LEASES

3 Months Ended

Dec. 31, 2020

Leases [Abstract]

LEASES

12. LEASES

Lessee Accounting

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset and accounts for leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases. For more information on the adoption of ASC 842, Leases, see Note 2. Summary of Significant Accounting Policies.

The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas meters.

Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. These variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.

Generally, the Company’s solar land leases terms are between 15 and 35 years and may include multiple options to extend the terms for an additional five to 10 years. The Company’s office leases vary in duration, ranging from one to 25 years and may or may not include extension or early purchase options. The majority of the Company’s meter leases are for terms of seven years with purchase options available prior to the end of the seven year term. Equipment leases include general office equipment that also vary in duration, most of which are for a term of five years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.

The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:

		Three Months Ended
		December 31,
(Thousands)	Income Statement Location	2020		2019
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	1,246	$	1,161
Interest on lease liabilities	Interest expense, net of capitalized interest	221		247
Total finance lease cost		1,467		1,408
Operating lease cost	Operation and maintenance, net of capitalized costs	2,089		1,392
Short-term lease cost	Operation and maintenance	127		454
Variable lease cost	Operation and maintenance	153		707
Total lease cost		$	3,836	$	3,961

The following table presents supplemental cash flow information related to leases:

	Three Months Ended
	December 31,
(Thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,737	$	1,562
Operating cash flows from finance leases	$	2,176	$	443
Financing cash flows from finance leases	$	5,997	$	2,623

Assets obtained or modified through amendments in exchange for operating lease liabilities totaled $9.3 million and $21.6 million during the three months ended December 31, 2020 and 2019. There were no assets obtained or modified through finance lease liabilities during the three months ended December 31, 2020. Assets obtained or modified through finance lease liabilities during the three months ended December 31, 2019, totaled $4.0 million.

The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:

(Thousands)	Balance Sheet Location	December 31, 2020		September 30, 2020
Assets
Noncurrent
Operating lease assets	Operating lease assets	$	138,633	$	131,769
Finance lease assets	Utility plant	69,839		71,085
Total lease assets		$	208,472	$	202,854
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	4,397	$	6,724
Finance lease liabilities	Current maturities of long-term debt	10,164		10,416
Noncurrent
Operating lease liabilities	Operating lease liabilities	104,970		95,030
Finance lease liabilities	Long-term debt	59,345		63,743
Total lease liabilities		$	178,876	$	175,913

For operating lease assets and liabilities, the weighted average remaining lease term was 27.9 and 25.5 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.3 percent and 3.2 percent as of December 31, 2020 and September 30, 2020, respectively. For finance lease assets and liabilities as of December 31, 2020 and September 30, 2020, the weighted average remaining lease term was 11.7 and 11.5 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term is 2.5 percent as of both December 31, 2020 and September 30, 2020.

LEASES

12. LEASES

Lessee Accounting

The Company determines if an arrangement is a lease at inception based on whether the Company has the right to control the use of an identified asset, the right to obtain substantially all of the economic benefits from the use of the asset and the right to direct the use of the asset and accounts for leases in accordance with ASC 842, Leases. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term, including payments at commencement that depend on an index or rate. Most leases in which the Company is the lessee do not have a readily determinable implicit rate, so an incremental borrowing rate, based on the information available at the lease commencement date, is utilized to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company uses the implicit rate for agreements in which it is a lessor. The Company has not entered into any material agreements in which it is a lessor. Lease expense and lease income are recognized on a straight-line basis over the lease term for operating leases. For more information on the adoption of ASC 842, Leases, see Note 2. Summary of Significant Accounting Policies.

The Company’s lease agreements primarily consist of commercial solar land leases, storage and capacity leases, equipment and real property, including land and office facilities, office equipment and the sale leaseback of its natural gas meters.

Certain leases contain escalation provisions for inflation metrics. The storage leases contain a variable payment component that relates to the change in the inflation metrics that are not known past the current payment period. These variable components of these lease payments are excluded from the lease payments that are used to determine the related right-of-use lease asset and liability. The variable portion of these leases are recognized as leasing expenses when they are incurred. The capacity lease payments are fully variable and based on the amount of natural gas stored in the storage caverns.

Generally, the Company’s solar land leases terms are between 15 and 35 years and may include multiple options to extend the terms for an additional five to 10 years. The Company’s office leases vary in duration, ranging from one to 25 years and may or may not include extension or early purchase options. The majority of the Company’s meter leases are for terms of seven years with purchase options available prior to the end of the seven year term. Equipment leases include general office equipment that also vary in duration, most of which are for a term of five years. The Company's storage and capacity leases have assumed terms of 50 years to coincide with the expected useful lives of the cavern assets with which the leases are associated. The Company's lease terms may include options to extend, purchase the leased asset or terminate a lease and they are included in the lease liability calculation when it is reasonably certain that those options will be exercised. The Company has elected an accounting policy that exempts leases with an original term of one year or less from the recognition requirements of ASC 842, Leases.

The Company has lease agreements with lease and non-lease components and has elected the practical expedient to combine lease and non-lease components for certain classes of leases, such as office buildings, solar land leases and office equipment. Variable payments are not considered material to the Company. The Company’s lease agreements do not contain any material residual value guarantees, material restrictions or material covenants. There are no material lease transactions with related parties.

The following table presents the Company's lease costs included in the Unaudited Condensed Consolidated Statements of Operations:

		Three Months Ended
		December 31,
(Thousands)	Income Statement Location	2020		2019
Finance lease cost
Amortization of right-of-use assets	Depreciation and amortization	$	1,246	$	1,161
Interest on lease liabilities	Interest expense, net of capitalized interest	221		247
Total finance lease cost		1,467		1,408
Operating lease cost	Operation and maintenance, net of capitalized costs	2,089		1,392
Short-term lease cost	Operation and maintenance	127		454
Variable lease cost	Operation and maintenance	153		707
Total lease cost		$	3,836	$	3,961

The following table presents supplemental cash flow information related to leases:

	Three Months Ended
	December 31,
(Thousands)	2020		2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	1,737	$	1,562
Operating cash flows from finance leases	$	2,176	$	443
Financing cash flows from finance leases	$	5,997	$	2,623

Assets obtained or modified through amendments in exchange for operating lease liabilities totaled $9.3 million and $21.6 million during the three months ended December 31, 2020 and 2019. There were no assets obtained or modified through finance lease liabilities during the three months ended December 31, 2020. Assets obtained or modified through finance lease liabilities during the three months ended December 31, 2019, totaled $4.0 million.

The following table presents the balance and classifications of the Company's right of use assets and lease liabilities included in the Unaudited Condensed Consolidated Balance Sheets:

(Thousands)	Balance Sheet Location	December 31, 2020		September 30, 2020
Assets
Noncurrent
Operating lease assets	Operating lease assets	$	138,633	$	131,769
Finance lease assets	Utility plant	69,839		71,085
Total lease assets		$	208,472	$	202,854
Liabilities
Current
Operating lease liabilities	Operating lease liabilities	$	4,397	$	6,724
Finance lease liabilities	Current maturities of long-term debt	10,164		10,416
Noncurrent
Operating lease liabilities	Operating lease liabilities	104,970		95,030
Finance lease liabilities	Long-term debt	59,345		63,743
Total lease liabilities		$	178,876	$	175,913

For operating lease assets and liabilities, the weighted average remaining lease term was 27.9 and 25.5 years and the weighted average discount rate used in the valuation over the remaining lease term was 3.3 percent and 3.2 percent as of December 31, 2020 and September 30, 2020, respectively. For finance lease assets and liabilities as of December 31, 2020 and September 30, 2020, the weighted average remaining lease term was 11.7 and 11.5 years, respectively, and the weighted average discount rate used in the valuation over the remaining lease term is 2.5 percent as of both December 31, 2020 and September 30, 2020.