As described in Note 2 — Impact of New Accounting Standards and Interpretations, TVA elected the modified retrospective method of adoption for the new lease accounting standard effective October 1, 2019. Under the modified retrospective method of adoption, prior year reported results are not restated.

TVA recorded $205 million and $210 million of lease assets and lease liabilities, respectively, for operating leases in effect at the adoption date. The accounting for finance leases remained substantially unchanged. Adoption of the standard did not materially impact results of operations or cash flows.

The following table provides additional information regarding the presentation of leases on the Consolidated Balance Sheets at September 30, 2020:


Amounts Recognized on TVA's Consolidated Balance Sheets At September 30, 2020
Assets
Operating	Operating lease assets, net of amortization	$	232
Finance	Finance leases	516
Total lease assets		$	748

Liabilities
Current
Operating	Accounts payable and accrued liabilities	$	63
Finance	Accounts payable and accrued liabilities	41
Non-current
Operating	Other long-term liabilities	171
Finance	Finance lease liabilities	525
Total lease liabilities		$	800

TVA's leases consist primarily of railcars, equipment, real estate/land, power generating facilities, and gas pipelines. TVA's leases have various terms and expiration dates remaining from less than one year to 26 years. The components of lease costs for the year September 30, 2020, were as follows:


Lease Costs
	For the year ended September 30, 2020
Operating lease costs(1)	$	84
Variable lease costs(1)	75
Short-term lease costs(1)	7
Finance lease costs
Amortization of lease assets(2)	15
Interest on lease liabilities(3)(4)	33
Total finance lease costs	48
Total lease costs	$	214

(1) Costs are included in Operating and maintenance expense, Fuel expense, Purchased power expense, and Tax equivalents expense on the Consolidated Statements of Operations. TVA's rental expense for operating leases was approximately $97 million and $92 million for the years ended September 30, 2019 and 2018, respectively.

(2) Expense is included in Depreciation and amortization expense on the Consolidated Statements of Operations.

(4) Certain finance leases receive regulatory accounting treatment and are reclassified to Fuel expense and Purchased power expense.

TVA's variable lease costs are primarily related to renewable energy purchase agreements that require TVA to purchase all output from the underlying facility. Payments under those agreements are solely based on the actual output over the lease term. Certain TVA lease agreements contain renewal options. Those renewal options that are reasonably certain to be exercised are included in the lease measurements.

The following table contains additional information with respect to cash and non-cash activities related to leases:


Amounts Recognized on TVA's Consolidated Statements of Cash Flows For the Year Ended September 30, 2020
Operating cash flows for operating leases	$	85
Operating cash flows for finance leases	33
Financing cash flows for finance leases	15

Lease assets obtained in exchange for lease obligations (non-cash)
Operating leases(1)	$	110
Finance leases	394

(1) Amount excludes operating lease assets recorded as a result of the adoption of the new lease standard.

TVA has certain finance leases under PPAs under which the present value of the minimum lease payments exceeds the fair value of the related lease asset at the date of measurement. This resulted in an interest rate that was higher than TVA's incremental borrowing rate. At September 30, 2020, the weighted average remaining lease term in years and the weighted average discount rate for TVA's operating and financing leases were as follows:


Weighted Averages At September 30, 2020
Weighted average remaining lease terms
Operating leases			5 years
Finance leases			12 years

Weighted average discount rate(1)
Operating leases			1.6%
Finance leases			21.8%

(1) The discount rate is calculated using the rate implicit in a lease if it is readily determinable. If the rate used by the lessor is not readily determinable, TVA uses its incremental borrowing rate as permitted by accounting guidance. The incremental borrowing rate is influenced by TVA's credit rating and lease term and as such may differ for individual leases, embedded leases, or portfolios of leased assets.

The following table presents maturities of lease liabilities and a reconciliation of the undiscounted cash flows to lease liabilities at September 30, 2020:


Future Minimum Lease Payments Minimum Payments Due at September 30, 2020
Operating leases
2021	$	66
2022	51
2023	39
2024	37
2025	34
Thereafter	16
Minimum annual payments	243
Less: present value discount	(9)
Operating present value of net minimum lease payments	$	234

Finance leases
2021	$	92
2022	93
2023	92
2024	87
2025	86
Thereafter	592
Minimum annual payments	1,042
Less: amount representing interest	(476)
Finance present value of net minimum lease payments	$	566

The following table presents the future minimum lease payments under operating leases and the finance lease maturities as reported under the previous lease standard at September 30, 2019:


Future Minimum Lease Payments Minimum Payments Due at September 30, 2019
Operating leases
2020	$	76
2021	75
2022	60
2023	12
2024	3
Thereafter	2
Minimum annual payments	228
Less: present value discount	—
Operating present value of net minimum lease payments	$	228

Finance leases
2020	$	53
2021	53
2022	53
2023	55
2024	51
Thereafter	418
Minimum annual payments	683
Less: amount representing interest	(495)
Finance present value of net minimum lease payments	$	188

TVA entered into a PPA with a renewable resource provider for solar generation and rights to charge and discharge a battery energy storage system. The system is considered a lease component in this agreement. This lease has a term of 20 years, and is expected to commence on October 1, 2022. Payments made over the term of this lease are expected to total approximately $89 million.