LEASES

12 Months Ended

Dec. 31, 2019

Two Creeks Solar Project

Related to our investment in Two Creeks, we, along with an unaffiliated utility, entered into several land leases in Manitowoc County, Wisconsin that commenced in the third quarter of 2019. The leases are for a total of approximately 900 acres of land and were determined to be finance leases under Topic 842. Each lease has an initial term of 30 years with two optional 10-year extensions. We expect the two optional extensions to be exercised, and, as a result, the land leases will be amortized over the 50-year extended term of the leases. The lease payments are being recovered through rates.

We treat these land lease contracts as operating leases for rate-making purposes. Our total obligation under the finance leases for Two Creeks was $10.9 million as of December 31, 2019, and will decrease to zero over the remaining lives of the leases.

Badger Hollow Solar Farm I

Related to our investment in Badger Hollow I, we, along with an unaffiliated utility, entered into several land leases in Iowa County, Wisconsin that commenced in the third quarter of 2019. The leases are for a total of approximately 1,400 acres of land and were determined to be finance leases under Topic 842. Each lease has an initial construction term that ends upon achieving commercial operation, then automatically extends for 25 years with an option for an additional 25-year extension. We expect the optional extension to be exercised, and, as a result, the land leases will be amortized over the extended term of the leases. The lease payments are being recovered through rates.

We treat these land lease contracts as operating leases for rate-making purposes. Our total obligation under the finance leases for Badger Hollow I was $19.8 million as of December 31, 2019, and will decrease to zero over the remaining lives of the leases.

Amounts Recognized in the Financial Statements and Other Information

Lease expense related to the Two Creeks and Badger Hollow I finance leases was not significant. Other information related to these leases is disclosed in the table below:



Other information (dollar amounts in millions)
Non-cash activity – right of use assets obtained in exchange for finance lease liabilities	$	30.3

Weighted average remaining lease term at December 31, 2019	51.0 years

Weighted average discount rate *	4.2		%


*	Because these leases do not provide an implicit rate of return, we used the fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments.

The following table summarizes our finance lease right of use assets, which were included in property, plant and equipment on our balance sheets:



(in millions)	December 31, 2019
Two Creeks land leases
Under finance leases	$	10.8
Accumulated amortization	(0.1		)
Total Two Creeks land leases	$	10.7

Badger Hollow I land leases
Under finance leases	$	19.5
Accumulated amortization	(0.2		)
Total Badger Hollow I land leases	$	19.3

Total finance lease right of use assets	$	30.0

Future minimum lease payments under our finance leases and the present value of our net minimum lease payments as of December 31, 2019, were as follows:



(in millions)	Two Creeks			Badger Hollow I			Total Finance Leases
2020	$	0.3		$	0.3		$	0.6
2021	0.3			0.7			1.0
2022	0.3			0.7			1.0
2023	0.3			0.7			1.0
2024	0.3			0.7			1.0
Thereafter	32.0			53.4			85.4
Total minimum lease payments	33.5			56.5			90.0
Less: Interest	(22.6		)	(36.7		)	(59.3		)
Present value of minimum lease payments	10.9			19.8			30.7
Less: Short-term lease liabilities	—			—			—
Long-term lease liabilities	$	10.9		$	19.8		$	30.7

Long-term lease liabilities related to our finance leases were included in long-term debt on our balance sheet.