The operating leases generally require us to pay property taxes, insurance premiums, and operating and maintenance costs associated with the leased property. Many of our leases contain options to renew past the initial term, as set forth in the lease agreement.

In accordance with the Regulated Operations - Leases Topic of the FASB ASC, the timing of lease expense recognized at our regulated entities resembles the expense recognition pattern of an operating lease, as the amortization of the right of use assets is modified from what would typically be recorded for a finance lease. We record the difference between the minimum lease payments and the sum of imputed interest and unadjusted amortization costs calculated under the finance lease accounting rules as a regulatory asset on our balance sheets.

In 1997, WE entered into a 25-year PPA with LSP-Whitewater Limited Partnership. The contract, for 236.5 MW of firm capacity from a natural gas-fired cogeneration facility, includes zero minimum energy requirements. The PPA expires on May 31, 2022; however, in November 2021, WE entered into a tolling agreement with LSP-Whitewater Limited Partnership that commences on June 1, 2022. Concurrent with the execution of the tolling agreement, WE and WPS entered into an asset purchase agreement to acquire the natural gas-fired cogeneration facility for $72.7 million. The asset purchase agreement is subject to regulatory approval, which was requested from the PSCW in December 2021. We expect to receive approval from the PSCW by the end of 2022, and the sale is expected to close in January 2023. The tolling agreement extends until the earlier of the closing of the asset purchase or December 31, 2022. As a result, we are amortizing the leases through December 31, 2022.

These combined transactions resulted in a lease modification whereby we were required to reassess the lease classification and remeasure the right of use asset and corresponding lease liability. The lease classification did not change as a result of the modification. Due to the execution of the asset purchase agreement, it is now reasonably certain that we will exercise the purchase option at the end of the extended lease term. Therefore, we included the estimated purchase option and the lease payments resulting from the tolling agreement in our remeasurement of the right of use asset and corresponding lease liability.

Related to its investment in Two Creeks, WPS, along with an unaffiliated utility, entered into several land leases in Manitowoc County, Wisconsin that commenced in the third quarter of 2019. The leases with unaffiliated parties are for a total of approximately 600 acres of land. 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 are being amortized over the 50-year extended term of the leases. The lease payments are being recovered through rates. After achieving commercial operation in November 2020, the lease liability was remeasured as a result of finalizing the total acres being leased.

Related to its investment in Badger Hollow I, WPS, 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 1,300 acres of land. 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 are being amortized over the extended term of the leases. The lease payments will be recovered through rates. Upon achieving commercial operation in November 2021, the lease liability was remeasured as a result of finalizing the total acres being leased.

Our total obligation under the finance leases for Badger Hollow I as of December 31, 2021 and 2020, was $17.6 million and $20.3 million, respectively, and will decrease to zero over the remaining lives of the leases.

Related to its investment in Badger Hollow II, WE, along with an unaffiliated utility, entered into several land leases in Iowa County, Wisconsin that commenced in the second quarter of 2020. The leases are for a total of approximately 1,500 acres of land. 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 are being amortized over the extended term of the leases. The lease payments will be recovered through rates.

Our total obligation under the finance leases for Badger Hollow II as of December 31, 2021 and 2020, was $23.6 million and $23.1 million, respectively, and will decrease to zero over the remaining lives of the leases.


(in millions)	2021			2020			2019
Finance lease expense
Amortization of right of use assets (1)	$	8.1		$	6.3		$	4.9
Interest on lease liabilities (2)	1.6			2.5			3.3
Operating lease expense (3)	3.4			5.4			5.5
Short-term lease expense (3)	0.2			0.3			0.6
Total lease expense	$	13.3		$	14.5		$	14.3

Other information

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from finance leases	$	1.6		$	2.5		$	3.3
Operating cash flows from operating leases	$	5.3		$	6.7		$	6.0
Financing cash flows from finance leases	$	8.1		$	6.3		$	4.9

Non-cash activities:
Right of use assets obtained in exchange for finance lease liabilities	$	73.6		$	22.8		$	27.2
Right of use assets obtained in exchange for operating lease liabilities	$	0.5		$	—		$	49.0

Weighted-average remaining lease term – finance leases	20.5 years			41.5 years			31.5 years
Weighted-average remaining lease term – operating leases	12.5 years			13.0 years			12.9 years

Weighted-average discount rate – finance lease (4)	2.4		%	4.9		%	6.7		%
Weighted average discount rate – operating leases (4)	3.4		%	3.4		%	4.4		%

(4) Because our 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.


(in millions)	2021		2020
Power purchase commitment
Under finance leases	$	214.4	$	140.3
Accumulated amortization	(137.7)		(132.3)
Total power purchase commitment	$	76.7	$	8.0

Two Creeks land leases
Under finance leases	$	9.6	$	7.7
Accumulated amortization	(0.4)		(0.2)
Total Two Creeks land leases	$	9.2	$	7.5

Badger Hollow I land leases
Under finance leases	$	16.6	$	19.5
Accumulated amortization	(0.9)		(0.6)
Total Badger Hollow I land leases	$	15.7	$	18.9

Badger Hollow II land leases
Under finance leases	$	22.8	$	22.8
Accumulated amortization	(0.7)		(0.2)
Total Badger Hollow II land leases	$	22.1	$	22.6

Other, net	$	0.3	$	—
Total finance lease right of use assets, net	$	124.0	$	57.0


(in millions)	Total Operating Leases		Power Purchase Commitment		Two Creeks		Badger Hollow I		Badger Hollow II		Other		Total Finance Leases
2022	$	4.7	$	79.0	$	0.2	$	0.5	$	0.3	$	—	$	80.0
2023	4.5		—		0.2		0.5		0.7		—		1.4
2024	4.3		—		0.2		0.5		0.7		—		1.4
2025	3.8		—		0.2		0.5		0.7		—		1.4
2026	3.9		—		0.3		0.5		0.7		—		1.5
Thereafter	20.8		—		21.7		39.3		54.3		0.6		115.9
Total minimum lease payments	42.0		79.0		22.8		41.8		57.4		0.6		201.6
Less: Interest	(9.2)		(0.6)		(13.0)		(24.2)		(33.8)		(0.3)		(71.9)
Present value of minimum lease payments	32.8		78.4		9.8		17.6		23.6		0.3		129.7
Less: Short-term lease liabilities	(3.7)		(78.4)		—		—		—		—		(78.4)
Long-term lease liabilities	$	29.1	$	—	$	9.8	$	17.6	$	23.6	$	0.3	$	51.3

Short-term and long-term lease liabilities related to operating leases were included in other current liabilities and other long-term liabilities on the balance sheets, respectively. Short-term and long-term lease liabilities related to our finance leases were included in current portion of long-term debt and long-term debt on the balance sheets, respectively.