NOTE 15 – LEASES

Leasing Arrangements As Lessee

We determine if an arrangement is a lease upon commencement of the contract. If an arrangement is determined to be a long-term lease (greater than 12 months), we recognize a right-of-use asset and lease liability based on the present value of the future minimum lease payments over the lease term at the commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Our lease terms may also include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Right-of-use assets are included in other deferred charges, the current portion of lease liabilities is included in current liabilities and the long-term portion of lease liabilities is included in other deferred credits and other liabilities on our consolidated statements of financial position.

We have elected to apply the short-term lease exception for contracts that have a lease term of twelve months or less and do not include an option to purchase the underlying asset. Therefore, we do not recognize a right-of-use asset or lease liability for such contracts. We recognize short-term lease payments as expense on a straight-line basis over the lease term. Variable lease payments that do not depend on an index or rate are recognized as expense.

We have lease agreements as lessee for the right to use power generating equipment at the Brush Generating Station and for the use of various facilities and operational assets. Under the power purchase arrangement at the Brush Generating Station, we are required to account for the arrangement as an operating lease since it conveys to us the right to direct the use of 70 megawatts at the Brush Generating Station for a 10-year term ending December 31, 2019 and whereby we provide our own natural gas for generation of electricity. We do not anticipate renewing this power purchase arrangement.

Rent expense for all short-term and long-term operating leases was $1.8 million for the three months ended September 30, 2019 and $1.9 million for the comparable period in 2018. Rent expense for all short-term and long-term operating leases was $5.4 million for the nine months ended September 30, 2019 and $5.9 million for the comparable period in 2018. Rent expense is included in operating expenses on our consolidated statements of operations. As of September 30, 2019, there were no arrangements accounted for as finance leases.

Our consolidated statements of financial position include the following lease components (dollars in thousands):


	September 30,
	2019
Operating leases
Operating lease right-of-use assets	$	7,941
Less: Accumulated amortization		(4,143)
Net operating lease right-of-use assets	$	3,798

Operating lease liabilities - current	$	1,970
Operating lease liabilities - noncurrent		2,001
Total operating lease liabilities	$	3,971

Operating leases
Weighted average remaining lease term (years)		4.8
Weighted average discount rate		5.58%

Future expected minimum lease commitments under operating leases are as follows (dollars in thousands):


Year 1	$	2,035
Year 2		509
Year 3		362
Year 4		280
Year 5		251
Thereafter		990
Total lease payments	$	4,427
Less imputed interest		(456)
Total	$	3,971

Leasing Arrangements As Lessor

We have lease agreements as lessor for certain operational assets and had a lease agreement as lessor for power generating equipment at the J.M. Shafer Generating Station. Under the power sales arrangement at the J.M. Shafer Generating Station that expired on June 30, 2019, we were required to account for the arrangement as an operating lease since it conveyed to a third party the right to direct the use of 122 megawatts of the 272 megawatt generating capability of the J.M. Shafer Generating Station whereby the third party provided its own natural gas for generation of electricity. The revenue from these lease agreements of $1.6 million and $4.7 million for the three months ended September 30, 2019 and 2018, respectively, and $10.5 million and $13.5 million for the nine months ended September 30, 2019 and 2018, respectively, are included in other operating revenue on our consolidated statements of operations.