Leases Leases

12 Months Ended

Dec. 31, 2023

LESSEE — Right-of-use assets are long-term by nature. The following table summarizes the amounts recognized on the Consolidated Balance Sheets related to lease asset and liability balances as of the periods indicated (in millions):


	Consolidated Balance Sheet Classification	December 31, 2023		December 31, 2022
Assets
Right-of-use assets — finance leases	Electric generation, distribution assets and other	$	250	$	160
Right-of-use assets — operating leases	Other noncurrent assets	380		356
Total right-of-use assets		$	630	$	516
Liabilities
Finance lease liabilities (current)	Non-recourse debt (current liabilities)	$	8	$	6
Finance lease liabilities (noncurrent)	Non-recourse debt (noncurrent liabilities)	262		169
Total finance lease liabilities		270		175
Operating lease liabilities (current)	Accrued and other liabilities	37		26
Operating lease liabilities (noncurrent)	Other noncurrent liabilities	387		374
Total operating lease liabilities		424		400
Total lease liabilities		$	694	$	575

The following table summarizes supplemental balance sheet information related to leases as of the periods indicated:


Lease Term and Discount Rate	December 31, 2023		December 31, 2022
Weighted-average remaining lease term — finance leases	34 years		33 years
Weighted-average remaining lease term — operating leases	27 years		25 years
Weighted-average discount rate — finance leases	5.36	%	4.59	%
Weighted-average discount rate — operating leases	7.70	%	6.22	%

The following table summarizes the components of lease cost recognized in Cost of Sales on the Consolidated Statements of Operations for the periods indicated (in millions):


	Years Ended December 31,
Components of Lease Cost	2023		2022

Operating lease cost	$	52	$	46
Finance lease cost:
Amortization of right-of-use assets	7		8
Interest on lease liabilities	10		8
Short-term lease costs	16		28
Variable lease cost	—		1

Total lease cost	$	85	$	91

Operating cash outflows from operating leases included in the measurement of lease liabilities were $54 million and $54 million for the years ended December 31, 2023 and 2022, respectively, and operating cash outflows from finance leases were $5 million and $22 million for the years ended December 31, 2023 and 2022, respectively. Right-of-use assets obtained in exchange for new operating and finance lease liabilities were $129 million and $96 million, respectively, for the years ended December 31, 2023.

The following table shows the future lease payments under operating and finance leases for continuing operations together with the present value of the net lease payments as of December 31, 2023 for 2024 through 2028 and thereafter (in millions):


	Maturity of Lease Liabilities
	Finance Leases		Operating Leases
2024	$	14	$	56
2025	14		45
2026	15		43
2027	15		41
2028	15		38
Thereafter	545		986
Total	618		1,209
Less: Imputed interest	(348)		(785)
Present value of lease payments	$	270	$	424

Lessor, Operating Leases [Text Block]

LESSOR — The Company has operating leases for certain generation contracts that contain provisions to provide capacity to a customer, which is a stand-ready obligation to deliver energy when required by the customer. Capacity payments are generally considered lease elements as they cover the majority of available output from a facility. The allocation of contract payments between the lease and non-lease elements is made at the inception of the lease. Lease payments from such contracts are recognized as lease revenue on a straight-line basis over the lease term, whereas variable lease payments are recognized when earned.

The following table presents lease revenue from operating leases in which the Company is the lessor, recognized in Revenue on the Consolidated Statements of Operations for the periods indicated (in millions):


	Years Ended December 31,
Lease Income		2023		2022
Total lease revenue		$	490	$	527
Less: Variable lease revenue		(65)		(49)
Total non-variable lease revenue		$	425	$	478

The following table presents the underlying gross assets and accumulated depreciation of operating leases included in Property, Plant and Equipment on the Consolidated Balance Sheets as of the periods indicated (in millions):



Lease Assets	December 31, 2023		December 31, 2022
Gross assets	$	1,227	$	1,319
Less: Accumulated depreciation	(182)		(139)
Net assets	$	1,045	$	1,180

The option to extend or terminate a lease is based on customary early termination provisions in the contract, such as payment defaults, bankruptcy, or lack of performance on energy delivery. The Company has not recognized any early terminations as of December 31, 2023. Certain leases may provide for variable lease payments based on usage or index-based (e.g., the U.S. Consumer Price Index) adjustments to lease payments.

The following table shows the future lease receipts as of December 31, 2023 for 2024 through 2028 and thereafter (in millions):


	Future Cash Receipts for
	Sales-Type Leases		Operating Leases
2024	$	34	$	393
2025	32		394
2026	32		280
2027	32		183
2028	32		60
Thereafter	441		484
Total	603		$	1,794
Less: Imputed interest	(296)
Present value of total lease receipts	$	307

Battery Storage Lease Arrangements — The Company constructs and operates projects consisting only of a stand-alone BESS facility, as well as projects that pair a BESS with solar energy systems. These projects allow more flexibility on when to provide energy to the grid. The Company will enter into PPAs for the full output of the facility that allow customers the ability to determine when to charge and discharge the BESS. These arrangements include both lease and non-lease elements under ASC 842, with the BESS component typically constituting a sales-type lease. The Company recognized lease revenue on sales-type leases through variable payments of $3 million and $2 million and interest income of $13 million and $23 million for the years ended December 31, 2023 and 2022, respectively. During the second quarter of 2022, the Company recognized a full allowance of $20 million on a sales-type lease receivable at AES Gilbert. See Note 21—Other Income and Expense for further information. During the second quarter of 2023, the sales-type lease receivable and the associated allowance were written-off.

The Company recorded a loss at commencement of sales-type leases of $20 million and $5 million for the years ended December 31, 2023 and 2022, respectively. These amounts are recognized in Other expense in the Consolidated Statement of Operations. See Note 21—Other Income and Expense for further information. Effective January 1, 2022, the Company adopted ASU 2021-05 in which lessors classify and account for certain leases with primarily variable-based lease payments as operating leases. The Company adopted this standard on a prospective basis. See Note 1—General and Summary of Significant Accounting Policies for further information.