $3 seven three and with that I'll turn the call over to Larry.
Okay.
Thank you Becky and good afternoon, everyone before I begin I want to define adjusted EBITDA, which we define as operating cash flow less the effects of certain subsidiary and equity method investments.
Bank interest less the effects of working capital changes plus cash paid an asset retirement obligation reclamation plus other amortization.
For the quarter <unk> incurred net income of $16 1 million, which was 49 since our basic earnings per share or <unk> 44 per diluted earnings per share.
For the year net income was 55 million or $1 66 per earnings per share of $1 52 diluted earnings per share we have.
Adjusted EBITDA for the quarter of $35 9 million and for the year of $105 2 million we.
We decreased the bank.
Bank debt by $12 5 million for the quarter $23 5 million for the year.
Our funded debt as of September 30 was $61 8 million, we had letters of credit totaling $11 2 million.
And our net.
Funded bank debt was 59 point to which is funded or bank debt less cash.
Our leverage ratio, which is defined as debt to adjusted EBITDA was seven one times at September 30th.
Did I say seven point.
Seven one times for the quarter I will now turn the call over to Brent to review the quarter and beyond.
Thank you Larry.
First I'd like to thank the outdoor team for their hard work and dedication on creating another successful quarter.
As I have highlighted in our previous quarters, our goals of increasing profitability.
Creasing company liquidity.
And reducing balance sheet leverage remain paramount to how we operate as a company.
This quarter's results show our continued progress towards these goals.
Our net income of $16 1 million for the quarter.
Help build on our record net income of 55 million for the first nine months.
And our continued record operating cash flow of $79 5 million over the nine month period.
Loud us to invest $48 7 million in.
And capital expenditures to improve our efficiency and reliability.
At both our mines and our power plant.
We made continued progress on our goal of improving our balance sheet.
By repaying $23 5 million of debt during the first nine months of the year.
12, and a half million of which was during the third quarter.
This further reduced our leverage.
As Larry said to 0.71 times.
While we increased liquidity to $66 4 million as of September 30th.
On October 2nd we successfully amended our credit facility with PNC Bank.
Which we accounted for as a debt extinguishment.
This amendment is important as it extends the maturity of our credit facility into 2026.
During the third quarter high coal sales prices, coupled with large coal shipment volumes led to record coal revenue.
Our well contracted sales book supported our revenue growth despite operational challenges, increasing our cost per ton during the quarter.
We chose to relocate 57% of our coal units of production during the third quarter and into October to better to obtain better geologic conditions.
This led to higher costs and decreased production during this timeframe, but it was resulting in overall production improvements following the moves which we expect to continue.
During the quarter, we shipped $2 1 million tons of coal.
The average price of $56.43.
For intercompany eliminations.
We produced one 6 million tons in the quarter.
Yeah.
$46.54 per ton before eliminations.
Leading to margins of $18 89 per ton during the third quarter before eliminations.
We expect an average price of $54 30 per ton on a remaining tons to be shipped this year.
On the power side of the business Inner company coal sales from our coal division to our power plant Division.
Increase the average variable cost per megawatt hour to $40 <unk> per megawatt hour.
Increase of $9 98 per megawatt hour over the prior quarter before eliminations.
We set the price of coal we sell to ourselves.
Based on third party market indicators that we review from time to time.
Cost per megawatt hour were $23.
49 cents on a consolidated basis.
As the marketing price fluctuate, we expect to see these types of variances in each side of the business during the quarter. We produced one 3 million megawatt hours.
We are excited about the progress we're making in our forward power sales capacity book.
During the quarter.
And in the time, leading up to this release, our power Division was successful in securing $325 million of energy and capacity sales across multiple years as reported in our Form 10-Q filed last night.
This morning, we received.
A signed agreement for an additional $41 million of capacity and revenue over the years 'twenty four 'twenty five 'twenty six.
Bringing this number of total sales up to $366 million.
These sales are important as they created profitable foundation for our power division over the next five years with sufficient energy sales.
Our excuse me it was significant energy sales at $56 per megawatt hour and capacity prices approaching $220 per megawatt day.
Now we get a lot of questions concerning how investors should think about how it or now that we have added our power division.
To add clarity we include a detailed section.
We included a lot of detail in section three of the overview of the MBNA outlining our sales of coal power and capacity through 2028.
At a high level I think about our business as such we.
We produced 7 million tons of coal annually.
Just over 4 million tonnes is sold to outside customers and almost 3 million tons is sold to our power division, how it or power.
The reference tables show that over the next five years.
54% of the coal that we plan to sell to outside parties is already committed to those parties.
And 73% of these commitments are priced at an average price of $52 60 per ton.
Our year to date cost per ton to produce produce goal was $43.25.
The other 3 million tonnes assume that we will annually produce.
6 million megawatt hours at our power plant.
Now there are rules about how we price this code ourselves.
And the accounting around this can be confusing to fall due to the internal eliminations.
However, the price that is chosen for the coal that we sell ourselves.
Only determines how much profit or losses allocated.
Two our coal division or our power Division.
Ultimately what matters is how much profit is made it out or <unk>.
Based on our cost structure.
During the third quarter, our consolidated variable cost at the plant.
Was $23.49 per megawatt hour.
As stated in previous quarters, we use our capacity sales to cover the majority of our fixed cost of the player.
We have sold.
And we expect.
<unk>.
With the with the capacity prices that we're seeing that that to continue.
We have sold approximately 27% of our future power through 2025.
At $34 per megawatt hour roughly a $10 margin based upon the cost structure.
But in this past quarter, we have sold $3 3 million megawatt hours.
The 26 27 28 years.
At $56 per megawatt hour.
Which is roughly $32 per megawatt hour profit margins.
Based on today's cost structures.
These sales have us very excited about the profit potential for Howard or power.
Now that doesn't mean, there won't be operational challenge such as the one we experienced.
On October <unk>, when we had an unplanned transformer outage in one of the generators at the power plant.
Transformer has since been replaced.
And the event will cause us to Miss a net two to three weeks of output.
From one of those two units.
I want to reemphasize I am very excited about the future of the company, especially as I look to the power sales through 2028.
What we are.
Seeing through increased pricing from our recent power Ppas cut.
Coupled with strong capacity demand and pricing.
With a solid book of business that we are now showing and the steady supply of coal from our mines.
Incredibly pleased with the progress that we're making towards leveraging the opportunities that drove our decision to acquire the power plant.
As I said at the start of my comments I'm encouraged by the quarterly results and the continued progression of how it or as a company.
And with that I will open up the call for questions before.
Before we go to questions I want to clarify one one sentence here is our co. Our shipments were $2 1 million at $65 43 for the quarter.
$18 89 per ton margin. Thank.
Thank you Sir.
Yeah.
If you'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to be removed from the key Please press star and then K ones.
Comparing to ask a question. Please ensure that your device Andrew microphone on mute you'd likely we will just pause for a second to allow the questions to come into the queue.
Our first question today comes from the line of Kevin Tracey with Oberon asset management.
Kevin. Please go ahead. Your line is now open.
Yeah.
Great. Thanks for taking my questions. The first one is just to clarify what I thought I heard you say about the outage at mirror.
So in the 10-Q there is a note.
As the unit isn't expected to be back into service for the second half of December.
But I thought I heard you say.
Outage was only two to three weeks, so I guess was it.
Are we kind of missing two and a half months are two to three weeks of this unit.
Yes, let me clarify that so.
The unit was already scheduled.
To go on a scheduled scheduled outage from November one to December 27.
Yeah, that's something that we schedule with MISO.
Six to nine months in advance.
And we bring in outside contractors to do routine maintenance.
On the units so that was planned.
The unit went down basically a month early.
Due to the transformer.
And so we have sped up.
Part of the outage work.
To begin some of that work that we could do.
October which means instead of the units coming back online.
At December 27th.
It will probably come back online a week or two earlier than it was previously scheduled so net net.
We're going to lose this unit.
One of the two units.
Two to three weeks longer than was expected and planned for.
Okay Cross your fingers in the past.
In December.
Yeah.
Okay.
And going forward will there be do you expect any impact on MISO accreditation of the plan for purposes of future capacity revenues.
Are you, hoping that won't be material.
Yes, I think every time you have a forced outage so accreditation.
Is a rolling three months or three year process right.
And so theyre looking at your performance history during that timeframe.
So things that help your capacity ratings are.
We acquired a plant that was scheduled for shut down so some of that maintenance.
Was let go and we are.
<unk> spending additional monies.
This year and next to kind of get the plant back and what I would call it tip top shape.
And so where that helps you on accreditation.
We're seeing.
Seeing higher output numbers.
Then when we took over the plant a little over a year ago right. So as you get newer better and refurbished equipment on the plant or label Youre able to achieve.
Higher performance.
That's to the good the bad side is every time you have.
Unscheduled outage, so since we had with the transformer.
Uh huh.
That counts against against you in an accreditation.
And then I'd say thirdly, we still see MISO.
Making tweaks at adjustment to their accreditation process.
Finalize those rules and so we can't ever be 100% certain.
What comes out of that do we get more accreditation do we get less accreditation.
It's always hard to say so all we can do and what we have done is as of our last accreditation, which was 800.
I mean, it's on a seasonal basis, but I think on average our accreditation was 860 megawatts.
That's what we're basing.
Our numbers on so when we show you Hey, here's how much capacity, we have sold as a percentage of the plant.
Based on an assumption that our accreditation is 860.
But that number could go up or down based on our next accreditation from MISO.
And I want to emphasize one thing Brent talked about.
The being down also depends on when if you are in doubt down in a low demand period. It doesn't count against you as much as if you were down during a high demand say minus 20 degrees or something like that in the winter. When there is a lot of demand for electricity, so us being down in <unk>.
Over in a mild season may not count as much against us at B, and we may get more upside when we come back on in December.
That's total speculation, but it is.
Yes.
Yes.
Gonna have colder weather.
In December than we had in October power prices.
Theoretically would be higher than demand.
So.
It may not be as.
We may be trading.
For mild weather weeks for <unk>.
Two cold weather weeks, we just don't know and we won't know till we get there.
Understood, Okay, and then so.
With these power.
Sales agreements, you've entered and so you've sold about a quarter of your planned generation for the next several years can you talk a bit more about how.
How high do you want to go in terms of selling power forward as a percentage of your expectation and then how are you managing.
The risk there.
The plant were to have an <unk>.
Unplanned outage in <unk>.
Agreed to supply power.
Prices.
You could find yourself long the power market. So how are you kind of managing.
Risk when youre thinking about entering those agreements and if you could touch on.
How high you're hoping to go in terms of forward sales.
Yes, good question.
Okay.
So far to date everything that we have sold on the power side.
His plan or unit contingent meaning.
That.
<unk> sold the power.
And if we fail to perform we do not have to go out and buy that.
Power, we don't have to cover right, we just simply.
Are not shipping those electrons to the customer.
And they either have to do without or they have to go buy them elsewhere, but that is not.
On our accounts, so I think as.
As excited as we are about our sales on a risk adjusted basis, we are extremely excited about that.
Again, we look to see what opportunities are for.
These are bilateral agreements these are not <unk>.
Exchange hedges.
On an exchange head thats far as a firm power sale, we would have to cover that scenario and so we want to make sure that we have a lot of liquidity.
If we do that type of hedging.
And so.
Part of our process and what we've talked about here is we want to make sure we get our balance sheet as healthy as possible get our liquidity.
Hi, as possible and then we'll look to the market to see if there is hedges that we want to.
Additional hedges that wed like to layer in.
Yes.
Okay. So then on the puts the mining cost.
Sorry go ahead.
Yes, I was just going to say, we certainly prefer the bilateral agreements on a risk adjusted basis.
Got it Okay, and then on the mining cost per tonne.
Heading into this year.
The hope was that we would see an improvement over 2020 twos $37 per ton, we've obviously seen costs rise quite a bit from there.
Can you talk about kind of what.
Went wrong versus your expectations was it just in general inflation or an issue with the geology.
You made some comments about.
Improvements youre seeing from some changes you're making can you help set expectations on where you think your mining cost per ton will be for 2024.
So on the.
Production outlook.
It's pretty we have seven units seven individual production units underground.
I think it's pretty typical in any given quarter for one or two of those to be struggling with.
What was unusual about this quarter is we add four unit struggling.
And we.
Sometimes that catches you at a time, that's a little out of sequence.
To be moving so.
You fight that for a little while and then finally ultimately come to the decision of.
We need to shutting it down and move it.
And there is just.
Lost time and production.
When you do that particularly out of sequence like we did this quarter and into October.
So very unusual to move forward units at any given quarter.
But thats, what we did and Thats ultimately had.
At outsized factor of why our costs were.
Are the highest they've ever been in any quarter in the history of the company.
So disappointed by that all I can say is we've moved those units.
And.
I am pleased with the productivity that I'm seeing to date.
Out of those units so we expect.
Our cost structure.
To be better.
In the future.
Okay are you willing to put out a number on where you think the cost structure will be can we get into the <unk> again.
Okay.
I think that.
No.
Hi.
I think we will.
We have seen inflation, so I think.
Probably in 2024.
Oh gosh, some of Thats going to depend on.
What the production levels are at each mine, but I think youll see us back into the low forties upper thirties.
Okay.
And then on the Capex. So your fourth quarter guidance implies that the full year Capex will come in about $10 million, but in your original budget and it looks like the all of that.
Yes.
All of that Delta from your original guide is coming from the core business can.
Can you talk about where you think <unk>.
Capex will end up kind of on a normal basis for the coal business going forward and then do you have any update on the affluent project.
Miriam and kind of where youre thinking the capex budget is going to look like next year.
Yeah.
I'll handle the coal part and then Brent can answer the affluent.
Question.
But for the coal plant, we just had.
With our moving things around a 57% we move we add to mine developed we had to do and then we had some equipment that came that came on.
What's going to come out at the end of the year that we thought was going to be in the next year. So that's our $10 million difference.
Going forward I think our I think our plan is $35 million for Capex for the coal plant.
Do you want to talk about EOG eog's so that.
The EPA has proposed a new rule.
That has yet to go final.
So we are waiting to see.
Where they ultimately end up.
And we expect them.
To finalize that rule in the in this coming spring.
And so that ultimately will decide what we do to the exact.
Timing and compliance date.
To meet that rule, our board has approved $45 million to spend on that.
We still feel comfortable with that.
We will meet.
We think the EPA is heading with that rule.
Most stringent standard.
But we'll wait to see.
Well, where they end up on the final rule before we comply with that so that is delaying the expenditure of some of those dollars.
Until we know.
Exactly what the EPA wants.
Okay, and then last quick one here on the last call. Your latest update on your target of getting to essentially zero net debt was the second quarter of next year is there any update to that.
<unk>.
Yes.
Yes, I think the higher costs that we experienced this quarter.
<unk> is going to push that out at least a quarter.
And into the third quarter of two.
2024.
Okay, alright, thanks for answering all of those.
Thank you.
Our next question comes from Kevin pounds with Castleberry Advisory. Please go ahead, Kevin Your line is open.
And I can ask them. Thank.
Yes, I think you mentioned in the last call that you were looking for.
You might benefit from hot summer surges in demand in the summer they did to the experience that the power plant.
Yeah.
Yeah.
So we really saw a pretty mild summer I think we had two weeks of.
Hot weather, so we saw good pricing during that timeframe, but.
The balance of <unk>.
From a power pricing perspective is fairly anemic.
So we're still kind of waiting for.
More colder colder days are hotter days, but.
We don't like 65 degree days.
From a business perspective right.
Yeah.
Yes.
There has been on the West coast here Theres been refineries closing or are there. Some other older power plants that are in your area that might be closing that would tighten up the market or have you seen anything like that.
Okay.
Yes, we did we did just have.
Other power plant that closed last week and MISO zone, six which is the zone that we're in.
We think.
The trend continues to be <unk>.
People are taking generation out of MISO.
That has an on switch.
And replacing it with generators that.
That do not have an on switch.
And as long as that trend continues.
That should increase the value of capacity.
And it's going to create.
Higher highs and lower lows and the power markets right because renewables tend to give you electrons.
Not necessarily when you need them.
And so if we can be a generator that can provide electrons when they are needed.
We think that.
We're going to see some days, where theres, some pretty extreme high pricing.
And when we have an open positions such as we have today.
Relatively open position.
Then.
It affords us those opportunities to take advantage of that so we'll see what.
What the weather brings.
We are continuing today to go to work to try to sell more power through bilateral agreements and I think this quarter was a solid performance in that.
I guess if you include the contract we drug in the door today it was.
$366 million with power and capacity sales, we keep having quarters like that I think our investors are going to be very happy.
Yeah, sure you're definitely improved earnings visibility.
And I know you've made similar comments, so far which Sam <unk> had a lot of reports lately about these renewable projects.
<unk> too expensive and not delivering you know certainly the margin that people had wanted.
Finally, you said you had for the seven units that struggled.
Are some of those units, maybe not going to be too high cost if we keep seeing cost creep in all over the country not just you guys, obviously, even inflation fuel in South Florida.
Yes, I thought it was interesting thats been several mining companies that have reported before us it seemed like everybody had a tough operational third quarter about really sure why that is I don't know if it was something.
About the.
A lot of humidity that came out of the mines as a cool down.
Or if it was just coincidence, but.
Certainly everybody is seeing cost pressure due to inflation, but I really think the majority of what we had going on in this particular quarter and into October.
Was geologic and specific to our minds and I think that we have solved that problem.
And.
Sorry that the quarter wasn't wasn't better from an operational cost point of view, but I I hope I think we fixed the problem.
Great well. Thank you. Thank you so much and keep up the good work.
Thank you very much.
Okay.
Our next question comes from Jason, Let's stick with J Goldman. Please go ahead, Jason Your line is open.
Hey, Thanks for taking my question.
Just wanted to hey.
Thank you for increasing the disclosure in the contract playing ball really helps.
Another color scientists better understand the long term economics of the company <unk>.
I appreciate that.
Yes.
Thought more about this table I think we're getting a sense for what the future revenues that the company can look like three different revenue streams.
We have a reasonable sense of the coal costs or timing.
The fixed cost we've talked about in the past at the plant.
One thing that I'm struggling a lot with them would appreciate trying to better.
Understand.
Is the variable cost per megawatt hour, excluding fuel at the plant and how we should think about that overtime.
Well.
Look I mean fuel as the majority of it I think we've come out and said that.
During the quarter on a consolidated basis variable costs, including fuel and non fuel.
Was $23 50 per megawatt hour so.
No I don't.
I don't think at this time, we plan to break out what our non fuel expenses.
Quite frankly, I think we've got enough numbers that.
Our goal is to not confuse everyone. Our goal is to create as much clarity as possible and that's why we spent.
A lot of time on that table I reference.
In an effort.
To try to get.
Everyone to understand right because it gets very confusing when you start pricing coal to yourself and you have these company intercompany eliminations, which is all gap, it's all fall.
The way, it's supposed to be but we.
We're trying to clarify that that hey at the bottom line.
Extreme.
Just a great earnings potential at the power plant.
And.
We hope everybody gets is as excited about that as we are.
Particularly when our most recent pricing.
<unk>.
Particularly on a risk free basis since its unit contingent.
It is quite profitable and so.
So.
Anyhow I appreciate your compliments on that we're probably not on this call.
Get into what our non fuel costs are at this time.
Okay. Okay.
Appreciate that.
If I flip to the coal operation segment in the 10-Q.
I see thats, a $37 million in sale to the Maryland plan that are eliminated in consolidation.
And I would love to try and triangulate and better understand how that how I can reconcile that number with the $4 <unk>.
Per megawatt hour.
Yeah.
Cost it may around variable cost and the $22 49 consolidated number.
And maybe that can get us most of the way there for those on the outside I'm still confused.
Well I'm not 100% sure I understand that question.
I'm trying to just.
We can do our own math I guess on the outside to triangulate and confusion, but.
I am trying to figure out how much I guess, what was the cost or the price of the call.
That was transferred and what is the right number is it half a million tons I think I saw somewhere else in the 10-Q is there some other number that I should be using for this quarter.
So I think.
Andrea.
So everything is in.
I'll give you.
You guys can do the math, but here the numbers we sold coal.
To ourselves for $75, which is in the queue, but we have to eliminate that.
And then our cost were 40, some that I cant remember off top of my head where they're at in the Q, but there are costs for the quarter were $46 I think so.
So that that has to be that profit has to be eliminated.
As you sell.
The coal to yourself now.
We did burn, but its not just what we sold in sales Thats, what we actually burned yes. There is some sitting in inventory that got eliminated as well.
Okay.
Okay.
Alright, I think thats, where most of the way there. Thank you correct. Okay alright. Thank you for your questions.
So we take our next question as a reminder, if you would like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.
Our next question comes from Tom <unk> with Zacks investment research.
Please go ahead your line is open.
Good morning, guys or good afternoon, I think most of my questions were just covered.
Couple of quick ones as you guys continue to generate more free cash flow refresh my memory, if theres any restrictions on returning capital to shareholders through dividends share buybacks et cetera.
Now at our current leverage ratio, we have no restrictions.
Yeah.
Okay great.
And then lastly, you guys have indicated in the past that you may be looking further power plants for acquisitions to add to that.
Side of the business is that still a good is it still a plan or any opportunities out there you can mention.
So nothing we can loop.
Lists specifically by name we are always looking and we think there is.
How it or is in a unique spot.
To potentially take advantage of those opportunities. So certainly we are looking.
Okay, Great. That's all I have for today.
Alright. Thank you thanks, Tom.
Our next question comes from Lucas pipes with B Riley Securities. Please go ahead. Your line is open.
Thank you very much operator, just a few quick ones from me.
First in terms of struggling.
On the coal side, what exactly is meant by that would happen.
I think we just.
So you have units that.
Run into bad roof.
Yes, it could be.
It could be that you've got presence of water or Samsung coming in close contact.
Our close location to the coal.
And.
When we get there.
Sometimes you can fight through that and get to the other side of it and other times you have to back up move over.
Sometimes you backup we've over backup move over a second time and then.
Comes a point.
Where you just say you know what I'm going to I'm going to move.
To a different portion of the mine and attack tackled this from a different angle or different.
Point of view.
Moving over and attacking it again thats pretty common that happens major moves.
Different area, that's pretty uncommon and particularly for four units in one particular quarter. So.
We want to say that it was significant.
It was unusual.
And we think that thats behind us.
We're all those four units working in close proximity when they encountered difficulties.
No.
And the areas that you moved out of.
Are you going to move back towards them.
In due course or what you said.
And for the foreseeable future. It was just too tough you don't want to go back there.
Yes, I mean, sometimes you just move around to the other side of it right. There is.
There's a.
There could be a good.
Area of coal it can be a year or two of good mining and you just need to access that from a different location.
So it's not I don't want you to lead you to believe that we're abandoning large portions of our reserve thats not the case at all.
We are just attacking it from a different point of view.
Got it okay. That's helpful. Thanks. Thank you for that and then want to go back to your comments earlier on hedging versus bilateral agreements and.
It sounded like.
There are certain advantages on these bilateral agreements.
Does it come down to force majeure provisions is that really the difference.
No I mean, it's just it's pretty common to have either firm sales or unit contingent sales and you know.
H E a bilateral agreement with the particular customer the very bespoke.
Agreement.
And.
It can have.
I would almost argue that no two agreements like that are exactly the same.
Whereas if I'm just jumping on.
Ice and buying or selling a power contract that's a very.
Cookie cutter fixed agreement.
Yes.
It's different.
And it it takes on more risk right you can get a margin call here on ice.
Can't get a margin call for my customers, we have contingent powers.
So from a risk perspective.
I think we've put ourselves in a really good.
We say is a good foundation of business.
Don't know that we can sell all of our power under that particular format.
So we will see all we're saying is is that.
We had great success, this particular quarter.
And we've got a great team that's out trying to.
Get in situations is both good for our customer and good for ourselves.
And Lucas to expand on that a little bit think of it as I mean, we say unit contingent, but we have guaranteed a.
A certain percentage for the year, so EBIT so weird.
If the unit goes down we don't have to deliver on the unit contingent basis and power it could be very high that day, and we don't get penalized.
But then some of that depending on a percentage we may make up later at our contracted price so.
So you said force measure, it's not really forced measure but kind.
Got it got it.
The legal term would be there kind of.
Thank you said unit contingent right.
Correct.
That's helpful. Thank you.
Yes, I really appreciate the disclosure.
Quick question there on <unk>.
H 18 of the queue.
Contracted power revenue line shows 2024.
98 point, there were $5 million, that's pretty clear.
The item immediately underneath it.
Okay.
How is that arrived exactly can you walk me 43.3.
Before the revenue per megawatt hour.
Clearly it doesn't assume a $6 million.
So.
I kind of struggle to tobacco.
78% of $6 million.
Okay.
So.
So Lucas that is the actual contract what we have contracted for the year, which is.
78% of $6 million.
Got it got it okay. So it's not based on.
The $6 million in space on.
You make the assumption Youre running it you said, 78% of the $6 million.
It's what we have we don't have 6 million contracts. So we have $6 million. We can provide for the $98 million is what we have contracted.
For total <unk> Thats total capacity and energy.
Correct.
Correct.
The debt line underneath that to 40 334.
When does that how much revenue, whereas how much revenue, we're going to get on our on our contracted megawatts.
But.
Yes, only $1 6 million contracted now.
But that includes capacity and power.
Got it okay.
Yeah.
I think what we're showing here.
365.
78% or $6 30 to $34.
Yeah.
Okay.
Okay.
Yes, maybe we can take that offline, but I appreciate it.
Think I know, where this is going but maybe maybe one quick follow up.
You have only $1 $6 million of output contracted right.
Correct and so I mean, the capacity you can still.
Yes capacity payments, but you can still generate revenue on top of that though.
Absolutely.
Yes.
Yeah.
Okay.
So we have $4 4 million megawatt hours of power.
That we can still contract.
Okay.
Right, Yeah, yeah, it makes sense.
Makes sense.
I really appreciate all the color.
Sure.
Again best of luck. Thank you.
Alright, Thank you Lucas.
Our next question comes from Roger Zeigler, who is a private investor.
Please go ahead.
Alright, congrats on.
Good strong quarter, despite some obstacle guys.
My questions I have not had a chance to delve into the.
Section three you said related to power in general this exciting new market.
<unk>.
Yes.
Reading the release.
Just posted the table in the one of the tables that in 2024, you've got.
27% of your power price is.
Is that does that.
Correct.
Basic non-GAAP table that was provided in at 34 box yes.
Yes, yes, that's correct.
So you've got 83% left too.
Potentially.
There'll be some windfall times in there if possible right when it gets some extremes either way as you said so.
Pretty exciting that'd be.
73%, yes, so basically what we have.
Got it.
Yeah, but again, 27%.
Let's just call it fourth round that we've got a fourth prize.
And we've got another two or three fourths that we're open to we bid into the market every day.
Now prices can be high and prices can be low prices can be so low that we take the unit offline.
But we think we're heading into.
We're heading into winter.
And that typically historically has been some of the better pricing so.
We'll see what December January and February.
Frank.
But also also we have set our you April pursuant of our capacity.
We have 78% of our capacity sold for next year, which.
If we sell 100% of our capacity, we think that will cover the majority of our fixed costs correct.
Okay, and then real general question May or May not.
Youre willing to answer but it won't be kind of a basic high level question is are you finding its very strong correlation to the Nat gas.
Market for power as it is with coal.
Oh, yes, I mean, theres a lot of gas generation in MISO.
And so if gas prices are cheap those units with gas units can produce.
<unk> power and we have to compete against that.
Uh huh.
To a certain point because.
Once once load exceeds gas generation than coal is going to compete against coal or gas prices.
Go high as they did last.
In 2022.
Then you'll see coal potentially dispatch in front of gas.
And gas will take the upper end of the market but.
Pricing today on gas.
<unk> is pretty cheap.
Right now the coal to gas switching thing and vice versa right. It's always in play right so and so.
One last question on this topic then.
One last question on this topic perhaps.
Should we.
Regarding again the power market are you are you mostly correlated to the Chicago hub.
MISO hub and even the Nat gas in some way or is it more of it.
This summer with record heat throughout Texas four in the south for.
A month, where you're able to capitalize on that.
This past summer or is it more of a regional.
I would say no.
Think of it in those terms.
Yes, it's definitely more important what the weather is Indiana through Chicago.
And the gas price is closest to us matters, the most which in that case.
The Chicago City Gate is one.
One marker that we look at for sure.
So you weathered a bad summer that way Chicago was as mild as its been for forever right.
Right South of you yet.
Oh for sure right.
Yeah.
Yes.
Yes.
Sure.
Yeah, we would love for the <unk>.
Uh huh.
But I was hoping for a refrigerator.
[laughter].
Well I think look we are very encouraged with that where there's a lot of new industrial demand showing up in the Midwest.
Europe has had basically an energy crisis since the Russian invasion of Ukraine, and that's causing a lot of re onshoring of industry with politicians yesterday, who.
More than one said look Indiana has a great business climate, we're not sure if we have enough people and we're not sure if we have enough power.
And so howard or being long power.
<unk> to be in that scenario, we like where we're at.
There's going to be some volatility to our earnings because we are we do have a large open power position and that is subject to market movements.
That would be great.
And.
The high and low end, but I think by and large on average will do really really well that's why we like the base of business that we're putting under it with our forward contracted sales.
And we're encouraged by the recent pricing.
We're encouraged by the most recent pricing that we saw at $56 a megawatt hour.
For multiple years.
Great.
Thanks, so much.
Thank you.
Those are all the questions we have for today, So I'll turn the call back to Brent for closing remarks.
Yes, I want to thank everyone for taking the time to dial in and having interest in <unk>.
And we're excited very excited about the future and what the power Division is finally, starting to show everyone is capabilities, though and we look forward to more exciting quarters to come. Thank you.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.