Leases

9 Months Ended

Sep. 30, 2020

Leases [Abstract]

Leases

Leases

Leases as Lessee

SCE enters into various agreements to purchase power, electric capacity and other energy products that may be accounted for as leases when SCE has dispatch rights that determine when and how a plant runs. SCE also leases property and equipment primarily related to vehicles, office space and other equipment. The terms of the contracts included in the table below are primarily 3 to 20 years for PPA leases, 5 to 72 years for office leases, and 5 to 12 years for the remaining other operating leases.

The following table summarizes SCE's lease payments for operating and finance leases as of September 30, 2020:

(in millions)	PPA Operating Leases1		Other Operating Leases2,3		PPA Finance Leases1
2020	$	37	$	10	$	—
2021	205		36		1
2022	208		30		1
2023	159		24		2
2024	47		19		2
Thereafter	489		114		8
Total lease payments	1,145		233		14
Amount representing interest3	209		60		5
Lease liabilities	$	936	$	173	$	9

¹Excludes expected purchases from most renewable energy contracts, which do not meet the definition of a lease payment since renewable power generation is contingent on external factors.

²Excludes escalation clauses based on consumer price or other indices and residual value guarantees that are not considered probable at the commencement date of the lease.

³Lease payments are discounted to their present value using SCE's incremental borrowing rates.

Supplemental balance sheet information related to SCE's leases was as follows:

(in millions)	September 30, 2020		December 31, 2019
Operating leases:
Operating lease right-of-use ("ROU") assets1	$	1,109	$	689
Current portion of operating lease liabilities	210		79
Operating lease liabilities	899		610
Total operating lease liabilities1	$	1,109	$	689
Finance leases included in:
Utility property, plant and equipment, gross	$	10	$	14
Accumulated depreciation	(1)		(5)
Utility property, plant and equipment, net	9		9
Other current liabilities	1		1
Other long-term liabilities	8		8
Total finance lease liabilities	$	9	$	9

¹ During the third quarter of 2020, a PPA operating lease contract commenced and one PPA contract was amended that resulted in a total of $463 million additions in ROU assets and lease liabilities.

The timing of SCE's recognition of the lease expense conforms to ratemaking treatment for SCE's recovery of the cost of electricity and is included in purchased power for operating leases and interest and amortization expense for finance leases. The following table summarizes the components of SCE's lease expense:

	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
PPA leases:
Operating lease cost	35		38		74		98
Finance lease cost	1		1		2		1
Variable lease cost1	676		751		1,582		1,742
Total PPA lease cost	712		790		1,658		1,841
Other operating leases cost	11		12		35		35
Total lease cost	$	723	$	802	$	1,693	$	1,876

¹Includes lease costs from renewable energy contracts where payments are based on contingent external factors such as wind, hydro and solar power generation.

Other information related to leases was as follows:

(in millions, except lease term and discount rate)	Nine month ended September 30, 2020			Nine month ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
PPA leases	$	74		$	98
Other leases	33			34
ROU assets obtained in exchange for lease obligations:
PPA operating leases	463			—
Other operating leases	42			23
Weighted average remaining lease term (in years):
Operating leases
PPA leases	9.83			16.03
Other leases	12.35			12.75
PPA Finance leases	10.90			11.71
Weighted average discount rate:
Operating leases
PPA leases	3.08		%	4.44		%
Other leases	3.74		%	3.89		%
PPA Finance leases	8.83		%	8.74		%

Leases as lessor

EME is a wholly-owned subsidiary of Edison International. EME emerged from bankruptcy in 2014 and retained a lease investment in a hydroelectric power plant in Vidalia, Louisiana. During 2020, the lessee exercised an option in the lease agreement to purchase the asset upon expiration of the lease term in November 2020. Edison International has no remaining investment balance as of September 30, 2020 related to the lease investment. Upon completion of the sale, Edison International expects to receive net proceeds of approximately $131 million. The revenue recognized for the lease in 2020 is immaterial to Edison International's consolidated financial statements.

Leases

Leases

Leases as Lessee

SCE enters into various agreements to purchase power, electric capacity and other energy products that may be accounted for as leases when SCE has dispatch rights that determine when and how a plant runs. SCE also leases property and equipment primarily related to vehicles, office space and other equipment. The terms of the contracts included in the table below are primarily 3 to 20 years for PPA leases, 5 to 72 years for office leases, and 5 to 12 years for the remaining other operating leases.

The following table summarizes SCE's lease payments for operating and finance leases as of September 30, 2020:

(in millions)	PPA Operating Leases1		Other Operating Leases2,3		PPA Finance Leases1
2020	$	37	$	10	$	—
2021	205		36		1
2022	208		30		1
2023	159		24		2
2024	47		19		2
Thereafter	489		114		8
Total lease payments	1,145		233		14
Amount representing interest3	209		60		5
Lease liabilities	$	936	$	173	$	9

¹Excludes expected purchases from most renewable energy contracts, which do not meet the definition of a lease payment since renewable power generation is contingent on external factors.

²Excludes escalation clauses based on consumer price or other indices and residual value guarantees that are not considered probable at the commencement date of the lease.

³Lease payments are discounted to their present value using SCE's incremental borrowing rates.

Supplemental balance sheet information related to SCE's leases was as follows:

(in millions)	September 30, 2020		December 31, 2019
Operating leases:
Operating lease right-of-use ("ROU") assets1	$	1,109	$	689
Current portion of operating lease liabilities	210		79
Operating lease liabilities	899		610
Total operating lease liabilities1	$	1,109	$	689
Finance leases included in:
Utility property, plant and equipment, gross	$	10	$	14
Accumulated depreciation	(1)		(5)
Utility property, plant and equipment, net	9		9
Other current liabilities	1		1
Other long-term liabilities	8		8
Total finance lease liabilities	$	9	$	9

¹ During the third quarter of 2020, a PPA operating lease contract commenced and one PPA contract was amended that resulted in a total of $463 million additions in ROU assets and lease liabilities.

The timing of SCE's recognition of the lease expense conforms to ratemaking treatment for SCE's recovery of the cost of electricity and is included in purchased power for operating leases and interest and amortization expense for finance leases. The following table summarizes the components of SCE's lease expense:

	Three months ended September 30,				Nine months ended September 30,
(in millions)	2020		2019		2020		2019
PPA leases:
Operating lease cost	35		38		74		98
Finance lease cost	1		1		2		1
Variable lease cost1	676		751		1,582		1,742
Total PPA lease cost	712		790		1,658		1,841
Other operating leases cost	11		12		35		35
Total lease cost	$	723	$	802	$	1,693	$	1,876

¹Includes lease costs from renewable energy contracts where payments are based on contingent external factors such as wind, hydro and solar power generation.

Other information related to leases was as follows:

(in millions, except lease term and discount rate)	Nine month ended September 30, 2020			Nine month ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
PPA leases	$	74		$	98
Other leases	33			34
ROU assets obtained in exchange for lease obligations:
PPA operating leases	463			—
Other operating leases	42			23
Weighted average remaining lease term (in years):
Operating leases
PPA leases	9.83			16.03
Other leases	12.35			12.75
PPA Finance leases	10.90			11.71
Weighted average discount rate:
Operating leases
PPA leases	3.08		%	4.44		%
Other leases	3.74		%	3.89		%
PPA Finance leases	8.83		%	8.74		%

Leases as lessor

EME is a wholly-owned subsidiary of Edison International. EME emerged from bankruptcy in 2014 and retained a lease investment in a hydroelectric power plant in Vidalia, Louisiana. During 2020, the lessee exercised an option in the lease agreement to purchase the asset upon expiration of the lease term in November 2020. Edison International has no remaining investment balance as of September 30, 2020 related to the lease investment. Upon completion of the sale, Edison International expects to receive net proceeds of approximately $131 million. The revenue recognized for the lease in 2020 is immaterial to Edison International's consolidated financial statements.