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Leases, Right-of-Use Assets and Related Liabilities
 12 Months Ended
Dec. 31, 2022
Leases [Abstract]  
Leases, Right-of-Use Assets and Related Liabilities Leases, Right-of-Use Assets and Related Liabilities
The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that expires in 2024.

The Company has four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built three anaerobic digesters, and related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas is transported from the three digester sites to a central gas upgrade system located at the fourth site that upgrades the biogas to pipeline-quality RNG for sale. These leases expire at various dates between 2031 and 2050.

Effective October 1, 2022, the Company elected to change its accounting policy covering the application of the practical expedient under ASC 842, Leases. Under the new accounting policy, the Company will account for lease components separately from non-lease components for the Company’s dairy lease asset class. Under the previous
treatment, all amounts paid to the lessor under these arrangements for use of the land, cow manure, and other non-lease services were classified as lease payments and included in the calculation of the right-of-use assets and lease liabilities.

Upon commencement of operations at NW Iowa RNG in the third quarter of 2022, the Company’s dairy lease agreements were evaluated, and it was determined that the practical expedient less accurately reflected the economic substance of the agreements. The Company voluntarily elected this acceptable change in accounting policy effective October 1, 2022. The Company believes the change is preferable as it provides the most useful and transparent financial information and improves comparability and consistency of financial information, resulting in improved financial reporting and alignment with financial information used internally by management. As a result of this change in policy, the Company will retroactively no longer combine lease and non-lease components for all leases in the dairy lease asset class and will account for non-lease components separately and under other, applicable accounting standards.

A summary of the impact of the change in accounting policy on the Consolidated Balance Sheets for each of the three months ended June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022, and September 30, 2022, respectively is as follows: a reduction to Finance Right of Use Asset of $27.3 million, $27.4 million, $27.1 million, $26.7 million, $27.3 million, and $26.8 million; a reduction to Finance Lease Liabilities (Current) of $4.9 million, $2.7 million, $3.4 million, $4.0 million, $6.2 million, and $2.1 million; a reduction to Finance Lease Liabilities (Long-Term) of $19.5 million, $19.4 million, $17.6 million, $17.2 million, $16.2 million, and $16.2 million; a reduction to Construction in Progress of $0.8 million, $0.8 million, $0.8 million, $0.7 million, $0.7 million, and $0.9 million; and an increase to Other Assets of $3.4 million, $6.0 million, $7.4 million, $7.5 million, $7.7 million, and $8.7 million. The Company further recorded an increase to Prepaid Expenses of $1.1 million and Other Assets of $0.9 million for the three months ended June 30, 2022.

A summary of the impact of the change in accounting policy on the Consolidated Statements of Cash Flows for each of the three months ended September 30, 2021, December 31, 2021, and September 30, 2022, respectively is as follows: an increase in Cash Used in Operating Activities of $3.0 million, $4.5 million, and $4.3 million, and a decrease in Cash Used in Financing Activities of $3.0 million, $4.5 million, and $4.3 million. There was not a material impact on the Consolidated Statements of Cash Flows for the periods ended June 30, 2021, March 31, 2022, and June 30, 2022.

The change in accounting policy did not have an incrementally material impact on the three months ended December 31, 2022 as compared to the three months ended September 30, 2022, and no impact on the Consolidated Statements of Operations for the periods listed above.

The following tables present the (i) other quantitative information and (ii) future minimum payments under non-cancelable financing and operating leases as they relate to the Company’s leases (in thousands), except for weighted averages:

 
Years Ended December 31,
 20222021
Other Information  
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from finance leases$12 $15 
Operating cash flows from operating leases804 245 
Finance cash flows from finance leases3 3 
Right-of-use asset obtained in exchange for new finance lease liabilities
— 245 
Right-of-use asset obtained in exchange for new operating lease liabilities— 1,611 
Weighted-average remaining lease term, finance lease (months)311317
Weighted-average remaining lease term, operating leases (months)6563
Weighted-average discount rate - finance leases (1)
12 %11 %
Weighted-average discount rate - operating leases (1)
5 %5 %

(1)Our leases do not provide an implicit interest rate, and we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
Year Ending December 31, Operating LeasesFinancing Leases
2023$528 $88 
2024305 31 
2025315 25 
2026324 25 
2027334 25 
2028 and thereafter373 538 
Total2,179 732 
Less: Amounts representing present value discounts(291)(470)
Total lease liabilities1,888 262 
Less: current portion(438)(79)
Long-term portion$1,450 $183 
Leases, Right-of-Use Assets and Related Liabilities Leases, Right-of-Use Assets and Related Liabilities
The Company is party to an operating lease contract for the Company’s office and research facility in Englewood, Colorado, which expires in January 2029. The lease contains an option to extend the lease which management does not reasonably expect to exercise, so it is not included in the length of the term. The Company also has one production line piece of equipment with an operating lease that expires in 2024.

The Company has four finance leases for land under arrangements related to NW Iowa RNG. Under these contracts, the Company leases land from dairy farmers on which it has built three anaerobic digesters, and related equipment and pipelines to condition raw biogas from cow manure provided by the farmers. The partially conditioned biogas is transported from the three digester sites to a central gas upgrade system located at the fourth site that upgrades the biogas to pipeline-quality RNG for sale. These leases expire at various dates between 2031 and 2050.

Effective October 1, 2022, the Company elected to change its accounting policy covering the application of the practical expedient under ASC 842, Leases. Under the new accounting policy, the Company will account for lease components separately from non-lease components for the Company’s dairy lease asset class. Under the previous
treatment, all amounts paid to the lessor under these arrangements for use of the land, cow manure, and other non-lease services were classified as lease payments and included in the calculation of the right-of-use assets and lease liabilities.

Upon commencement of operations at NW Iowa RNG in the third quarter of 2022, the Company’s dairy lease agreements were evaluated, and it was determined that the practical expedient less accurately reflected the economic substance of the agreements. The Company voluntarily elected this acceptable change in accounting policy effective October 1, 2022. The Company believes the change is preferable as it provides the most useful and transparent financial information and improves comparability and consistency of financial information, resulting in improved financial reporting and alignment with financial information used internally by management. As a result of this change in policy, the Company will retroactively no longer combine lease and non-lease components for all leases in the dairy lease asset class and will account for non-lease components separately and under other, applicable accounting standards.

A summary of the impact of the change in accounting policy on the Consolidated Balance Sheets for each of the three months ended June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022, June 30, 2022, and September 30, 2022, respectively is as follows: a reduction to Finance Right of Use Asset of $27.3 million, $27.4 million, $27.1 million, $26.7 million, $27.3 million, and $26.8 million; a reduction to Finance Lease Liabilities (Current) of $4.9 million, $2.7 million, $3.4 million, $4.0 million, $6.2 million, and $2.1 million; a reduction to Finance Lease Liabilities (Long-Term) of $19.5 million, $19.4 million, $17.6 million, $17.2 million, $16.2 million, and $16.2 million; a reduction to Construction in Progress of $0.8 million, $0.8 million, $0.8 million, $0.7 million, $0.7 million, and $0.9 million; and an increase to Other Assets of $3.4 million, $6.0 million, $7.4 million, $7.5 million, $7.7 million, and $8.7 million. The Company further recorded an increase to Prepaid Expenses of $1.1 million and Other Assets of $0.9 million for the three months ended June 30, 2022.

A summary of the impact of the change in accounting policy on the Consolidated Statements of Cash Flows for each of the three months ended September 30, 2021, December 31, 2021, and September 30, 2022, respectively is as follows: an increase in Cash Used in Operating Activities of $3.0 million, $4.5 million, and $4.3 million, and a decrease in Cash Used in Financing Activities of $3.0 million, $4.5 million, and $4.3 million. There was not a material impact on the Consolidated Statements of Cash Flows for the periods ended June 30, 2021, March 31, 2022, and June 30, 2022.

The change in accounting policy did not have an incrementally material impact on the three months ended December 31, 2022 as compared to the three months ended September 30, 2022, and no impact on the Consolidated Statements of Operations for the periods listed above.

The following tables present the (i) other quantitative information and (ii) future minimum payments under non-cancelable financing and operating leases as they relate to the Company’s leases (in thousands), except for weighted averages:

 
Years Ended December 31,
 20222021
Other Information  
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows from finance leases$12 $15 
Operating cash flows from operating leases804 245 
Finance cash flows from finance leases3 3 
Right-of-use asset obtained in exchange for new finance lease liabilities
— 245 
Right-of-use asset obtained in exchange for new operating lease liabilities— 1,611 
Weighted-average remaining lease term, finance lease (months)311317
Weighted-average remaining lease term, operating leases (months)6563
Weighted-average discount rate - finance leases (1)
12 %11 %
Weighted-average discount rate - operating leases (1)
5 %5 %

(1)Our leases do not provide an implicit interest rate, and we calculate the lease liability at lease commencement as the present value of unpaid lease payments using our estimated incremental borrowing rate. The incremental borrowing rate represents the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term and is determined using a portfolio approach based on information available at the commencement date of the lease.
Year Ending December 31, Operating LeasesFinancing Leases
2023$528 $88 
2024305 31 
2025315 25 
2026324 25 
2027334 25 
2028 and thereafter373 538 
Total2,179 732 
Less: Amounts representing present value discounts(291)(470)
Total lease liabilities1,888 262 
Less: current portion(438)(79)
Long-term portion$1,450 $183