Leases

6 Months Ended

Jun. 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 June 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 six months ended June 30, 2019:

(In thousands)		Three Months Ended		Six Months Ended	Income Statement Location
Finance lease expense:
Amortization of leased assets	$	437	$	870	Depreciation and amortization
Interest on lease liabilities		200		398	Interest expense, net
Operating lease expense		33		60	Other operations and maintenance
Total lease expense	$	670	$	1,328

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

(In thousands)			Balance Sheet Location
Lease assets:
Finance lease assets	$	16,700	Finance lease assets
Operating lease assets		216	Other deferred assets and other
Total lease assets	$	16,916
Lease liabilities:
Finance lease liabilities - current	$	1,007	Other current liabilities
Finance lease liabilities - long-term		17,720	Finance lease liabilities
Operating lease liabilities - current		104	Other current liabilities
Operating lease liabilities - long-term		144	Other deferred liabilities and other
Total lease liabilities	$	18,975

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

(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Finance leases - Financing cash flows	$	643
Finance leases - Operating cash flows		398
Operating leases - Operating cash flows		71
Lease assets obtained in exchange for lease liabilities:
Finance leases		12,081
Operating leases		125

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

Weighted-average remaining lease terms (in years):
Finance leases	38
Operating leases	6
Weighted-average discount rates:
Finance leases	4.36	%
Operating leases	3.97	%

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

(In thousands)		Finance		Operating
2019	$	876	$	54
2020		1,644		113
2021		1,428		46
2022		1,309		13
2023		1,228		2
Thereafter		41,316		52
Subtotal		47,801		280
Less: Present value discount		(29,074)		(32)
Lease Liability	$	18,727	$	248

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