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Derivatives

12 Months Ended

Dec. 31, 2022

Derivatives

11. Derivatives

Interest rate risk management

The Company has historically used interest rate swaps to reduce the variability of cash outflows associated with interest payments on its variable rate term loan. These swaps were designated as cash flow hedges at inception. For additional information on these arrangements, see Note 13 to the Consolidated Financial Statements, “Debt and Financing Arrangements.”

Diesel fuel price risk management

The Company is exposed to price risk with respect to diesel fuel purchased for use in its operations. The Company anticipates purchasing approximately 40 to 45 million gallons of diesel fuel for use in its operations during 2023. To protect the Company’s cash flows from increases in the price of diesel fuel, the Company has purchased heating oil call options. At December 31, 2022, the Company had protected the price of expected diesel fuel purchases for 2023 with approximately 15 million gallons of heating oil call options with an average strike price of $4.07 per gallon. These positions are not designated as hedges for accounting purposes, and therefore, changes in the fair value are recorded immediately to earnings.

Coal risk management positions

The Company may sell or purchase forward contracts, swaps and options in the over-the-counter coal market in order to manage its exposure to coal prices. The Company has exposure to the risk of fluctuating coal prices related to forecasted sales or purchases of coal or to the risk of changes in the fair value of a fixed price physical sales contract. Certain derivative contracts may be designated as hedges of these risks.

At December 31, 2022, the Company held derivatives for risk management purposes that are expected to settle in the following years:


(Tons in thousands)		2023
Coal sales		39
Coal purchases		—

Tabular derivatives disclosures

The Company has master netting agreements with all of its counterparties which allow for the settlement of contracts in an asset position with contracts in a liability position in the event of default or termination. Such netting arrangements reduce the Company’s credit exposure related to these counterparties. For classification purposes, the Company records the net fair value of all the positions with a given counterparty as a net asset or liability in the Consolidated Balance Sheets. The amounts shown in the table below represent the fair value position of individual contracts, and not the net position presented in the accompanying Consolidated Balance Sheets.

The fair value and location of derivatives reflected in the accompanying Consolidated Balance Sheets are as follows:


		December 31, 2022									December 31, 2021
Fair Value of Derivatives		Asset			Liability						Asset			Liability
(In thousands)		Derivative			Derivative						Derivative			Derivative
Derivatives Not Designated as Hedging Instruments
Heating oil -- diesel purchases			1,300			—						1,219			—
Coal -- risk management			1,407			—						4,885			(2,203)
Total		$	2,707		$	—					$	6,104		$	(2,203)
Total derivatives		$	2,707		$	—					$	6,104		$	(2,203)
Effect of counterparty netting			—			—						(1,890)			1,890
Net derivatives as classified in the balance sheets		$	2,707		$	—		$	2,707		$	4,214		$	(313)		$	3,901


Fair Value of Derivatives				December 31,			December 31,
(In thousands)				2022			2021
Net derivatives as reflected on the balance sheets (in thousands)
Heating Oil and coal		Other current assets		$	2,707		$	4,214
Coal		Accrued expenses and other current liabilities			—			(313)
				$	2,707		$	3,901

At December 31, 2022, the current open derivative positions are non-margined. The Company had a current asset representing cash collateral posted to a margin account for derivative positions primarily related to coal derivatives of $2.8 million at December 31, 2021. This amount is not included with the derivatives presented in the table above and is included in “other current assets” in the accompanying Consolidated Balance Sheets.

The effects of derivatives on measures of financial performance are as follows:

Derivatives used in Cash Flow Hedging Relationships (in thousands)

For the noted periods,


		Gain (Loss) Recognized in Other Comprehensive
		Income (Effective Portion)
		Year Ended			Year Ended			Year Ended
		December 31,			December 31,			December 31,
		2022			2021			2020
Coal sales	⁽¹⁾	$	—		$	—		$	500
Coal purchases	⁽²⁾		—			—			(496)
		$	—		$	—		$	4


		Gains (Losses) Reclassified from Other
		Comprehensive Income into Income
		(Effective Portion)
		Year Ended			Year Ended			Year Ended
		December 31,			December 31,			December 31,
		2022			2021			2020
Coal sales		$	—		$	—		$	(1,850)
Coal purchases			—			—			1,458
		$	—		$	—		$	(392)

No ineffectiveness or amounts excluded from effectiveness testing relating to the Company’s cash flow hedging relationships were recognized in the results of operations in the respective periods.

Derivatives Not Designated as Hedging Instruments (in thousands)

For the noted periods,


		Gain (Loss) Recognized
		Year Ended			Year Ended			Year Ended
		December 31,			December 31,			December 31,
		2022			2021			2020
Coal trading— realized and unrealized	⁽³⁾	$	—		$	—		$	222
Coal risk management— unrealized	⁽³⁾		(1,274)			2,392			(5,517)
Natural gas trading — realized and unrealized	⁽³⁾		—			—			76
Change in fair value of coal derivatives and coal trading activities, net total		$	(1,274)		$	2,392		$	(5,219)

Coal risk management — realized	⁽⁴⁾	$	(42,068)		$	(27,464)		$	9,258
Heating oil — diesel purchases	⁽⁴⁾	$	8,309		$	—		$	(558)

Location in Consolidated Statements of Operations:

(1)

— Revenues

(2)

— Cost of sales

(3)

— Change in fair value of coal derivatives and coal trading activities, net

(4)

— Other operating income, net