Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

Leases - MGE Energy and MGE.

As part of its regular operations, MGE enters into various contracts related to IT equipment, substations, cell towers, land, wind easements, and other property in use for operations. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Determination as to whether an arrangement is or contains a lease is completed at inception. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets; lease expense for these leases are recognized on a straight-line basis over the lease term. Leases with initial terms in excess of 12 months are recorded as operating or financing leases on the consolidated balance sheets.

Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. For leases that do not provide an implicit rate, a collateralized incremental borrowing rate based on the information available at commencement date, including lease term, is used in determining the present value of future payments. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. MGE has regulatory treatment and recognizes regulatory assets or liabilities for timing differences between when net lease costs are recorded and when costs are recognized. As of September 30, 2019, MGE has no significant leases not yet commenced that would create significant future rights and obligations.

The following table shows lease expense for the three and nine months ended September 30, 2019:

(In thousands)		Three Months Ended		Nine Months Ended	Income Statement Location
Finance lease expense:
Amortization of leased assets	$	425	$	1,295	Depreciation and amortization
Interest on lease liabilities		199		597	Interest expense, net
Operating lease expense		32		92	Other operations and maintenance
Total lease expense	$	656	$	1,984

The following table shows the lease assets and liabilities on the consolidated balance sheet as of September 30, 2019:

(In thousands)			Balance Sheet Location
Lease assets:
Finance lease assets	$	16,275	Property, plant, and equipment, net
Operating lease assets		300	Other deferred assets and other
Total lease assets	$	16,575
Lease liabilities:
Finance lease liabilities - current	$	932	Other current liabilities
Finance lease liabilities - long-term		17,657	Finance lease liabilities
Operating lease liabilities - current		143	Other current liabilities
Operating lease liabilities - long-term		185	Other deferred liabilities and other
Total lease liabilities	$	18,917

The following table shows other financial lease information for the nine months ended September 30, 2019:

(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - Financing cash flows	$	781
Finance leases - Operating cash flows		597
Operating leases - Operating cash flows		108
Lease assets obtained in exchange for lease liabilities:
Finance leases		12,081
Operating leases		239

The following table shows the weighted average remaining lease terms and discounts as of September 30, 2019:

Weighted-average remaining lease terms (in years):
Finance leases	38
Operating leases	5
Weighted-average discount rates:
Finance leases	4.36	%
Operating leases	3.58	%

The following table shows maturities of lease liabilities as of September 30, 2019:

(In thousands)		Finance		Operating
2019	$	539	$	37
2020		1,644		152
2021		1,428		86
2022		1,309		33
2023		1,228		2
Thereafter		41,317		52
Subtotal		47,465		362
Less: Present value discount		(28,876)		(34)
Lease Liability	$	18,589	$	328

Future minimum rental payments as of December 31, 2018, under agreements classified as operating leases with noncancelable terms in excess of one year are as follows:

(In thousands)		2019		2020		2021		2022		2023		Thereafter
Minimum lease payments	$	1,646	$	1,371	$	1,095	$	989	$	975	$	22,707