(G) Leases. As a lessee, we have a relatively small portfolio of leases with the most significant being our 60% undivided interest in Scherer Unit No. 2 and railcar leases for the transportation of coal. We also have a small number of various leases of nominal value.

On January 1, 2019, we adopted the new leases standard using the optional transition method to apply the new lease guidance as of January 1, 2019, rather than as of the earliest period presented. In addition, we elected the package of practical expedients permitted under the transition guidance within the new leases standard, which among other things, allowed us to carry forward the historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements. Adoption of the new leases standard resulted in recognition of right-of-use assets and offsetting lease liabilities totaling approximately $6,983,000. The adoption of this standard did not materially impact our consolidated financial statements.

We classify our Scherer Unit No. 2 leases as finance leases and our railcar leases as operating leases. We have made an accounting policy election not to recognize right-of-use assets and lease liabilities that arise from short-term leases, leases having an initial term of 12 months or less, for any class of underlying asset. We recognize lease expense for short-term leases on a straight-line basis over the lease term. Lease expense recognized for our short-term leases during the three months ended March 31, 2019 and March 31, 2018 was insignificant.

Three of our finance leases have lease terms through December 31, 2027, and one lease extends through June 30, 2031. At the end of the lease, we can elect to:

Renew the leases for a period of not less than one year and not more than five years at fair market value,

Purchase the undivided interest at fair market value, or

Redeliver the undivided interest to the lessors

For rate-making purposes, we include the actual lease payments for our finance leases in our cost of service. The difference between lease payments and the aggregate of the amortization on the right-of-use asset and the interest on the finance lease obligation is recognized as a regulatory asset. Finance lease amortization is recorded in depreciation and amortization expense.

At the end of our railcer operating leases, we can renew at terms mutually agreeable by us and the lessors, purchase the assets or return the assets to the lessors.

The exercise of lease renewal options is at our sole discretion.

As most of our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available on January 1, 2019, the date of adoption of the new leases standard, in determining the present value of lease payments.

For lease agreements entered into or reassessed after the adoption of the new leases standard, we combine lease and nonlease components.


		March 31,		December 31,
	Classification	2019		2018
		(dollars in thousands)
Right-of-Use Assets
Finance	Right-of-use assets – finance leases(1)	$	49,181	$	50,499
Operating	Electric plant in service		5,714		—
Total leased assets		$	54,895	$	50,499

Liabilities
Current:
Finance	Long term debt and finance leases due within one year	$	5,462	$	5,462
Operating	Other current liabilities		3,533		—
Noncurrent:
Finance	Obligation under finance leases		81,730		81,730
Operating	Capitalization – Other		2,751	$	—
Total lease liabilities		$	93,476	$	87,192

⁽¹⁾

Finance lease right-of-use assets are recorded net of accumulated depreciation of $253,551,000 and $252,233,000 as of March 31, 2019 and December 31, 2018, respectively.


		Three months ended
		March 31,		March 31,
Lease Cost	Classification	2019		2018
		(dollars in thousands)
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	$	1,189	$	1,050
Interest on lease liabilities	Interest expense		2,372		2,511
Operating lease cost	Inventory(1) & production expense		883		1,230
Total leased cost		$	4,444	$	4,791

⁽¹⁾

The majority of our operating lease costs relates to our railcar leases and such costs are added to the cost of our fossil inventories and are recognized in fuel expense as the inventories are consumed.


	March 31,		December 31,
	2019		2018
Lease Term and Discount Rate:
Weighted-average remaining lease term (in years)
Finance leases	9.57		9.82
Operating leases	4.89		N/A

Weighted-average discount rate
Finance leases	11.05	%	11.05	%
Operating leases	5.06	%	N/A


	Three months ended
	March 31,		March 31,
	2019		2018
	(dollars in thousands)
Other Information:
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	772	$	—
Right-of-use assets obtained in exchange for new operating lease liabilities	$	6,983	$	—

Maturity analysis of our finance and operating lease liabilities as of March 31, 2019 is as follows:


	(in thousands)
Year Ending December 31,	Finance Leases		Operating Leases		Total
2019	$	14,949	$	2,958	$	17,907
2020		14,949		1,413		16,362
2021		14,949		798		15,747
2022		14,949		608		15,557
2023		14,949		386		15,335
Thereafter		70,483		1,156		71,639
Total lease payments		145,228		7,319		152,547
Less: imputed interest		(58,036)		(1,035)		(59,071)
Present value of lease liabilities	$	87,192	$	6,284	$	93,476

As a lessor, we primarily lease office space to several tenants within our headquarters building. Several of these tenants are related parties. We account for all of these lease agreements as operating leases.

Lease income recognized during the three months ended March 31, 2019 and March 31, 2018 was as follows:

Three months ended

(dollars in thousands)

Lease income