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Property, plant and equipment, net | 12 Months Ended
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Dec. 31, 2019
Property, plant and equipment, net |
Property, plant and equipment, net | 8. Property, plant and equipment, net Property, plant and equipment, net consists of the following:
|  | December 31, |  | December 31, |  | Depreciable |
|  | 2019 |  | 2018 |  | Lives |
Land |  | $ | 6.4 |  | $ | 5.3 |  |  |  |  |  |
Office equipment, machinery and other |  |  | 6.5 |  |  | 6.0 |  | 3 | - | 10 | years |
Leasehold improvements |  |  | 2.1 |  |  | 2.1 |  | 7 | - | 15 | years |
Asset retirement obligation |  |  | 23.4 |  |  | 24.1 |  | 1 | - | 43 | years |
Plant in service |  |  | 848.1 |  |  | 874.4 |  | 1 | - | 45 | years |
Construction in progress |  |  | 7.2 |  |  | — |  |  |  |  |  |
|  |  | 893.7 |  |  | 911.9 |  |  |  |  |  |
Less accumulated depreciation |  |  | (391.6) |  |  | (362.4) |  |  |  |  |  |
Total property, plant and equipment, net |  | $ | 502.1 |  | $ | 549.5 |  |  |  |  |  |
Depreciation expense of $37.6 million, $40.0 million and $83.3 million, was recorded for the years ended December 31, 2019, 2018 and 2017, respectively. As described below, we recorded $4.0 million and $67.6 million of long-lived asset impairments to property, plant and equipment in the years ended December 31, 2019 and 2017, respectively, with a corresponding charge to Impairment in the statement of operations. No long-lived asset impairments to property, plant and equipment were recorded in the year ended December 31, 2018. 2019 – Event-driven test performed in fourth quarter Calstock – Long-lived assets Calstock operates under a PPA that expires in June 2020. The near-term expiration of the PPA resulted in a triggering event to test for long-lived asset impairment. We performed the test as of December 31, 2019, six months prior to the contract expiration date. Calstock’s asset group for testing of long-lived assets totaled $7.8 million consisting of $2.3 million of net working capital, $4.7 million property, plant and equipment (“PPE”), net and a $0.8 million intangible PPA asset. Because of the uncertainty of our ability to recontract the project, fair value of Calstock was determined based solely on the cash flows remaining under the current contract. If our efforts to recontract are unsuccessful, the project will be taken out of service but not decommissioned. Upon testing Calstock for long-lived asset impairment, the carrying value of the asset group exceeded the estimated cash flows. Accordingly, we recorded a $4.7 million long-lived asset impairment in the year ended December 31, 2019, which is the difference between the fair value and carrying value of the reporting unit’s asset group, $0.7 million of the impairment related to intangible PPA assets and $4.0 million of the impairment related to property, plant and equipment. We also recorded impairment losses of $1.1 million related to spare parts inventory at Calstock. The Calstock biomass plant is a component of our Solid Fuel segment. 2018 – Event-driven test performed in fourth quarter Williams Lake – Long-lived assets Williams Lake previously operated under a PPA that expired June 30, 2019, or September 30, 2019 at the option of BC Hydro, the project’s customer. The near-term expiration of the PPA resulted in a triggering event to test for long-lived asset impairment. We performed the test as of December 31, 2018, six months prior to the earliest contract expiration date. Williams Lake’s asset group for testing of long-lived assets totaled $11.4 million consisting of PPE, net and spare parts inventory. Because of the uncertainty of our ability to recontract the project, we performed a probability-based approach when determining the weighted average fair value of Williams Lake. This approach considered the cash flows remaining under the current contract assuming a September 30, 2019 expiration date, as well as a modeled hypothetical long-term extension. In February 2019, the office of the Minister of Energy, Mines and Petroleum Resources in British Columbia made recommendations that the government could direct BC Hydro to pursue renewal transactions for existing biomass plants with expiring contracts. We considered these factors when creating our modeled hypothetical long-term extension. This model incorporates significant judgments and estimates by management when determining outcome likelihood, as well as long-term extension economics. Williams Lake has approximately 20 years of remaining useful life. We believe that Williams Lake provides value to British Columbia based on its positioning as a renewable resource, its synergy with the local forestry industry and its lower $/KW cost than new biomass construction. Upon testing Williams Lake for long-lived asset impairment, the estimated weighted-average undiscounted cash flows exceeded the carrying value of the asset group. Accordingly, no long-lived asset impairment was recorded at December 31, 2018. We subsequently executed a new ten-year Energy Purchase Agreement with BC Hydro for Williams Lake, which became effective October 1, 2019. 2017 – Event-driven test performed in fourth quarter Williams Lake – Long-lived assets Williams Lake previously operated under a PPA that expired on March 31, 2018 with BC Hydro. BC Hydro elected not to exercise its renewal options under that PPA. Additionally, the Province of British Columbia planned to commence an Integrated Resource Plan Process (IRP) in late 2018. This process is the Province’s long-term plan to meet future electricity demand through conservation, generation and transmission and through upgrades to existing infrastructure. At the time of our assessment, we believed that obtaining a long-term PPA extension prior to the conclusion of the IRP was unlikely. In January 2018, the project entered into a PPA extension that commenced on April 1, 2018 and expires June 30, 2019, or September 30, 2019 at the option of BC Hydro. The project entered into this extension in order to bridge the period of the expiration of the previous PPA in March 2018 until the conclusion of the IRP in order to increase the likelihood for the potential of a future long-term extension. The uncertainty of the results of the IRP resulted in a triggering event to test for long-lived asset impairment. We performed the test as of December 31, 2017 in order to include the economics of the January 2018 extension in our long-term cash flow forecasts as the terms of the extension were known at December 31, 2017. Williams Lake’s asset group for testing of long-lived assets totaled $40.0 million consisting of $39.4 million in PPE, net and a $0.6 million intangible PPA asset. Because of the uncertainty of the results of the IRP, we performed a probability-based approach when determining the weighted average fair value of Williams Lake. This approach considered the cash flows under the January 2018 extension, as well as a modeled long-term extension post-IRP incorporating similar economics to the 2018 extension with some additional allowances. These factors incorporated significant judgments and estimates by management when determining outcome likelihood, as well as long-term extension economics. Williams Lake has approximately 22 years of remaining useful life. We believe that Williams Lake provides value to the Province’s long-term plan based on its positioning as a renewable resource, its synergy with the local forestry industry and its lower $/KW cost than new biomass construction. Upon testing Williams Lake for long-lived asset impairment, the carrying value of the asset group exceeded the estimated weighted-average undiscounted cash flows. Because Williams Lake failed the recovery test, we calculated the estimated weighted-average fair value utilizing a probability-based DCF and recorded a $29.1 million long-lived asset impairment in the year ended December 31, 2017, which is the difference between the fair value and carrying value of the reporting unit’s asset group. The impairment was allocated as a $0.6 million full impairment of intangible PPA assets and a $28.5 million partial impairment of property, plant and equipment. The Williams Lake biomass plant is a component of our Solid Fuel segment. 2017 – Event-driven test performed in third quarter In the third quarter of 2017, we performed event-driven long-lived asset impairment tests at Naval Station, North Island and Naval Training Center (“NTC”) (collectively, the “San Diego Projects”). The San Diego Projects sold power to San Diego Gas & Electric (“SDG&E”) under PPAs that were scheduled to expire in December 2019. In addition, the three projects supplied steam to the U.S. Navy under agreements that provided these projects with the right to use the property at the respective sites on which each project is located (the "Navy agreements"). In August 2017, we were unsuccessful in obtaining contracts to provide the Navy with energy security that would have provided us with the right to continue using the sites beyond February 2018. Following notification of the outcome of the Navy solicitation, we determined that it was unlikely that any of these projects will operate beyond the expiration of the Navy agreements. As a result, we performed long-lived asset impairment tests at each of these projects as of July 31, 2017. In order to test the recoverability of the long-lived assets in the asset groups, we compared the carrying amount of the assets to estimated undiscounted future cash flows expected to be generated by each of the San Diego Projects through their expected decommissioning dates. The carrying value of each asset group includes its recorded property, plant equipment and intangible assets related to PPAs. As a result of this test, we recorded a total $57.3 million impairment ($22.5 million at Naval Station, $13.5 million at NTC and $21.2 million at North Island) in the year ended December 31, 2017. This impairment is composed of an $18.2 million full impairment of intangible assets related to PPAs ($10.3 million at Naval Station, $3.6 million at NTC and $4.2 million at North Island) and a $39.1 million partial impairment of property, plant and equipment ($12.1 million at Naval Station, $9.9 million at NTC and $17.0 million at North Island). At December 31, 2017, the San Diego projects’ remaining property, plant and equipment represent our estimate of the projects’ remaining undiscounted cash flows and salvage values. We were unable to extend our land use license agreements through the end of our PPAs and ceased operations at these plants on February 7, 2018. The San Diego Projects are components of our Natural Gas segment.

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- Definition The entire disclosure for long-lived, physical assets used in the normal conduct of business and not intended for resale. Includes, but is not limited to, accounting policies and methodology, roll forwards, depreciation, depletion and amortization expense, including composite depreciation, accumulated depreciation, depletion and amortization expense, useful lives and method used, income statement disclosures, assets held for sale and public utility disclosures. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 + Details
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