Leases

12 Months Ended

Dec. 31, 2019

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 various other leases of minimal 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, 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 for certain operating leases. The adoption of this standard did not materially impact our consolidated financial statements.

We classify our four 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 2019 and 2018 was insignificant.

Finance Leases

Three of our Scherer Unit No. 2 finance leases have lease terms through December 31, 2027, and one lease extends through June 30, 2031. At the end of the leases, we can elect at our sole discretion 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.

Operating Leases

Our railcar operating leases have terms that extend through October 31, 2023. At the end of the railcar operating leases, we can renew at terms mutually agreeable by us and the lessors, purchase the assets or return the assets to the lessors. We have an additional operating lease that extends through February 2042 with one renewal option for a twenty-year term.

The exercise of renewal options for our finance and operating leases is at our sole discretion.

As all of our operating 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.


Classification	2019		2018
	(dollars in thousands)
Right-of-Use Assets - Finance leases
Right-of-use assets	$	302,732	$	302,732
Less: Accumulated provision for depreciation	$	(257,504)	$	(252,233)
Total finance lease assets	$	45,228	$	50,499

Lease liabilities - Finance leases
Obligations under finance leases	$	75,649	$	81,730
Long-term debt and finance leases due within one year	$	6,081	$	5,461
Total finance lease liabilities	$	81,730	$	87,191


Classification	2019		2018
	(dollars in thousands)
Right-of-Use Assets - Operating leases
Electric plant in service	$	3,237	$	—
Total operating lease assets	$	3,237	$	—

Lease liabilities - Operating leases
Capitalization - Other	$	2,293	$	—
Other current liabilities	$	1,252	—
Total operating lease liabilities	$	3,545	$	—


		2019		2018
		(dollars in thousands)
Lease Cost	Classification
Finance lease cost:
Amortization of leased assets	Depreciation and amortization	$	4,756	$	4,199
Interest on lease liabilities	Interest expense	$	9,488	$	10,045

Operating lease cost	Inventory(1) & production expense	$	3,179	$	4,562
Total lease cost		$	17,423	$	18,806

⁽¹⁾The majority of our operating lease costs relate 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.


	December 31, 2019		December 31, 2018
Lease Term and Discount Rate

Weighted-average remaining lease term (in years):
Finance leases	8.84		9.82
Operating leases	7.39		n/a

Weighted-average discount rate:
Finance leases	11.05	%	11.05	%
Operating leases	5.12	%	n/a


	2019		2018
	(dollars in thousands)
Other Information

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from finance leases	$	9,488	$	15,258
Operating cash flows from operating leases	$	3,710	$	—
Financing cash flows from finance leases	$	5,461	$	7,166

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 December 31, 2019 is as follows:


	(dollars in thousands)
Year Ending December 31,	Finance Leases		Operating Leases		Total
2020	$	14,949	$	1,399	$	16,348
2021	$	14,949	$	795	$	15,744
2022	$	14,949	$	605	$	15,554
2023	$	14,949	$	384	$	15,333
2024	$	14,949	$	72	$	15,021
Thereafter	$	55,532	$	1,085	$	56,617
Total lease payments	$	130,277	$	4,340	$	134,617
Less: imputed interest	$	(48,547)	$	(795)	$	(49,342)
Present value of lease liabilities	$	81,730	$	3,545	$	85,275

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 2019 and 2018 was as follows:


	2019		2018
Lease income	$	6,071	$	4,969