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Leases

9 Months Ended

Sep. 30, 2019

Leases as Lessee

SCE enters into various agreements to purchase power, electric capacity and other energy products that may be accounted for as leases as SCE has dispatch rights that determine when and how a plant runs. Prior to January 1, 2019, a power purchase agreement contained a lease when SCE purchased substantially all of the output from a specific plant and did not otherwise meet a fixed price unit of output exception. SCE also leases property and equipment primarily related to vehicles, office space and other equipment. The terms of the contracts included in the table below are primarily 10 and 20 years for PPA leases, 5 to 72 years for office leases, and 5 to 12 years for the remaining other operating leases.

The following table summarizes SCE's lease payments for operating and finance leases as of September 30, 2019.



(in millions)	PPA Operating Leases^1,2		Other Operating Leases³		PPA Finance Leases¹
2019	$	20	$	11	$	—
2020	70		35		1
2021	48		28		1
2022	48		23		2
2023	47		17		2
Thereafter	536		104		9
Total lease payments	$	769	$	218	$	15
Amount representing interest⁴	226		60		6
Lease liabilities	$	543	$	158	$	9

At December 31, 2018, SCE's future expected minimum lease commitments under non-cancellable leases were as follows:



(in millions)	PPA Operating Leases¹		Other Operating Leases³		PPA Capital Leases¹
2019	$	148	$	42	$	5
2020	124		31		6
2021	103		27		6
2022	79		22		6
2023	47		17		5
Thereafter	536		101		66
Total lease payments	$	1,037	$	240	$	94
Amount representing executory costs					25
Amount representing interest					33
Net commitments					$	36


¹	Excludes expected purchases from most renewable energy contracts, which do not meet the definition of a lease payment since renewable power generation is contingent on external factors.


²	During the second quarter of 2019, SCE amended three power contracts that resulted in a $161 million reduction in ROU assets and lease liabilities as these contracts no longer qualify as leases.


³	Excludes escalation clauses based on consumer price or other indices and residual value guarantees that are not considered probable at the commencement date of the lease.


⁴	Lease payments are discounted to their present value using SCE's incremental borrowing rates.

Supplemental balance sheet information related to SCE's leases was as follows:



(in millions)	September 30, 2019
Operating leases:
Operating lease ROU assets	$	701
Current portion of operating lease liabilities	90
Operating lease liabilities	611
Total operating lease liabilities	$	701

Finance leases included in:
Utility property, plant and equipment, gross	$	14
Accumulated depreciation	(5		)
Utility property, plant and equipment, net	9
Other current liabilities	—
Other long-term liabilities	9
Total finance lease liabilities	$	9

The timing of SCE's recognition of the lease expense conforms to ratemaking treatment for SCE's recovery of the cost of electricity and is included in purchased power for operating leases and interest and amortization expense for finance leases. The following table summarizes the components of SCE's lease expense:



(in millions)	Three months ended September 30, 2019		Nine months ended September 30, 2019
PPA leases:
Operating lease cost	$	38	$	98
Finance lease cost	1		1
Variable lease cost	751		1,742
Total PPA lease cost	790		1,841
Other operating leases cost	12		35
Total lease cost	$	802	$	1,876

Other information related to leases was as follows:



(in millions, except lease term and discount rate)	Nine months ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
PPA leases	$	98
Other leases	34

ROU assets obtained in exchange for lease obligations:
Other operating leases	23

Weighted average remaining lease term (in years):
Operating leases
PPA leases	16.03
Other leases	12.75
PPA Finance leases	11.71

Weighted average discount rate:
Operating leases
PPA leases	4.44		%
Other leases	3.89		%
PPA Finance leases	8.74		%

Leases as Lessor

SCE also enters into operating leases to rent certain land and facilities as a lessor. These leases primarily have terms that range from 15 to 65 years. During the three and nine months ended September 30, 2019, SCE recognized $4 million and $14 million, respectively, in lease income, which is included in operating revenue on the consolidated statements of income. At September 30, 2019, the undiscounted cash flow expected to be received from lease payments for the remaining years is as follows:



(in millions)
2019	$	4
2020	14
2021	10
2022	10
2023	9
Thereafter	155
Total	$	202

Leases