Leases

12 Months Ended

Dec. 31, 2020

We adopted the provisions of ASC 842 beginning on January 1, 2019, using the transition method provided in ASU 2018-11, which was applied to all existing leases at that date. As such, results for reporting periods beginning after January 1, 2019 will be presented under ASC 842, while prior period amounts are reported in accordance with ASC 840. ASC 842 provides lessees the option of electing an accounting policy, by class of underlying asset, in which the lessee may choose not to separate nonlease components from lease components. We elected this practical expedient for our leases of fleet vehicles, IT assets and railcars. Adoption of this standard resulted in the recording of additional lease liabilities and corresponding ROU assets of $57.0 million on our Consolidated Balance Sheets as of January 1, 2019. The standard had no material impact on our Statements of Consolidated Income (Loss) or our Statements of Consolidated Cash Flows.

Lease Descriptions. We are the lessee for substantially all of our leasing activity, which includes operating and finance leases for corporate and field offices, railcars, fleet vehicles and certain IT assets. Our corporate and field office leases have remaining lease terms between 1 and 23 years with options to renew the leases for up to 25 years. We lease railcars to transport coal to and from our electric generation facilities in Indiana. Our railcars are specifically identified in the lease agreements and have lease terms between 1 and 2 years with options to renew for 1 year. Our fleet vehicles include trucks, trailers and equipment that have been customized specifically for use in the utility industry. We lease fleet vehicles on 1 year terms, after which we have the option to extend on a month-to-month basis or terminate with written notice. ROU assets and liabilities on our Consolidated Balance Sheets do not include obligations for possible fleet vehicle lease renewals beyond the initial lease term. While we have the ability to renew these leases beyond the initial term, we are not reasonably certain (as that term is defined in ASC 842) to do

so. We lease the majority of our IT assets under 4 year lease terms. Ownership of leased IT assets is transferred to us at the end of the lease term.

We have not provided material residual value guarantees for our leases, nor do our leases contain material restrictions or covenants. Lease contracts containing renewal and termination options are mostly exercisable at our sole discretion. Certain of our real estate and railcar leases include renewal periods in the measurement of the lease obligation if we have deemed the renewals reasonably certain to be exercised.

With respect to service contracts involving the use of assets, if we have the right to direct the use of the asset and obtain substantially all economic benefits from the use of an asset, we account for the service contract as a lease. Unless specifically provided to us by the lessor, we utilize NiSource's collateralized incremental borrowing rate commensurate to the lease term as the discount rate for all of our leases.

Lease costs for the years ended December 31, 2020 and December 31, 2019 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized as part of the cost of another asset. Income statement presentation for these costs (when ultimately recognized on the income statement) is also included:



Year Ended December 31, (in millions)	Income Statement Classification	2020		2019
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	23.4	$	15.5
Interest on lease liabilities	Interest expense, net	11.1		11.3
Total finance lease cost		34.5		26.8
Operating lease cost	Operation and maintenance	20.3		17.9
Short-term lease cost	Operation and maintenance	—		1.0

Total lease cost		$	54.8	$	45.7

Our right-of-use assets and liabilities are presented in the following lines on the Consolidated Balance Sheets:


At December 31, (in millions)	Balance Sheet Classification	2020		2019
Assets
Finance leases	Net Property, Plant and Equipment	$	176.8	$	179.5
Operating leases	Deferred charges and other	39.9		64.2
Total leased assets		216.7		243.7
Liabilities
Current
Finance leases	Current portion of long-term debt	23.3		13.4
Operating leases	Other accruals	10.3		13.2
Noncurrent
Finance leases	Long-term debt, excluding amounts due within one year	171.7		188.1
Operating leases	Other noncurrent liabilities	29.9		51.6
Total lease liabilities		$	235.2	$	266.3

Other pertinent information related to leases was as follows:


Year Ended December 31, (in millions)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases	$	11.1	$	11.3
Operating cash flows used for operating leases	20.2		17.9
Financing cash flows used for finance leases	18.4		10.6
Right-of-use assets obtained in exchange for lease obligations
Finance leases	59.3		26.4
Operating leases	$	10.9	$	13.4


	December 31, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Finance leases	11.2		14.8
Operating leases	8.0		9.2
Weighted-average discount rate
Finance leases	5.1	%	5.9	%
Operating leases	4.0	%	4.3	%

Maturities of our lease liabilities as of December 31, 2020 were as follows:


As of December 31, 2020, (in millions)	Total		Finance Leases		Operating Leases
2021	$	44.4	$	32.7	$	11.7
2022	37.4		32.2		5.2
2023	33.5		28.8		4.7
2024	25.3		20.8		4.5
2025	19.8		16.1		3.7
Thereafter	152.3		134.1		18.2
Total lease payments	312.7		264.7		48.0
Less: Imputed interest	(77.5)		(69.7)		(7.8)

Total	235.2		195.0		40.2
Reported as of December 31, 2020
Short-term lease liabilities	33.6		23.3		10.3
Long-term lease liabilities	201.6		171.7		29.9
Total lease liabilities	$	235.2	$	195.0	$	40.2

There were no leases signed but not yet commenced as of December 31, 2020.

Disclosures Related to Periods Prior to Adoption of ASC 842. We lease assets in several areas of our operations including fleet vehicles and equipment, rail cars for coal delivery and certain operations centers. Payments made in connection with operating leases were $49.1 million in 2018, and were primarily charged to operation and maintenance expense as incurred.