LEASES

6 Months Ended

Jun. 30, 2020

LEASES

WE has partnered with an unaffiliated utility to construct the Badger Hollow II wind generation facility in Iowa County, Wisconsin. Once constructed, WE will own 100 MW of the output of this facility. The PSCW approved the acquisition of Badger Hollow II in March 2020 and commercial operation is targeted for December 2022.

Related to its investment in Badger Hollow II, WE, along with its unaffiliated utility partner, 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.

Our total obligation under the land related finance leases for Badger Hollow II was $22.8 million at June 30, 2020, and will decrease to zero over the remaining lives of the leases. Long-term lease liabilities related to our finance leases for Badger Hollow II were included in long-term debt on the balance sheets. Our finance lease right of use asset related to Badger Hollow II was $22.8 million as of June 30, 2020, and was included in property, plant, and equipment on our balance sheets.

In accordance with Accounting Standard Codification Subtopic 980-842, Regulated Operations – Leases (Subtopic 980-842), the expense recognition pattern associated with the Badger Hollow II leases resembles that of an operating lease, as amortization of the

right of use assets has been modified from what would typically be recorded for a finance lease under Topic 842. The difference between the minimum lease payments and the sum of imputed interest and unadjusted amortization costs calculated under Topic 842 is deferred as a regulatory asset in accordance with Subtopic 980-842 on our balance sheet.

At June 30, 2020, our weighted-average discount rate for the Badger Hollow II finance leases was 3.44%. We used the fully collateralized incremental borrowing rates based upon information available for similarly rated companies in determining the present value of lease payments.

Future minimum lease payments and the corresponding present value of our net minimum lease payments under the finance leases for Badger Hollow II as of June 30, 2020, were as follows:


(in millions)
Six months ended December 31, 2020	$	0.2
2021	0.3
2022	0.3
2023	0.7
2024	0.7
2025	0.7
Thereafter	55.0
Total minimum lease payments	57.9
Less:Interest	(35.1)
Present value of minimum lease payments	22.8
Less: Short-term lease liabilities	—
Long-term lease liabilities	$	22.8