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Leases | 12 Months Ended
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Dec. 31, 2020
Leases [Abstract] |
LEASES | LEASES Obligations Under Operating Leases We have recorded right of use assets and lease liabilities associated with the following operating leases. •Leases of office space, primarily related to several floors we are leasing in the Aon Center office building in Chicago, Illinois, though April 2029. •Land we are leasing related to our Rothschild biomass plant through June 2051. •Rail cars we are leasing to transport coal to various generating facilities through February 2021. 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. Obligations Under Finance Lease Power Purchase Commitment In 1997, we entered into a 25-year power purchase contract with an unaffiliated independent power producer. The contract, for 236 MW of firm capacity from a natural gas-fired cogeneration facility, includes zero minimum energy requirements. When the contract expires in 2022, we may, at our option and with proper notice, renew for another ten years, purchase the generating facility at fair market value, or allow the contract to expire. At lease inception we recorded this leased facility and corresponding obligation on our balance sheets at the estimated fair value of the plant's electric generating facilities. Minimum lease payments are a function of the 236 MW of firm capacity we receive from the plant and the fixed monthly capacity rate published in the lease. Prior to our adoption of Topic 842 on January 1, 2019, we accounted for this finance lease under Topic 980-840, Regulated Operations – Leases, as follows: •We recorded our minimum lease payments as purchased power expense in cost of sales on our income statement. •We recorded the difference between the minimum lease payments and the sum of imputed interest and amortization costs calculated under finance lease accounting rules as a deferred regulatory asset on our balance sheets. In conjunction with our adoption of Topic 842, while the timing of expense recognition related to this finance lease did not change, classification of the lease expense changed as follows: •Effective January 1, 2019, the minimum lease payments under the power purchase contract were no longer classified within cost of sales in our income statements, but were instead recorded as a component of depreciation and amortization and interest expense in accordance with Topic 980-842, Regulated Operations – Leases. •In accordance with Topic 980-842, the timing of lease expense did not change for this finance lease upon adoption of Topic 842, and still resembled the expense recognition pattern of an operating lease, as the amortization of the right of use assets was modified from what would typically be recorded for a finance lease under Topic 842. •We continue to 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 deferred regulatory asset on our balance sheets. Due to the timing and the amounts of the minimum lease payments, the regulatory asset increased to $78.5 million in 2009, at which time the regulatory asset began to be reduced to zero over the remaining life of the contract. The total obligation under the finance lease was $12.1 million at December 31, 2020, and will decrease to zero over the remaining life of the contract. Two Creeks Solar Park 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. We treat these land lease contracts as operating leases for rate-making purposes. Our total obligation under the finance leases for Two Creeks was $7.9 million as of December 31, 2020, and will decrease to zero over the remaining lives of the leases. Badger Hollow Solar Park I 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 1,400 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. We treat these land lease contracts as operating leases for rate-making purposes. Our total obligation under the finance leases for Badger Hollow I was $20.3 million as of December 31, 2020, and will decrease to zero over the remaining lives of the leases. Badger Hollow Solar Park II 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. We treat these land lease contracts as operating leases for rate-making purposes. Our total obligation under the finance leases for Badger Hollow II was $23.1 million as of December 31, 2020, and will decrease to zero over the remaining lives of the leases. Amounts Recognized in the Financial Statements The components of lease expense and supplemental cash flow information related to our leases for the years ended December 31 are as follows:
(in millions) |  | 2020 |  | 2019 |  | 2018
Finance lease expense |  |  |  |  |  |
Amortization of right of use assets (1) |  | $ | 6.3 |  |  | $ | 4.9 |  |  |
Interest on lease liabilities (2) |  | 2.5 |  |  | 3.3 |  |  |
Capital lease expense (3) |  |  |  |  |  | $ | 7.7 |
Operating lease expense (4) |  | 5.4 |  |  | 5.5 |  |  | 5.6 |
Short-term lease expense (4) |  | 0.3 |  |  | 0.6 |  |  | 1.5 |
Total lease expense |  | $ | 14.5 |  |  | $ | 14.3 |  |  | $ | 14.8 |
Other information |  |  |  |  |  |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |  |  |
Operating cash flows from finance/capital leases (5) |  | $ | 2.5 |  |  | $ | 3.3 |  |  | $ | 7.7 |
Operating cash flows from operating leases |  | $ | 6.7 |  |  | $ | 6.0 |  |  | $ | 6.5 |
Financing cash flows from finance leases (5) |  | $ | 6.3 |  |  | $ | 4.9 |  |  |
Non-cash activities: |  |  |  |  |  |
Right of use assets obtained in exchange for finance lease liabilities |  | $ | 22.8 |  |  | $ | 27.2 |  |  |
Right of use assets obtained in exchange for operating lease liabilities |  | $ | — |  |  | $ | 49.0 |  |  |
Weighted-average remaining lease term – finance leases |  | 41.5 years |  | 31.5 years |  |
Weighted-average remaining lease term – operating leases |  | 13.0 years |  | 12.9 years |  |
Weighted-average discount rate – finance lease (6) |  | 4.9 | % |  | 6.7 | % |  |
Weighted average discount rate – operating leases (6) |  | 3.4 | % |  | 4.4 | % |  |
(1) Amortization of right of use assets was included as a component of depreciation and amortization expense for the years ended December 31, 2020 and 2019. (2) Interest on lease liabilities was included as a component of interest expense for the years ended December 31, 2020 and 2019. (3) Capital lease expense related to the long-term PPA was included in cost of sales for the year ended December 31, 2018. (4) Operating and short-term lease expense were included as a component of operation and maintenance for the years ended December 31, 2020, 2019, and 2018. (5) Prior to our adoption of Topic 842 on January 1, 2019, all cash flows related to the finance lease were recorded as a component of operating cash flows. (6) Because our operating 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 for our operating leases. For our PPA that meets the definition of a finance lease, the rate implicit in the lease was readily determinable. For our solar land leases that are finance leases, we used the fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments. The following table summarizes our finance lease right of use assets, which were included in property, plant and equipment on our balance sheets at December 31:
(in millions) |  | 2020 |  | 2019 |
Long-term power purchase commitment |  |  |  |  |
Under finance leases |  | $ | 140.3 |  |  | $ | 140.3 |  |
Accumulated amortization |  | (132.3) |  |  | (126.6) |  |
Total long-term power purchase commitment |  | $ | 8.0 |  |  | $ | 13.7 |  |
Two Creeks land leases |  |  |  |  |
Under finance leases |  | $ | 7.7 |  |  | $ | 7.7 |  |
Accumulated amortization |  | (0.2) |  |  | (0.1) |  |
Total Two Creeks land leases |  | $ | 7.5 |  |  | $ | 7.6 |  |
Badger Hollow I land leases |  |  |  |  |
Under finance leases |  | $ | 19.5 |  |  | $ | 19.5 |  |
Accumulated amortization |  | (0.6) |  |  | (0.2) |  |
Total Badger Hollow I land leases |  | $ | 18.9 |  |  | $ | 19.3 |  |
Badger Hollow II land leases |  |  |  |  |
Under finance leases |  | $ | 22.8 |  |  | $ | — |  |
Accumulated amortization |  | (0.2) |  |  | — |  |
Total Badger Hollow II land leases |  | $ | 22.6 |  |  | $ | — |  |
Total finance lease right of use assets |  | $ | 57.0 |  |  | $ | 40.6 |  |
Right of use assets related to operating leases were $20.7 million and $41.4 million at December 31, 2020 and 2019, and were included in other long-term assets on our balance sheets. Future minimum lease payments under our operating leases and our finance leases, and the present value of our net minimum lease payments as of December 31, 2020, were as follows:
(in millions) |  | Total Operating Leases |  | Power Purchase Commitment |  | Two Creeks |  | Badger Hollow I |  | Badger Hollow II |  | Total Finance Leases
2021 |  | $ | 4.5 |  |  | $ | 9.4 |  |  | $ | 0.2 |  |  | $ | 0.7 |  |  | $ | 0.3 |  |  | $ | 10.6 |
2022 |  | 4.4 |  |  | 4.2 |  |  | 0.2 |  |  | 0.7 |  |  | 0.3 |  |  | 5.4 |
2023 |  | 4.5 |  |  | — |  |  | 0.2 |  |  | 0.7 |  |  | 0.7 |  |  | 1.6 |
2024 |  | 4.3 |  |  | — |  |  | 0.2 |  |  | 0.7 |  |  | 0.7 |  |  | 1.6 |
2025 |  | 3.8 |  |  | — |  |  | 0.2 |  |  | 0.7 |  |  | 0.7 |  |  | 1.6 |
Thereafter |  | 24.5 |  |  | — |  |  | 22.6 |  |  | 52.7 |  |  | 55.0 |  |  | 130.3 |
Total minimum lease payments |  | 46.0 |  |  | 13.6 |  |  | 23.6 |  |  | 56.2 |  |  | 57.7 |  |  | 151.1 |
Less: Interest |  | (10.2) |  |  | (1.5) |  |  | (15.7) |  |  | (35.9) |  |  | (34.6) |  |  | (87.7) |
Present value of minimum lease payments |  | 35.8 |  |  | 12.1 |  |  | 7.9 |  |  | 20.3 |  |  | 23.1 |  |  | 63.4 |
Less: Short-term lease liabilities |  | (3.4) |  |  | (8.1) |  |  | — |  |  | — |  |  | — |  |  | (8.1) |
Long-term lease liabilities |  | $ | 32.4 |  |  | $ | 4.0 |  |  | $ | 7.9 |  |  | $ | 20.3 |  |  | $ | 23.1 |  |  | $ | 55.3 |
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.

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- Definition The entire disclosure for finance and operating leases of a lessee. Includes, but is not limited to, a description of the lessee's finance and operating leases and a maturity analysis of the lessee's finance and operating lease liabilities. + References No definition available. + Details
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