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LEASES (Notes)

12 Months Ended

Dec. 31, 2020

NOTE 17. LEASES

On January 1, 2019, we adopted ASU 2016-02 Leases (Topic 842), also referred to as ASC 842, using the modified retrospective method and recognized a right of use ("ROU") asset and liability in our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We determine if an arrangement contains a lease at inception.

Our leases consist of leaseholds on WtE facilities, land, trucks and automobiles, office space, and machinery and equipment. We utilized a portfolio approach in determining our discount rate. The portfolio approach takes into consideration the range of the term, the range of the lease payments, the category of the underlying asset and our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We also give consideration to our recent debt issuances as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

ASC 842 provides that leases with a term of 12 months or less are not recorded on the balance sheet. The guidance also provides practical expedients whereby we have elected to not record a right of use asset or right of use liability for leases with an asset balance that would be considered immaterial. Furthermore, non-lease components are not separated from lease components and instead we account for each separate lease component and non-lease component associated with that lease as a single lease component.

We recognize lease expense for these leases on a straight-line basis over the lease term. Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. We recognize variable lease payments in the period in which the obligation for those payments is incurred. Variable lease payments that depend on an index or a rate are initially measured using the index or rate at the commencement date, otherwise variable lease payments are recognized in the period incurred.

The components of lease expense were as follows (in millions):


	Year Ended December 31,
	2020		2019
Finance leases:
Amortization of assets, included in Depreciation and amortization expense	$	8	$	7
Interest on lease liabilities, included in Interest expense	4		4
Operating leases:
Amortization of assets, included in Total operating expense	7		8
Interest on lease liabilities, included in Total operating expense	2		2
Total net lease cost	$	21	$	21

Supplemental balance sheet information related to leases was as follows (in millions, except lease term and discount rate):


	December 31, 2020		December 31, 2019
Operating leases:
Operating lease ROU assets, included in Other assets	$	43	$	46

Current operating lease liabilities, included in Accrued expenses and other current liabilities	$	6	$	6
Noncurrent operating lease liabilities, included in Other liabilities	43		46
Total operating lease liabilities	$	49	$	52

Finance leases:
Property and equipment, at cost	$	170	$	168
Accumulated amortization	(33)		(25)
Property and equipment, net	$	137	$	143

Current obligations of finance leases, included in Current portion of project debt	$	6	$	6
Finance leases, net of current obligations, included in Project debt	72		78
Current obligations of finance leases, included in Current portion of long-term debt	1		—
Finance leases, net of current obligations, included in Long-term debt	6		6
Total finance lease liabilities	$	85	$	90

Supplemental cash flow and other information related to leases was as follows (in millions):


	Year Ended December 31,
	2020			2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows related to operating leases	$	9		$	10

Financing cash flows related to finance leases	$	7		$	6





Weighted average remaining lease term (in years):
Operating leases	11.4			11.9
Finance leases	31.1			32.3

Weighted average discount rate:
Operating leases	4.58		%	4.64		%
Finance leases	5.06		%	5.05		%

Maturities of lease liabilities were as follows (in millions):


	December 31, 2020
	Operating Leases		Finance Leases
2021	$	9	$	12
2022	8		12
2023	7		12
2024	7		11
2025	6		13
2026 and thereafter	27		92
Total lease payments	64		152
Less: Amounts representing interest	(15)		(67)
Total lease obligations	$	49	$	85

Disclosures related to periods prior to the adoption of ASC 842

Rental expense was $23 million for the year ended December 31, 2018.

LEASES