UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Amendment No. 1)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year ended December 31, 2018. | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to . | |
Commission File Number: 333-203369
Clearway Energy LLC
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 32-0407370 (I.R.S. Employer Identification No.) | |
300 Carnegie Center, Suite 300, Princeton, New Jersey (Address of principal executive offices) | 08540 (Zip Code) | |
(609) 608-1525
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes x No o
Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (Note: The registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the registrant been subject to such requirements.) Yes o No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer x | Smaller reporting company o | Emerging growth company o | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Clearway Energy LLC's outstanding equity interests are held by Clearway Energy, Inc. and Clearway Energy Group LLC and there are no equity interests held by non-affiliates.
Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. There is no public market for the registrant's outstanding units.
Class | Outstanding at January 31, 2019 | |
Class A Units | 34,599,645 | |
Class B Units | 42,738,750 | |
Class C Units | 73,323,463 | |
Class D Units | 42,738,750 | |
Documents Incorporated by Reference:
None.
NOTE: WHEREAS CLEARWAY ENERGY LLC MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I(1)(a) AND (b) OF FORM 10-K, THIS FORM 10-K IS BEING FILED WITH THE REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION I(2).
Explanatory Note
On February 28, 2019, Clearway Energy LLC (the "Company") filed with the Securities and Exchange Commission its Annual Report on Form 10-K for the year ended December 31, 2018.
This Amendment No. 1 to Form 10-K (this "Amendment") of the Company is being filed solely to amend Item 15 of Part IV to include the consolidated financial statements of DGPV Holdco 3 LLC and Subsidiaries ("DGPV Holdco 3") as required under Rule 3-09 of Regulation S-X. The financial statements of DGPV Holdco 3 for its fiscal year ended December 31, 2018 were not available at the time the Company filed its Annual Report on Form 10-K. The required financial statements are now provided as Exhibit 99.1 to this Amendment.
Item 15(c) is the only portion of the Company's Annual Report on Form 10-K being supplemented or amended by this Amendment. Except as set forth herein, this Amendment does not change or update any other information set forth in the original filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2018, and does not reflect events occurring after the original filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. This Amendment consists solely of the preceding cover page, this explanatory note, the information required by Item 15(c) of Form 10-K as provided in Exhibit 99.1, an updated exhibit index, a signature page, and the certifications required to be filed as exhibits hereto.
Item 15 — Exhibits, Financial Statement Schedules
(a)(1) Financial Statements
The following consolidated financial statements of Clearway Energy LLC and related notes thereto, together with the reports thereon of KPMG LLP, were included in Item 15 of Clearway Energy LLC's Annual Report on Form 10-K filed on February 28, 2019:
Consolidated Statements of Operations — Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Income — Years ended December 31, 2018, 2017 and 2016
Consolidated Balance Sheets — As of December 31, 2018 and 2017
Consolidated Statements of Cash Flows — Years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Members' Equity — Years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
(a)(2) Not applicable
(a)(3) Exhibits: See Exhibit Index submitted as a separate section of this report
(b) Exhibits
See Exhibit Index submitted as a separate section of this report
(c) Separate financial statements of subsidiaries not consolidated and fifty percent or less owned persons
The following financial statements of DGPV Holdco 3 LLC and Subsidiaries are required under Rule 3-09 of Regulation S-X and are incorporated by reference to Item 15 of this report. They should be read in conjunction with the Consolidated Financial Statements:
DGPV Holdco 3 LLC Consolidated Financial Statements for the years ended December 31, 2018 and 2017 are included as Exhibit 99.1 to Amendment No. 1 to Clearway Energy LLC's Annual Report on Form 10-K
EXHIBIT INDEX
Number | Description | Method of Filing | ||
2.1 | Incorporated herein by reference to Exhibit 2.1 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on May 9, 2014. | |||
2.2 | Incorporated herein by reference to Exhibit 2.2 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on May 9, 2014. | |||
2.3 | Incorporated herein by reference to Exhibit 2.3 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on May 9, 2014. | |||
2.4 | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on June 9, 2014. | |||
2.5 | Incorporated herein by reference to Exhibit 2.1 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on November 7, 2014. | |||
2.6 | Incorporated herein by reference to Exhibit 2.2 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on November 7, 2014. | |||
2.7*^ | Incorporated herein by reference to Exhibit 2.1 to Clearway Energy, Inc.’s Quarterly Report on Form 10-Q filed on August 4, 2015. | |||
2.8 | Incorporated herein by reference to Exhibit 2.1 to Clearway Energy, Inc.’s Current Report on Form 8-K filed on September 21, 2015. | |||
2.9 | Incorporated herein by reference to Exhibit 2.1 to Clearway Energy, Inc.'s Current Report on Form 8-K, filed on August 9, 2016. | |||
2.10* | Incorporated herein by reference to Exhibit 2.10 to Clearway Energy, Inc.'s Annual Report on Form 10-K, filed on March 1, 2018. | |||
3.1 | Incorporated herein by reference to Exhibit 3.01(a) to the Company's Registration Statement on Form S-4 filed on April 13, 2015. | |||
3.2 | Incorporated herein by reference to Exhibit 3.01(b) to the Company's Registration Statement on Form S-4 filed on April 13, 2015. | |||
3.3 | Incorporated herein by reference to Exhibit 3.33 to the Company's Annual Report on Form 10-K filed on February 28, 2019. | |||
3.4 | Incorporated herein by reference to Exhibit 3.03(a) to the Company's Registration Statement on Form S-4 filed on April 13, 2015. | |||
3.5 | Incorporated herein by reference to Exhibit 3.03(b) to the Company's Registration Statement on Form S-4 filed on April 13, 2015. | |||
3.6 | Incorporated herein by reference to Exhibit 10.6 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
4.1 | Incorporated herein by reference to Exhibit 4.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on August 5, 2014. | |||
4.2 | Incorporated herein by reference to Exhibit 4.2 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on August 5, 2014. | |||
4.3 | Incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on October 2, 2018. | |||
4.4 | Incorporated herein by reference to Exhibit 4.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on November 13, 2014. | |||
4.5 | Incorporated herein by reference to Exhibit 4.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on February 27, 2015. | |||
4.6 | Incorporated herein by reference to Exhibit 4.07 to the Company's Registration Statement on Form S-4 filed on April 13, 2015. | |||
4.7 | Incorporated herein by reference to Exhibit 4.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on May 8, 2015. | |||
4.8 | Incorporated herein by reference to Exhibit 4.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on June 29, 2015. | |||
4.9 | Incorporated herein by reference to Exhibit 4.2 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on June 29, 2015. | |||
4.10 | Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on August 18, 2016. | |||
4.11 | Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on August 18, 2016. | |||
4.12 | Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K, filed on August 18, 2016. | |||
4.13 | Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K, filed on January 31, 2018. | |||
4.14 | Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 12, 2018. | |||
4.15 | Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K, filed on January 31, 2018. | |||
4.16 | Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on June 12, 2018. | |||
4.17 | Seventh Supplemental Indenture, dated as of July 17, 2018, among NRG Yield Operating LLC, the guarantors named therein and Delaware Trust Company (as successor in interest to Law Debenture Trust Company of New York). | Incorporated herein by reference to Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q filed on August 2, 2018. | ||
4.18 | Incorporated herein by reference to Exhibit 4.4 to the Company's Quarterly Report on Form 10-Q filed on August 2, 2018. | |||
4.19 | Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on September 6, 2018. | |||
4.20 | Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on September 6, 2018. | |||
4.21 | Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 2, 2018. | |||
4.22 | Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 2, 2018. | |||
4.23 | Incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on October 31, 2018. | |||
4.24 | Incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on October 31, 2018. | |||
4.25 | Incorporated herein by reference to Exhibit 4.3 to the Registrant's Current Report on Form 8-K filed on October 31, 2018. | |||
10.1 | Incorporated herein by reference to Exhibit 10.5 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
10.2.1 | Incorporated herein by reference to Exhibit 10.3 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
10.2.2 | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on February 14, 2019. | |||
10.3 | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
10.4 | Incorporated herein by reference to Exhibit 10.2 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
10.5 | Incorporated herein by reference to Exhibit 10.9 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on September 5, 2018. | |||
10.6.1 | Incorporated by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Current Report on Form 8-K filed on April 28, 2014. | |||
10.6.2 | Incorporated herein by reference to Exhibit 10.9 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on August 4, 2015. | |||
10.6.3 | Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 12, 2018. | |||
10.6.4 | Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 3, 2018. | |||
10.6.5 | Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 6, 2018. | |||
10.7^ | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on August 4, 2015. | |||
10.8^ | Incorporated herein by reference to Exhibit 10.2 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on August 4, 2015. | |||
10.9^ | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on May 5, 2016. | |||
10.10^ | Incorporated herein by reference to Exhibit 10.2 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on May 5, 2016. | |||
10.11^ | Incorporated herein by reference to Exhibit 10.3 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q filed on May 5, 2016. | |||
10.12 | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Quarterly Report on Form 10-Q, filed on August 9, 2016. | |||
10.13† | Incorporated herein by reference to Exhibit 10.1 to Clearway Energy, Inc.'s Current Report on Form 8-K/A, filed on August 9, 2016. | |||
10.14† | Incorporated herein by reference to Exhibit 10.28 to Clearway Energy, Inc.'s Annual Report on Form 10-K, filed on March 1, 2018. | |||
10.15 | Incorporated herein by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed on February 28, 2019. | |||
21.1 | Incorporated herein by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-K filed on February 28, 2019. | |||
31.1 | Filed herewith. | |||
31.2 | Filed herewith. | |||
31.3 | Filed herewith. | |||
32 | Furnished herewith. | |||
99.1 | Filed herewith. | |||
101 INS | XBRL Instance Document. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
101 SCH | XBRL Taxonomy Extension Schema. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
101 CAL | XBRL Taxonomy Extension Calculation Linkbase. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
101 DEF | XBRL Taxonomy Extension Definition Linkbase. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
101 LAB | XBRL Taxonomy Extension Label Linkbase. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
101 PRE | XBRL Taxonomy Extension Presentation Linkbase. | Previously filed with the Company's Annual Report on Form 10-K filed on February 28, 2019 | ||
† | Indicates exhibits that constitute compensatory plans or arrangements. | |
* | This filing excludes schedules pursuant to Item 601(b)(2) of Regulation S-K, which the registrant agrees to furnish supplementary to the Securities and Exchange Commission upon request by the Commission. | |
^ | Portions of this exhibit have been redacted and are subject to a confidential treatment request filed with the Secretary of the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CLEARWAY ENERGY LLC (Registrant) | ||||
/s/ CHRISTOPHER S. SOTOS | ||||
Christopher S. Sotos | ||||
Chief Executive Officer (Principal Executive Officer) | ||||
Date: March 29, 2019 | ||||
EXHIBIT 31.1
CERTIFICATION
I, Christopher S. Sotos, certify that:
1. | I have reviewed this annual report on Form 10-K/A of Clearway Energy LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ CHRISTOPHER S. SOTOS | |
Christopher S. Sotos Chief Executive Officer (Principal Executive Officer) | |
Date: March 29, 2019
EXHIBIT 31.2
CERTIFICATION
I, Chad Plotkin, certify that:
1. | I have reviewed this annual report on Form 10-K/A of Clearway Energy LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ CHAD PLOTKIN | |
Chad Plotkin Chief Financial Officer (Principal Financial Officer) | |
Date: March 29, 2019
EXHIBIT 31.3
CERTIFICATION
I, Mary-Lee Stillwell, certify that:
1. | I have reviewed this annual report on Form 10-K/A of Clearway Energy LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
/s/ MARY-LEE STILLWELL | |
Mary-Lee Stillwell Chief Accounting Officer (Principal Accounting Officer) | |
Date: March 29, 2019
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Clearway Energy LLC on Form 10-K/A for the year ended December 31, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-K/A”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
(1) | The Form 10-K/A fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Form 10-K/A fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Form 10-K/A. |
Date: March 29, 2019
/s/ CHRISTOPHER S. SOTOS | ||||
Christopher S. Sotos | ||||
Chief Executive Officer (Principal Executive Officer) | ||||
/s/ CHAD PLOTKIN | ||||
Chad Plotkin | ||||
Chief Financial Officer (Principal Financial Officer) | ||||
/s/ MARY-LEE STILLWELL | ||||
Mary-Lee Stillwell | ||||
Chief Accounting Officer (Principal Accounting Officer) | ||||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this Form 10-K/A or as a separate disclosure document.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Clearway Energy LLC and will be retained by Clearway Energy LLC and furnished to the Securities and Exchange Commission or its staff upon request.
DGPV HOLDCO 3 LLC AND SUBSIDIARIES
Table of Contents
Page | |
Independent Auditors' Report | 1 |
Consolidated Balance Sheets — December 31, 2018 and 2017 | 2 |
Consolidated Statements of Operations — Year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017 | 3 |
Consolidated Statements of Member's Equity (Deficit) — Year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017 | 4 |
Consolidated Statements of Cash Flows — Year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017 | 5 |
Notes to Consolidated Financial Statements | 6 |
Independent Auditor's Report
The Members
DGPV HoldCo 3 LLC:
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of DGPV HoldCo 3 LLC and its subsidiaries, which comprise the consolidated balance sheet as of December 31, 2018, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the year then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Opinion
In our opinion, the 2018 consolidated financial statements referred to above present fairly, in all material respects, the financial position of DGPV HoldCo 3 LLC and its subsidiaries as of December 31, 2018, and the results of their operations and their cash flows for the year then ended in accordance with U.S. generally accepted accounting principles.
Other Matter
The accompanying consolidated balance sheet of DGPV HoldCo 3 as of December 31, 2017, and the related statements of operations, members’ equity (deficit), and cash flows for the period from September 26, 2017 to December 31, 2017 were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.
(signed) KPMG LLP
Philadelphia, Pennsylvania
March 28, 2019
1
DGPV HOLDCO 3 LLC AND SUBSIDIARIES | ||||||||||||
Consolidated Balance Sheets | ||||||||||||
December 31, 2018 and 2017 | ||||||||||||
(In thousands) | ||||||||||||
Assets | 2018 | 2017* | ||||||||||
Current assets: | (unaudited) | |||||||||||
Cash | $ | 5,035 | $ | 1,127 | ||||||||
Restricted cash | 16,022 | 4,095 | ||||||||||
Accounts receivable – trade, net | 7,942 | 577 | ||||||||||
Accounts receivable – affiliate | — | 677 | ||||||||||
Derivative instruments | 184 | — | ||||||||||
Prepayments and other current assets | 758 | 505 | ||||||||||
Total current assets | 29,941 | 6,981 | ||||||||||
Property, plant, and equipment, net | 247,759 | 132,240 | ||||||||||
Intangible asset for power purchase agreement, net | 1,427 | 1,487 | ||||||||||
Derivative instruments | 1,489 | 157 | ||||||||||
Other non-current assets | 310 | 310 | ||||||||||
Total assets | $ | 280,926 | $ | 141,175 | ||||||||
Liabilities and Member's Equity | ||||||||||||
Current liabilities: | ||||||||||||
Short-term debt – affiliate | $ | 1,604 | $ | 1,949 | ||||||||
Current portion of long-term debt | 27,050 | — | ||||||||||
Accounts payable – trade | 13,342 | 2,465 | ||||||||||
Accounts payable – affiliate | 6,929 | 96,259 | ||||||||||
Accrued interest expense | 1,141 | 239 | ||||||||||
Derivative instruments | 72 | — | ||||||||||
Accrued liabilities | 7 | 313 | ||||||||||
Total current liabilities | 50,145 | 101,225 | ||||||||||
Other liabilities: | ||||||||||||
Long-term debt | 133,277 | 33,215 | ||||||||||
Derivative instruments | 992 | 17 | ||||||||||
Deferred rent | 411 | 98 | ||||||||||
Asset retirement obligations | 1,953 | 955 | ||||||||||
Total non-current liabilities | 136,633 | 34,285 | ||||||||||
Total liabilities | 186,778 | 135,510 | ||||||||||
Redeemable noncontrolling interest | (294 | ) | 6,517 | |||||||||
Commitments and contingencies | ||||||||||||
Equity: | ||||||||||||
Member's equity (deficit) | 96,094 | (852 | ) | |||||||||
Noncontrolling interest | (1,652 | ) | — | |||||||||
Total equity | 94,442 | (852 | ) | |||||||||
Total liabilities and member's equity | $ | 280,926 | $ | 141,175 | ||||||||
See accompanying notes to consolidated financial statements. | ||||||||||||
* Not covered by the report included herein. | ||||||||||||
2
DGPV HOLDCO 3 LLC AND SUBSIDIARIES | ||||||||||||
Consolidated Statements of Operations | ||||||||||||
(In thousands) | ||||||||||||
Year ended December 31, 2018 | September 26, through December 31, 2017* | |||||||||||
(Unaudited) | ||||||||||||
Operating revenues: | ||||||||||||
Electric revenue | $ | 7,417 | $ | 597 | ||||||||
Renewable energy certificates | 2,895 | — | ||||||||||
Renewable energy certificates – affiliate | 6,804 | 677 | ||||||||||
Government incentives | 83 | — | ||||||||||
Total operating revenues | 17,199 | 1,274 | ||||||||||
Operating costs and expenses: | ||||||||||||
Cost of operations | 3,604 | 585 | ||||||||||
Cost of operations – affiliate | 1,199 | 12 | ||||||||||
Depreciation and accretion | 5,234 | 296 | ||||||||||
Total operating costs and expenses | 10,037 | 893 | ||||||||||
Operating income | 7,162 | 381 | ||||||||||
Other income (expense): | ||||||||||||
Interest income | 127 | — | ||||||||||
Interest expense | (4,460 | ) | (646 | ) | ||||||||
Total other expense | (4,333 | ) | (646 | ) | ||||||||
Net income (loss) before noncontrolling interest | 2,829 | (265 | ) | |||||||||
Less: noncontrolling interest | (54,498 | ) | (28,844 | ) | ||||||||
Net income | $ | 57,327 | $ | 28,579 | ||||||||
See accompanying notes to consolidated financial statements. | ||||||||||||
*Not covered by the report included herein. | ||||||||||||
3
DGPV HOLDCO 3 LLC AND SUBSIDIARIES | ||||||||||||||||||
Consolidated Statements of Members' Equity (Deficit) | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
Total | ||||||||||||||||||
Contributed | Retained | Noncontrolling | member's | |||||||||||||||
capital | earnings | interest | equity (deficit) | |||||||||||||||
Balance at September 26, 2017* | $ | — | $ | — | — | $ | — | |||||||||||
Net income | — | 28,579 | — | 28,579 | ||||||||||||||
Cash contributions | 70,904 | — | — | 70,904 | ||||||||||||||
Cash distributions | (37,832 | ) | — | — | (37,832 | ) | ||||||||||||
Distributions to Clearway Renew, non-cash | (61,663 | ) | — | — | (61,663 | ) | ||||||||||||
Balance at December 31, 2017* | $ | (28,591 | ) | $ | 28,579 | — | $ | (12 | ) | |||||||||
Net income (loss) | — | 57,327 | (4,349 | ) | 52,978 | |||||||||||||
Cash contributions | 120,782 | — | 5,066 | 125,848 | ||||||||||||||
Cash distributions | (79,970 | ) | — | (2,369 | ) | (82,339 | ) | |||||||||||
Distributions to Clearway Renew, non-cash, net | (2,033 | ) | — | — | (2,033 | ) | ||||||||||||
Balance at December 31, 2018 | $ | 10,188 | $ | 85,906 | (1,652 | ) | $ | 94,442 | ||||||||||
See accompanying notes to consolidated financial statements. | ||||||||||||||||||
*Not covered by the report included herein. | ||||||||||||||||||
4
DGPV HOLDCO 3 LLC AND SUBSIDIARIES | ||||||||||||
Consolidated Statements of Cash Flows | ||||||||||||
(In thousands) | ||||||||||||
Year ended December 31, 2018 | September 26, through December 31, 2017* | |||||||||||
Cash flows from operating activities: | (unaudited) | |||||||||||
Net income (loss) | $ | 2,829 | $ | (265 | ) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by | ||||||||||||
operating activities: | ||||||||||||
Depreciation and accretion | 5,234 | 296 | ||||||||||
Amortization of intangible asset | 60 | 13 | ||||||||||
Amortization of debt issuance costs | 810 | 308 | ||||||||||
Changes in derivative instruments | (468 | ) | (140 | ) | ||||||||
Cash provided (used) by changes in other working capital: | ||||||||||||
Accounts receivable – trade | (6,368 | ) | (577 | ) | ||||||||
Accounts receivable – affiliate | 676 | (677 | ) | |||||||||
Prepayments and other current assets | (253 | ) | (505 | ) | ||||||||
Other non-current assets | — | (310 | ) | |||||||||
Accounts payable – trade | 1,687 | 2,465 | ||||||||||
Accounts payable – affiliate | (9,204 | ) | 3,303 | |||||||||
Accrued interest expense | 902 | 239 | ||||||||||
Accrued liabilities | (178 | ) | 181 | |||||||||
Deferred rent | 313 | 98 | ||||||||||
Net cash (used) provided by operating activities | (3,960 | ) | 4,429 | |||||||||
Cash flows from investing activity: | ||||||||||||
Capital expenditures | (52,039 | ) | — | |||||||||
Acquisition of membership interests | (147,014 | ) | (106,317 | ) | ||||||||
Net cash used by investing activity | (199,053 | ) | (106,317 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from short-term debt – affiliate | 500 | 845 | ||||||||||
Proceeds from issuance of long-term debt | 132,289 | 37,832 | ||||||||||
Payment of debt issuance costs | (5,680 | ) | — | |||||||||
Contributions from noncontrolling interests, net of distributions | 46,035 | 35,361 | ||||||||||
Contributions from member | 125,674 | 70,904 | ||||||||||
Distributions to member | (79,970 | ) | (37,832 | ) | ||||||||
Net cash provided by financing activities | 218,848 | 107,110 | ||||||||||
Net increase in cash and restricted cash | 15,835 | 5,222 | ||||||||||
Cash and restricted cash at beginning of period | 5,222 | — | ||||||||||
Cash and restricted cash at end of period | $ | 21,057 | $ | 5,222 | ||||||||
Supplemental disclosures: | ||||||||||||
Interest paid | $ | 2,703 | $ | — | ||||||||
Interest paid by affiliate | 513 | 239 | ||||||||||
Non-cash investing and financing activities: | ||||||||||||
Increase to fixed assets for capitalized asset retirement costs | 887 | 899 | ||||||||||
Reduction to fixed assets for accrued government incentives | (997 | ) | — | |||||||||
Additions to fixed assets for accrued capital expenditures | 8,820 | — | ||||||||||
Debt issuance costs incurred not paid | 306 | 4,925 | ||||||||||
Non-cash contributions | 6,645 | — | ||||||||||
Non-cash distribution – developer fee on fixed assets | (8,678 | ) | (61,663 | ) | ||||||||
Accounts payable – affiliate for capital expenditures | (82,653 | ) | 88,427 | |||||||||
See accompanying notes to consolidated financial statements. | ||||||||||||
*Not covered by the report included herein. | ||||||||||||
5
DGPV HOLDCO 3 LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts as of and for the period ending December 31, 2017 are not covered by the report included herein)
(1) Nature of Business
DGPV Holdco 3, LLC, or the Company, a Delaware limited liability company, is a partnership between Clearway Renew DG Holdings, LLC, a subsidiary of Clearway Renew LLC, and DGPV Holding LLC, a subsidiary of Clearway Energy Operating LLC. Clearway Renew LLC is a wholly owned subsidiary of Clearway Energy Group LLC, or Clearway Energy Group, which is a wholly owned subsidiary of Global Infrastructure Partners III, or GIP. Clearway Energy Operating LLC is a wholly owned subsidiary of Clearway Energy LLC, which is a partnership between Clearway Energy, Inc. and Clearway Energy Group.
On August 31, 2018, NRG Energy, Inc., or NRG, transferred its full ownership interest in Clearway Energy, Inc. to Clearway Energy Group, and subsequently sold 100% of its interest in Clearway Energy Group to GIP, including its interests in the Company, referred to as the GIP Transaction. The GIP Transaction did not impact the Company’s direct ownership structure.
The Company was formed on April 26, 2017 as a partnership to facilitate investment in an operating portfolio of distributed solar assets, primarily comprised of community solar projects and commercial distributed solar projects developed by Clearway Energy Group. The Company owns an interest in two portfolios of solar projects that participate in tax equity arrangements with tax equity investors, through its wholly owned subsidiaries, Chestnut Borrower, LLC, or Chestnut Borrower, and Renew Solar CS4 Borrower LLC, or CS4 Borrower. See Note 3, Tax Equity Arrangements, for a more detailed description of each tax equity arrangement. Each of the portfolios owns, operates and maintains solar energy systems that sell power to customers through long-term power purchase agreements, or PPAs. The commercial distributed solar projects sell power to a single commercial offtaker and the community solar projects sell power to a group of offtakers in one location.
The Company is governed by an Amended and Restated Operating Agreement, or Operating Agreement. On September 26, 2017, the Operating Agreement was amended to add Clearway DGPV Holding LLC, or DGPV Holding, as the Class A Member. Under the Operating Agreement, Clearway Renew DG Holdings, LLC, or Renew DG Holdings, is the Class B Member and the Manager of the Company. As Manager, Renew DG Holdings conducts and directs all operating activities of the Company. Contributions are made to the Company pursuant to requests made by the Manager on behalf of a fund company and calculated using specific modeling guidelines outlined in the Operating Agreement.
Contributions by DGPV Holding are calculated to equal an amount that enables DGPV Holding to achieve an annual yield based on available cash flow of 9.0% on average over the first ten years. Contributions by Renew DG Holdings are calculated based on the purchase price of a project less the relevant contribution from the Fund's tax equity partner and the contribution from DGPV Holding. Pursuant to the Operating Agreement, all tax basis income, gain, loss, deduction and credit, as well as all cash available for distribution, of the Company are allocated at 1% and 99% to the Class B Member and Class A Member, respectively.
(a) Chestnut Fund
The Company's wholly owned subsidiary, Chestnut Borrower, was formed on April 26, 2017 for the purpose of acting as a borrower of term loans for the Chestnut Fund, as described in note 6, Long-Term Debt, and Chestnut Borrower owns a 100% of Chestnut Class B LLC, the Class B Member of the Clearway Chestnut Fund LLC, or Chestnut Fund, tax equity arrangement. Chestnut Class B LLC, or Chestnut Class B, is the Managing Member of Chestnut Fund and conducts and directs all operating activities of the fund. The Class A Member of Chestnut Fund, or Investor Member, is Firstar Development, LLC, or Firstar, an affiliate of U.S. Bancorp.
6
Chestnut Fund's 100% owned subsidiaries and related solar facilities are listed below:
Project company | Facility | Type | Location | Facility capacity (kWdc) | Commercial operations date | PPA offtaker | PPA term in years | ||||||||
Black Cat Road Solar, LLC | 77 Black Cat Rd | Community | MA | 1,321 | 08/30/17 | Ahold USA/Various (a) | 20 | ||||||||
Brook St Solar 1, LLC | 134 Brook St A, B & C | Community | MA | 6,480 | 09/06/17 | Target Ahold USA/Various (a) | 15 20 | ||||||||
Solar Mule, LLC | Colby College | Commercial | ME | 1,811 | 09/18/17 | Colby College | 27 (b) | ||||||||
Big Lake Holdco LLC | Big Lake | Community | MN | 6,912 | 10/01/17 | Various | 25 | ||||||||
Solar West Shaft LLC | N Adams-West Shaft Rd | Community | MA | 1,346 | 10/10/17 | Ahold USA/Raytheon/Various (a) | 20 | ||||||||
DG Foxborough Elm LLC | Elm Street | Community | MA | 2,614 | 10/12/17 | Town of Foxborough/Various (a) | 20 | ||||||||
Redbrook Solar 1 LLC | Redbrook B, C & D | Community | MA | 5,568 | 11/09/17 | Ahold USA/Various (a) | 20 | ||||||||
Northfield Holdco LLC | Northfield | Community | MN | 6,962 | 12/01/17 | Various | 25 | ||||||||
Waterford Holdco LLC | Waterford | Community | MN | 3,767 | 12/01/17 | Various | 25 | ||||||||
Center St Solar 1 LLC | 1077 Center St A, B & C | Community | MA | 3,870 | 12/21/2017 & 01/03/2018 | Target Raytheon/Various (a) | 15 20 | ||||||||
TOS Solar 1, LLC | 725 Guelphwood | Community | MA | 646 | 12/30/17 | Target/Various (a) | 15/20 | ||||||||
TOS Solar 2, LLC | 726 Guelphwood | Community | MA | 1,341 | 12/30/17 | Target/Various (a) | 15/20 | ||||||||
Stafford St Solar 1, LLC | 466 Stafford St Site A | Community | MA | 2,776 | 12/31/17 | Target/Various (a) | 15/20 | ||||||||
Stafford St Solar 3, LLC | 466 Stafford St Site C | Community | MA | 1,388 | 12/31/17 | Raytheon/Various (a) | 20 | ||||||||
ETCAP NES CS MN 02 LLC (c) | Nystuen | Community | MN | 1,055 | 05/01/18 | 100% residential | 25 | ||||||||
ETCAP NES CS MN 06 LLC (c) | Armstrong | Community | MN | 3,714 | 05/01/18 | Various | 25 | ||||||||
Stafford St Solar 2, LLC | 466 Stafford St Site B | Community | MA | 2,776 | 05/09/18 | Target/Various (a) | 15/20 | ||||||||
Bullock Road Solar 1, LLC | 247 & 249 Bullock | Community | MA | 5,754 | 07/25/18 | Various | 20 | ||||||||
Mapleton Solar LLC | Mapleton | Community | MN | 5,080 | 09/01/18 | Various | 25 | ||||||||
Osakis Solar LLC | Osakis | Community | MN | 7,213 | 09/01/18 | Various | 25 | ||||||||
Solar Wauwinet LLC | 85 Wauwinet Rd-Barre | Community | MA | 1,294 | 09/17/18 | Target/Various (a) | 15/20 | ||||||||
Minisink Solar 1 LLC | Minisink North | Community | NY | 2,495 | 10/26/18 | 100% residential | 20 | ||||||||
Minisink Solar 2 LLC | Minisink South | Community | NY | 2,795 | 11/01/18 | 100% residential | 20 | ||||||||
DG Marathon LLC | Sage Stone | Community | MA | 2,614 | 01/04/19 | Ahold USA/Various (a) | 20 | ||||||||
81,592 | |||||||||||||||
(a) 50% sold through community solar services agreements and 50% sold to named customer through net metering purchase agreements.
(b) The initial term of 27 years shall automatically extend for 3 years, then for 1 year in perpetuity unless terminated by either party.
(c) Mechanics liens have been filed on the project by certain engineering, procurement and construction contractors due to disputes between the contractor and subcontractor.
(b) CS4 Fund
The Company's wholly owned subsidiary, CS4 Borrower, was formed on July 9, 2018 for the purpose of acting as the borrower under a credit agreement for the CS4 Fund, as described in note 6, Long-Term Debt, and CS4 Borrower owns 100% of Renew Solar CS4 Class B LLC, the Class B Member of the Renew Solar CS4 Fund LLC, or CS4 Fund, tax equity arrangement. Renew Solar CS4 Class B LLC, or CS4 Class B, is the Managing Member of CS4 Fund and conducts and directs all operating activities of the fund. The Class A Member of CS4 Fund, or Investor Member, is PNC Commercial, LLC, or PNC, an indirect wholly owned subsidiary of PNC Financial Services Group, Inc. CS4 Borrower's wholly owned subsidiary Renew Solar CS4 Seller LLC, or CS4 Seller, acquires the project entities from a subsidiary of Clearway Renew, funds the construction of the projects, and in turn, sells these projects to CS4 Fund.
7
CS4 Fund's 100% owned subsidiaries and related solar facilities are listed below:
Facility | Commercial | ||||||||||
capacity | operations | PPA | |||||||||
Project company | Location | (kWdc) | date | PPA offtaker | terms | ||||||
Montevideo Solar LLC | Minnesota | 7,497 | 1/1/2019 | Various | 25 years | ||||||
Chisago Holdco LLC | Minnesota | 3,937 | N/A (a) | Various | 25 years | ||||||
CMR Solar LLC | New York | 2,808 | N/A (a) | NYSERDA/Various (b) | 10/20 years | ||||||
Frontenac Holdco LLC | Minnesota | 7,208 | N/A (a) | Various | 25 years | ||||||
Bluestone Solar LLC | New York | 3,013 | N/A (a) | Various | 20 years | ||||||
Underhill Solar LLC | New York | 3,011 | N/A (a) | NYSERDA/Various (b) | 10/20 years | ||||||
27,474 | |||||||||||
(a) Projects have not yet begun commercial operations.
(b) 1,000 kWdc sold to New York State Energy Research and Development Authority, or NYSERDA, through the 10-year PPA and the remainder through community solar customer agreements.
CS4 Borrower also owns two additional project companies, Rollingstone Holdco LLC and Sartell Solar LLC, held by CS4 Seller, which have not yet been sold into CS4 Fund.
The following diagram provides further information related to the Company’s ownership structure.
8
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation and Principles of Consolidation
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The Accounting Standards Codification, or ASC, established by the Financial Accounting Standards Board, or FASB, is the source of authoritative U.S. GAAP to be applied by nongovernmental entities.
The consolidated financial statements include the Company's accounts and operations of those of its subsidiaries. All significant intercompany transactions and balances have been eliminated in the consolidated financial statements. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. However, a controlling financial interest may also exist through arrangements that do not involve controlling voting interests. As such, the Company applies the guidance of ASC 810, Consolidations, to determine when an entity that is not controlled through its voting interests should be consolidated.
The Company has elected not to push down the effects of the GIP Transaction to its consolidated financial statements and accordingly, there was no change in basis of presentation related to the GIP Transaction.
(b) Restricted Cash
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows as of December 31, 2018 and 2017 (in thousands):
2018 | 2017 | |||||||||||
Cash | $ | 5,035 | $ | 1,127 | ||||||||
Restricted cash | 16,022 | 4,095 | ||||||||||
Cash and restricted cash shown in the consolidated statements of cash flows | $ | 21,057 | $ | 5,222 | ||||||||
As of December 31, 2018, restricted cash consists of $5 million held at Renew Solar CS4 Borrower LLC for debt service and $10 million held at Chestnut Class B Borrower LLC for distributions and to satisfy reserves for performance obligations. As of December 31, 2017, restricted cash consisted of cash collateral related to the Chestnut Class B Borrower LLC debt agreement.
(c) Accounts Receivable – Trade
Accounts receivable represent trade receivables from sales of electricity to residential, commercial and municipal customers. Also included in accounts receivable – trade as of December 31, 2018 are receivables for the sale of renewable energy credits to a former affiliate, NRG Power Marketing LLC and receivables related to government incentives. The Company reviews its accounts receivable by aging category to identify significant customer balances with known collections issues. In evaluating the allowance, the Company makes judgments about the creditworthiness of its customers based on ongoing credit evaluations. The Company also considers current economic trends that might impact the level of future credit losses. As of December 31, 2018 and 2017, the allowance for doubtful accounts was $11 thousand and $0, respectively.
(d) Debt Issuance Costs
Debt issuance costs consist of legal fees and closing costs incurred by the Company in obtaining its financings. These costs are capitalized and amortized as interest expense on a basis which approximates the effective interest method over the term of the financing obligation and are presented as a direct deduction from the carrying amount of the related debt.
Amortization expense, included in interest expense in the consolidated statements of income, was $810 thousand for the year ended December 31, 2018 and $308 thousand for the period from September 26, 2017 through December 31, 2017.
9
(e) Property, Plant, and Equipment
The Company purchased certain of its solar installations from Clearway Renew and its subsidiaries through its acquisitions of wholly owned project subsidiaries listed in note 1, Nature of Business. The acquisitions were recorded as a transfer of assets under common control and accordingly, the assets are recorded at Clearway Renew’s historical cost. The excess of the purchase price over the historical cost was recorded as a developer fee as a non-cash reduction to member's equity.
Significant additions or improvements extending asset lives are capitalized as incurred, while repairs and maintenance that do not improve or extend the life of the respective asset are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Certain assets and their related accumulated depreciation amounts are adjusted for asset retirements and disposals with the resulting gain or loss included in cost of operations in the consolidated statements of income. See note 4, Property, Plant, and Equipment, for additional information.
Interest incurred on funds borrowed to finance capital projects is capitalized until the project under construction is ready for its intended use. The amount of interest capitalized for the period from September 7, 2018 through December 31, 2018 was $506 thousand.
(f) Intangible Asset
Intangible asset for power purchase agreement represents the fair value of the out-of-market component of the PPA acquired at the DG Foxborough Elm LLC facility determined at acquisition date, when Clearway Renew acquired the project from a third-party. The Company recognizes specifically identifiable intangible assets when specific rights and contracts are acquired. This definite-lived intangible asset is amortized as a reduction to operating revenues on a straight line basis over the term of the PPA (through October 2042), which is 25 years from the date the facility achieved commercial operations.
As of December 31, 2018 and 2017, the intangible asset subject to amortization consists of the following (in thousands):
2018 | 2017 | |||||||||||
Intangible asset for power purchase agreement | $ | 1,500 | $ | 1,500 | ||||||||
Less accumulated amortization | (73 | ) | (13 | ) | ||||||||
Net intangible asset for power purchase agreement | $ | 1,427 | $ | 1,487 | ||||||||
Aggregate amortization expense was $60 thousand and $13 thousand for the year ended December 31, 2018 and for the period from September 26, 2017 through December 31, 2017, respectively, which was recorded as a reduction to operating revenues in the consolidated statements of income. Estimated amortization expense for each of the next five years is $60 thousand.
(g) Asset Impairments
Long-lived assets that are held and used are reviewed for impairment whenever events or changes in circumstances indicate carrying values may not be recoverable. Such reviews are performed in accordance with ASC 360, Property, Plant, and Equipment. An impairment loss is indicated if the total future estimated undiscounted cash flows expected from an asset are less than its carrying value. An impairment charge is measured by the difference between an asset’s carrying amount and fair value with the difference recorded in operating costs and expenses in the consolidated statements of income. Fair values are determined by a variety of valuation methods, including third-party appraisals, sales prices of similar assets, and present value techniques. There were no indicators of impairment loss as of December 31, 2018.
Prior to the Company's assets being transferred from entities under common control, an impairment review was conducted which determined that the cash flows for the DG Marathon LLC project were below its carrying value, due to negative cash flows forecasted to occur after the solar renewable energy credits expire, and the assets were considered impaired. The fair value of the project was determined using an income approach by applying a discounted cash flow methodology to the long-term budget for the project. The income approach considered project specific assumptions for future cash flows. A $2.4 million impairment loss was measured as the difference between the carrying amount and the fair value of the assets, and was recognized in 2017 at the DG Marathon LLC project prior to the transfer to the Company, which has been reflected in the historical cost of the purchase from Clearway Renew as of December 31, 2017.
(h) Deferred Rent
The Company records rent expense on a straight line basis over the life of the lease term. The cumulative difference between the payments made and the expense recognized is recorded in deferred rent on the consolidated balance sheets.
10
(i) Income Taxes
The Company is classified as a partnership for federal and state income tax purposes. Therefore, federal and state income taxes are assessed at the partner level. Accordingly, no provision has been made for federal or state income taxes in the accompanying consolidated financial statements.
(j) Revenue Recognition
On January 1, 2018, the Company adopted the guidance in ASC 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective method applied to contracts which were not completed as of the adoption date, with no adjustment required to the financial statements upon adoption. Following the adoption of ASC 606, the Company's revenue recognition of its contracts with customers remains materially consistent with its historical practice. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company's policies with respect to its various revenue streams are detailed below. In general, the Company applies the invoicing practical expedient to recognize revenue for the revenue streams detailed below, except in circumstances where the invoiced amount does not represent the value transferred to the customer.
Electric Revenue
The Company's electric revenue is related to energy contract revenue from the PPAs listed in note 1, Nature of Business. The contractual rates could be fixed or increase annually during the terms of the PPAs, ranging from 15-27 years. Electric revenue is billed and paid on a monthly basis.
The PPA at Solar Mule, LLC is accounted for as an operating lease in accordance with ASC 840, Leases, or ASC 840. ASC 840 requires the minimum lease payments received to be amortized over the term of the lease and contingent rentals are recorded when the achievement of the contingency becomes probable. Judgment is required by management in determining the economic life of each generating facility, in evaluating whether certain lease provisions constitute minimum payments or represent contingent rent and other factors in determining whether a contract contains a lease and whether the lease is an operating lease or capital lease. The lease has no minimum lease payments and all of the rental income under this lease is recorded as contingent rent on an actual basis each period when electricity is produced by the solar facility and delivered to the offtaker at the rate billable per kWh under the terms of the PPA.
For PPAs accounted for as executory contracts under ASC 606, revenue is recognized on an accrual basis each period, as electricity is produced by the solar facility and delivered to the offtaker at the rate billable per kWh under the terms of the PPA.
The Company's electric revenue is summarized as follows (in thousands):
Year ended December 31, 2018 | September 26, through December 31, 2017 | |||||||||||
Energy revenue | $ | 7,205 | $ | 556 | ||||||||
Lease revenue | 272 | 54 | ||||||||||
Contract amortization | (60 | ) | (13 | ) | ||||||||
Total electric revenue | $ | 7,417 | $ | 597 | ||||||||
Renewable Energy Certificates, or RECs
The Company has entered into agreements with NRG Power Marketing LLC, or PML, a wholly owned subsidiary of NRG, to purchase and sell RECs generated from 2017 through 2028 by the Massachusetts projects in accordance with vintage years, quantities, and prices in the REC agreements with PML. Prices range between $123.16 and $270.00 per REC. PML sells the RECs to third parties. Revenue is recognized as the REC is generated based on actual production multiplied by the contract rates. REC revenue is billed and paid on a quarterly basis. REC revenue from PML is recorded as Renewable energy certificates – affiliate prior to the GIP Transaction, and as Renewable energy certificates after the GIP Transaction, in the consolidated statements of income.
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Government Incentives
The Company is entitled to state performance based incentives, or PBIs, paid by The New York State Energy Research and Development Authority, or NYSERDA, for the Minisink Solar 1 LLC and Minisink Solar 2 LLC projects, not to exceed $900,607 for Minisink Solar 1 LLC and $1,092,655 for Minisink Solar 2 LLC. The incentive payments for each project will consist of one payment at commercial operation date for 50% of the awarded amount, which was recorded to property, plant, and equipment, and two annual performance-based payments each of which is estimated to be 25% of the incentive. The two annual performance based payments are earned monthly based upon the actual electricity produced by the project multiplied by a $0.111/kWh rate. PBI revenue is recorded as Government incentives in the consolidated statements of income.
Contract Balances
The following table reflects the contract assets in the Company's consolidated balance sheets as of December 31, 2018 and 2017 (in thousands):
2018 | 2017 | |||||||||||
Accounts receivable - contracts with customers | $ | 7,927 | $ | 557 | ||||||||
Accounts receivable - leases | 15 | 20 | ||||||||||
Total accounts receivable - trade | $ | 7,942 | $ | 577 | ||||||||
(k) Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with ASC 815, Derivatives and Hedging, which requires the Company to recognize all derivative instruments on the balance sheet as either assets or liabilities and to measure them at fair value each reporting period unless they qualify for a normal purchase normal sale exception. The Company uses interest rate swaps to manage its interest rate exposure on long-term debt, which are not designated as cash flow hedges. Changes in the fair value of non-hedge derivatives are immediately recognized in earnings. See note 5, Accounting for Derivative Instruments and Hedging Activities, for more information.
(l) Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash, restricted cash, accounts receivable – trade, accounts receivable – affiliate, and derivative instruments. The Company maintains its cash and restricted cash in bank deposit accounts and believes it is not exposed to any significant credit risk. Accounts receivable are concentrated with residential, commercial, and municipal customers. The energy industry may impact the Company’s overall exposure to credit risk, either positively or negatively, in that the customer may be similarly affected by changes in economic, industry, or other conditions. Municipal entities are generally subject to budget decisions made at superior governmental levels, which may impede or delay the Company’s collection of accounts receivable from these customers. However, the Company believes that the credit risk posed by such concentrations is offset by the diversification and creditworthiness of its customer base. The Company is exposed to credit losses in the event of noncompliance by counterparties on its derivative financial instruments.
Due to the concentration of sales of RECs to PML, the Company is exposed to credit risk of potential nonperformance by them, which could impact liquidity if this customer were to experience financial difficulties. As of December 31, 2018 and 2017, accounts receivable – trade with PML totaled $5.5 million and accounts receivable – affiliate with PML totaled $677 thousand, respectively. The maximum amount of loss due to credit risk, should the customer fail to perform, is the amount of the outstanding receivable, and any losses associated with replacing this customer.
(m) Fair Value of Financial Instruments
The Company accounts for the fair value of financial instruments in accordance with ASC 820, Fair Value Measurement, or ASC 820. The Company does not hold or issue financial instruments for trading purposes. The carrying amounts of cash, restricted cash, accounts receivable – trade, accounts receivable – affiliate, accounts payable – trade, accounts payable – affiliate and accrued liabilities approximate fair value because of the short-term maturity of these instruments and are classified as Level 1 within the fair value hierarchy.
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Derivative instruments consisting of interest rate swaps are recorded at fair value on the Company’s consolidated balance sheet on a recurring basis and are classified as Level 2 within the fair value hierarchy as the fair value can be determined based on observable values of underlying interest rates. The fair value of each contract is discounted using a risk free interest rate. In addition, the Company applies a credit reserve to reflect credit risk, which for interest rate swaps is calculated utilizing the bilateral method based on published default probabilities. The credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the Company's liabilities or that a market participant would be willing to pay for the Company's assets. For further discussion of interest rate swaps, see note 5, Accounting for Derivatives Instruments and Hedging Activities.
The carrying value of long-term debt approximates fair value at December 31, 2018 and 2017 as the debt carries a variable interest rate. The fair value of long-term debt is based on current interest rates for similar instruments with equivalent credit quality and is classified as Level 3 inputs within the fair value hierarchy.
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
• Level 2 – Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
• Level 3 – Unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement in its entirety.
(n) Asset Retirement Obligations
The Company accounts for its asset retirement obligations, or AROs, in accordance with ASC 410-20, Asset Retirement Obligations, or ASC 410-20. Retirement obligations associated with long-lived assets included within the scope of ASC 410-20 are those for which a legal obligation exists under enacted laws, statutes, and written or oral contracts, including obligations arising under the doctrine of promissory estoppel, and for which the timing and/or method of settlement may be conditional on a future event. ASC 410-20 requires the Company to recognize the fair value of a liability for an ARO in the period in which it is incurred and a reasonable estimate of fair value can be made.
Upon initial recognition of a liability for an ARO, the Company capitalizes the asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount. Over time, the liability is accreted to its future value, while the capitalized cost is depreciated over the useful life of the related asset. The Company’s AROs are the estimated cost to remove the above ground solar equipment and restore the site to conditions similar to the surrounding parcels.
The following table represents the balance of the ARO obligation as of December 31, 2018 and 2017, along with the additions and accretion expense related to the Company's ARO for the year ended December 31, 2018 (in thousands):
Balance as of December 31, 2017 | $ | 955 | ||
Additions | 887 | |||
Accretion expense | 111 | |||
Balance as of December 31, 2018 | $ | 1,953 | ||
(o) Comprehensive Income
The Company’s total comprehensive income is equal to its net income for the year ended December 31, 2018 and the the period from September 26, 2017 through December 31, 2017.
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(p) Redeemable Noncontrolling Interests
The tax equity investor in the Chestnut Fund, Firstar, has the right to redeem its interests for cash or other assets and accordingly, the Company has included the noncontrolling interest attributable to Firstar as a component of temporary equity in the mezzanine section of the consolidated balance sheets. The following table reflects the changes in the Company's redeemable noncontrolling interest balance for the year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017 (in thousands):
Balance as of September 26, 2017 | $ | — | ||
Cash contributions | 35,361 | |||
Net loss attributable to noncontrolling interest | (28,844 | ) | ||
Balance as of December 31, 2017 | $ | 6,517 | ||
Cash contributions | 44,266 | |||
Cash distributions | (928 | ) | ||
Net loss attributable to noncontrolling interest | (50,149 | ) | ||
Balance as of December 31, 2018 | $ | (294 | ) | |
(q) Tax Equity Arrangements
The Company has determined that the appropriate methodology for calculating its noncontrolling interest and redeemable noncontrolling interest is a balance sheet approach using the hypothetical liquidation at book value, or HLBV, method. Under the HLBV method, the amount reported as noncontrolling interests and redeemable noncontrolling interests represent the amount that each tax equity investor would hypothetically receive at each balance sheet date under the liquidation provisions of the contractual agreements assuming the net assets were liquidated at their recorded amounts determined in accordance with GAAP. The tax equity investors' interest in the results of operations are determined as the difference in the noncontrolling interest or redeemable noncontrolling interest at the start and end of each reporting period, after taking into account any capital transactions. The calculations utilized to apply the HLBV method include estimated calculations of taxable income or losses for the reporting period. These amounts are reconciled to the taxable income or loss included within the tax return once the tax return is filed.
(r) Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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(3) Tax Equity Arrangements
(a) Chestnut Fund
The Company's wholly owned subsidiary Chestnut Class B LLC is the Class B Member and the Managing Member of the Chestnut Fund tax equity arrangement and it conducts and directs all operating activities of the fund. The Investor Member is Firstar. Chestnut Fund is a VIE and Chestnut Class B LLC is the primary beneficiary due to its role as Managing Member and the ability to direct the activities that most significantly impact the economics of the tax equity arrangement.
The summarized financial information for Chestnut Fund as of December 31, 2018 and 2017 is as follows (in thousands):
2018 | 2017 | ||||||||
Current assets | $ | 13,490 | $ | 2,438 | |||||
Property, plant, and equipment, net | 182,416 | 132,240 | |||||||
Intangible asset for power purchase agreement, net | 1,427 | 1,487 | |||||||
Other non-current assets | 310 | 310 | |||||||
Total assets | 197,643 | 136,475 | |||||||
Accounts payable – affiliate | 3,473 | 86,869 | |||||||
Other current and non-current liabilities | 7,290 | 4,317 | |||||||
Total liabilities | 10,763 | 91,186 | |||||||
Redeemable noncontrolling interests | (294 | ) | 6,517 | ||||||
Net assets less redeemable noncontrolling interests | $ | 187,174 | $ | 38,772 | |||||
(b) CS4 Fund
The Company's wholly owned subsidiary Renew Solar CS4 Class B LLC is the Class B Member and Managing Member of the CS4 Fund tax equity arrangement, and conducts and directs all operating activities of the fund. The Investor Member is PNC. CS4 Fund is a VIE and Renew Solar CS4 Class B LLC is the primary beneficiary due to its role as Managing Member and the ability to direct the activities that most significantly impact the economics of the tax equity arrangement.
The summarized financial information for CS4 Fund as of December 31, 2018 is as follows (in thousands):
2018 | ||||||
Current assets | $ | — | ||||
Property, plant, and equipment, net | 43,274 | |||||
Total assets | 43,274 | |||||
Accounts payable – affiliate | 57,126 | |||||
Other current and non-current liabilities | 2,750 | |||||
Total liabilities | 59,876 | |||||
Noncontrolling interests | (1,652 | ) | ||||
Net assets less noncontrolling interests | $ | (14,950 | ) | |||
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(4) Property, Plant, and Equipment
The Company’s major classes of property, plant, and equipment as of December 31, 2018 and 2017 were as follows (in thousands):
2018 | 2017 | Depreciable lives | ||||||||||||
Plant equipment | $ | 184,558 | $ | 101,867 | 10 - 30 years | |||||||||
Construction in progress | 68,564 | 30,613 | — | |||||||||||
Total property, plant, and equipment | 253,122 | 132,480 | ||||||||||||
Less accumulated depreciation | (5,363 | ) | (240 | ) | ||||||||||
Net property, plant, and equipment | $ | 247,759 | $ | 132,240 | ||||||||||
(a) Chestnut Fund
Chestnut Fund purchased its solar installations through the acquisition of membership interests in its subsidiaries from Clearway Renew. The purchase price of the acquired property, plant, and equipment was $64.4 million and $194.7 million in 2018 and 2017, respectively, which approximates the fair market value determined through third-party appraisal. As of December 31, 2018 and 2017, $5.8 million and $88.4 million of the purchase price, respectively, was payable to Clearway Renew and was recorded on the Company's consolidated balance sheets in accounts payable – affiliate. As described in note 2, Summary of Significant Accounting Policies, the acquisitions were a transfer of assets under common control. Accordingly, the assets are recorded at Clearway Renew's historical cost. The purchase price less the historical cost is recorded as a developer fee and a corresponding reduction to equity. In addition, Chestnut Fund recorded an ARO of $613 thousand and $899 thousand in 2018 and 2017, respectively, as part of property, plant, and equipment. In 2018, $997 thousand was recorded as a reduction to property, plant, and equipment for a NYSERDA government incentive award related to the Minisink Solar 1 LLC and Minisink Solar 2 LLC facilities reaching commercial operation. For additional information on the award, see note 2(j), Revenue Recognition.
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Chestnut Fund completed the following acquisitions of membership interests in its subsidiaries in 2017 and 2018, with the purchase price allocated primarily to property, plant, and equipment (in thousands):
Project company | Purchase price | Historical cost | Developer fee | Acquisition date | Placed in service date | |||||||||||
Black Cat Road Solar, LLC | $ | 5,183 | $ | 3,801 | $ | 1,382 | August 14, 2017 | August 30, 2017 | ||||||||
Brook St Solar 1, LLC | 25,593 | 18,853 | 6,740 | August 14, 2017 | September 6, 2017 | |||||||||||
Solar Mule, LLC | 4,211 | 3,142 | 1,069 | September 1, 2017 | September 18, 2017 | |||||||||||
Big Lake Holdco LLC | 18,583 | 14,559 | 4,024 | August 14, 2017 | October 1, 2017 | |||||||||||
Solar West Shaft LLC | 4,550 | 3,326 | 1,224 | August 14, 2017 | October 10, 2017 | |||||||||||
DG Foxborough Elm LLC (b) | 10,183 | 7,838 | 2,345 | September 27, 2017 | October 12, 2017 | |||||||||||
Redbrook Solar 1 LLC | 21,090 | 15,416 | 5,674 | September 27, 2017 | November 9, 2017 | |||||||||||
Northfield Holdco LLC | 17,639 | 12,740 | 4,899 | October 27, 2017 | December 1, 2017 | |||||||||||
Waterford Holdco LLC | 9,218 | 6,453 | 2,765 | October 27, 2017 | December 1, 2017 | |||||||||||
Center St Solar 1 LLC | 13,529 | 10,437 | 3,092 | August 14, 2017 | December 21, 2017 & January 3, 2018 | |||||||||||
TOS Solar 1, LLC | 2,023 | 1,328 | 695 | October 27, 2017 | December 30, 2017 | |||||||||||
TOS Solar 2, LLC | 4,210 | 3,014 | 1,196 | October 27, 2017 | December 30, 2017 | |||||||||||
Stafford St Solar 1, LLC | 10,367 | 7,892 | 2,475 | August 14, 2017 | December 31, 2017 | |||||||||||
Stafford St Solar 3, LLC | 5,448 | 4,143 | 1,305 | August 14, 2017 | December 31, 2017 | |||||||||||
ETCAP NES CS MN 02 LLC | 3,147 | 1,977 | 1,170 | January 25, 2018 | May 1, 2018 | |||||||||||
ETCAP NES CS MN 06 LLC | 10,684 | 7,088 | 3,596 | January 25, 2018 | May 1, 2018 | |||||||||||
Stafford St Solar 2, LLC | 10,553 | 8,072 | 2,481 | August 14, 2017 | May 9, 2018 | |||||||||||
Bullock Road Solar 1, LLC | 20,687 | 15,794 | 4,893 | August 14, 2017 | July 25, 2018 | |||||||||||
Mapleton Solar LLC | 14,235 | 9,792 | 4,443 | March 29, 2018 | September 1, 2018 | |||||||||||
Osakis Solar LLC | 18,993 | 13,598 | 5,395 | March 29, 2018 | September 1, 2018 | |||||||||||
Solar Wauwinet LLC | 5,345 | 4,091 | 1,254 | October 27, 2017 | September 17, 2018 | |||||||||||
Minisink Solar 1 LLC | 7,746 | 5,273 | 2,473 | January 25, 2018 | October 26, 2018 | |||||||||||
Minisink Solar 2 LLC | 8,673 | 5,936 | 2,737 | January 25, 2018 | October 31, 2018 | |||||||||||
DG Marathon LLC | 7,215 | 4,201 | 3,014 | September 27, 2017 | January 4, 2019 (a) | |||||||||||
Total acquisitions | 259,105 | 188,764 | 70,341 | |||||||||||||
less: 2017 acquisitions | 194,744 | 133,081 | 61,663 | |||||||||||||
2018 acquisitions | $ | 64,361 | $ | 55,683 | $ | 8,678 | ||||||||||
(a) Project is under construction as of December 31, 2018.
(b) Included in the historical cost of Foxborough is $1.5 million for an intangible asset, as described further in note 2(f), Summary of Significant Accounting Policies.
(b) CS4 Fund
CS4 Fund purchased its solar installations through the acquisition of membership interests in its subsidiaries from CS4 Seller, a wholly owned subsidiary of the Company. CS4 Seller funded the construction of the projects through borrowings under the financing arrangement for CS4 Borrower, as further described in note 6, Long-term Debt. As of December 31, 2018, CS4 Borrower had Construction in progress of $65.3 million, which included $43.3 million acquired by CS4 Fund and $22 million at subsidiaries of CS4 Seller.
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(5) Accounting for Derivative Instruments and Hedging Activities
(a) Interest Rate Swaps
In accordance with the financing agreements described in note 6, Long-Term Debt, Chestnut Fund Borrower and CS4 Borrower each entered into a series of fixed for floating forward interest rate swaps for at least 80% and not more than 105% of the expected borrowings under the term loan, intended to hedge the risks associated with floating interest rates. Chestnut Fund and CS4 Borrower will pay their counterparties the equivalent of a fixed interest payment on a predetermined notional value, and quarterly each borrower will receive the equivalent of a floating interest payment based on a three-month LIBOR from the effective date through the termination date. The swaps are not designated as cash flow hedges. All unrealized gains and losses are recognized in the consolidated statements of income.
(b) Volumetric Underlying Derivative Transactions
The notional amount of the interest rate swaps decreases in proportion to the loan.
The following table summarizes the outstanding notional amounts and terms of the forward starting interest rate swaps as of December 31, 2018 and 2017:
Notional amount | ||||||||||
(in thousands) | ||||||||||
Effective date | 2018 | 2017 | Fixed Rate | Termination Date | ||||||
January 30, 2019 | $ | 46,869 | $ | 46,869 | 2.380% | January 30, 2040 | ||||
January 30, 2019 | 11,755 | 11,755 | 2.502% | January 30, 2041 | ||||||
January 30, 2019 | 29,742 | 29,742 | 2.495% | January 30, 2041 | ||||||
January 30, 2019 | 7,709 | — | 3.065% | October 30, 2041 | ||||||
$ | 96,075 | $ | 88,366 | |||||||
(c) Fair Value of Derivative Transactions
The following table summarizes the Company’s derivative assets and liabilities on the consolidated balance sheets as of December 31, 2018 and 2017 (in thousands):
2018 | 2017 | |||||||
Derivatives not designated as cash flow hedges: | ||||||||
Derivative assets: | ||||||||
Interest rate contracts current | $ | 184 | $ | — | ||||
Interest rate contracts long-term | 1,489 | 157 | ||||||
Total assets | $ | 1,673 | $ | 157 | ||||
Derivative liabilities: | ||||||||
Interest rate contracts current | $ | 72 | $ | — | ||||
Interest rate contracts long-term | 993 | 17 | ||||||
Total liabilities | $ | 1,065 | $ | 17 | ||||
(d) Impact of Derivative Instruments on the Consolidated Statements of Income
The following table presents the amounts of unrealized gains associated with changes in the fair value of derivative instruments, which are recorded to interest expense in the consolidated statements of income (in thousands):
Year ended December 31, 2018 | Year ended December 31, 2017 | |||||||||||
Unrealized mark-to-market gain on interest rate swap contracts | $ | 468 | $ | 140 | ||||||||
Total unrealized gain | $ | 468 | $ | 140 | ||||||||
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(6) Long-Term Debt
(a) Chestnut Borrower Credit Agreement
In July 2017, the Company entered into a credit agreement with Deutsche Bank AG, (subsequently amended in June 2018), for term loans of up to $120.3 million and letters of credit of up to $7.5 million. In January 2019, the letters of credit commitment amount under the credit agreement was increased to $7.9 million. The loans bear annual interest at a rate of LIBOR plus an applicable margin, which is 2.50% per annum through the fifth anniversary of the financial closing date, or July 2022, and 2.75% per annum thereafter through the maturity date in March 2024. In addition to interest on the outstanding borrowings, the Company will pay a commitment fee on the unused portions of the term loan and letter of credit commitments equal to 0.75% per year. The borrowings are secured by the Company's interests in the project companies.
As of December 31, 2018, the Company had issued a letter of credit for a commitment of $8.5 million to support the Company’s debt service reserve requirements. The Company pays a letter of credit fee of 2.50% per annum on issued amounts under the letter of credit facility on a quarterly basis, which is recorded in interest expense in the consolidated statements of income.
As of December 31, 2018 and 2017, long-term debt consists of the following (in thousands):
2018 | 2017 | |||||||||||
Total long-term debt (including current maturities) | $ | 117,570 | $ | 37,832 | ||||||||
Less current maturities | (5,646 | ) | — | |||||||||
Less debt issuance costs, net | (4,368 | ) | (4,617 | ) | ||||||||
Long-term debt | $ | 107,556 | $ | 33,215 | ||||||||
Distributions from the Company are subject to compliance with the terms and conditions defined in the credit agreement, including a covenant to meet a required debt service coverage ratio of at least 1.20 to 1.0. At December 31, 2018, the Company was in compliance with various restrictive covenants defined in the credit agreement; however the Company's distributions are limited due to an event of default under the credit agreement arising from the placement of mechanic's liens at the Armstrong and Nystuen facilities.
Long-term debt maturities as of December 31, 2018 are summarized as follows (in thousands):
Year ending December 31: | |||
2019 | $ | 5,646 | |
2020 | 7,666 | ||
2021 | 7,841 | ||
2022 | 7,143 | ||
2023 | 6,463 | ||
Thereafter | 82,811 | ||
$ | 117,570 | ||
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(b) CS4 Borrower Credit Agreement
In September 2018, the Company entered into a credit agreement with three financial institutions for construction loans up to $97.4 million that will convert to a term loan by June 30, 2019, an investment tax credit bridge loan, or ITC bridge loan, for up to $89.9 million and letter of credit facilities up to $4.9 million. The construction loan and the ITC bridge loan both have an interest rate of LIBOR plus an applicable margin of 1.75% per annum. The ITC bridge loan matures upon the conversion of the construction loans to a term loan. The Company pays quarterly commitment fees of 0.625% per annum on any unused portion of all of the financing commitments described above, with the exception of the term loan. The term loan will bear annual interest at a rate of LIBOR plus an applicable margin, which is 2.00% per annum through the third anniversary of the term conversion, and 2.25% per annum thereafter through the maturity date in June 2026. The construction loan and the ITC bridge loan, and the future term loan, will be secured by the Company's membership interests in the project companies.
As of December 31, 2018, the Company had no issued letters of credit outstanding. The Company pays an availability fee of 1.75% per annum on issued amounts under the letter of credit facility on a quarterly basis, which is recorded in interest expense in the consolidated statement of income.
As of December 31, 2018, long-term debt consists of the following (in thousands):
2018 | |||||||||
Construction loan | $ | 20,387 | |||||||
ITC bridge loan | 32,164 | ||||||||
Total long-term debt (including current maturities) | 52,551 | ||||||||
Less current maturities | (21,404 | ) | |||||||
Less debt issuance costs | (5,425 | ) | |||||||
Long-term debt | $ | 25,722 | |||||||
Distributions from the Company are subject to compliance with the terms and conditions defined in the credit agreement, including a covenant to meet a required debt service coverage ratio of at least 1.20 to 1.0. As of December 31, 2018, the Company was in compliance with the various restrictive covenants defined in the credit agreement.
Long-term debt maturities as of December 31, 2018 are summarized as follows (in thousands):
Year ending December 31: | |||
2019 | $ | 21,404 | |
2020 | 1,492 | ||
2021 | 1,486 | ||
2022 | 1,371 | ||
2023 | 1,010 | ||
Thereafter | 25,788 | ||
$ | 52,551 | ||
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(7) Related Party Transactions
The Company has the following related party transactions and relationships in in addition to the acquisition of solar energy systems from Clearway Renew described in note 4, Property, Plant, and Equipment and renewable energy certificate revenue described in note 2(j), Summary of Significant Accounting Policies. Amounts due to related parties are recorded as accounts payable – affiliate and amounts due to the Company from related parties are recorded as accounts receivable – affiliate on the Company’s consolidated balance sheets. These account balances are netted by affiliate party.
Both Chestnut Fund and CS4 Fund have asset management agreements with Solar Asset Management LLC, a subsidiary of Clearway Renew, where Solar Asset Management LLC performs administrative services related to the acquired project companies and receives an asset management fee in an annual amount per project. The Funds will also reimburse Solar Asset Management LLC for certain out-of-pocket costs. Chestnut Fund incurred costs under the agreement of $185 thousand and $12 thousand for the year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017, respectively. These costs are included in cost of operations – affiliate in the consolidated statements of income. CS4 Fund did not incur any costs under the agreement for the year ended December 31, 2018.
Effective January 1, 2018, Chestnut Fund has an operations and maintenance agreement with Clearway Renewable Operation & Maintenance LLC, or RENOM, a subsidiary of Clearway Energy Group, to operate and maintain the PV Systems owned by the acquired project companies. RENOM receives a fee in a set annual amount for each project plus reimbursable costs, with an annual escalation of 2.25%. The fee is also subject to adjustments for additional site maintenance, panel washing and replacement costs. The Company incurred costs under the agreement of $488 thousand for the year ended December 31, 2018. These costs are included in cost of operations – affiliate in the consolidated statements of income. CS4 Fund has a similar agreement in place, with no costs incurred as of December 31, 2018.
Subject to the Chestnut Fund Limited Liability Company Agreement, in the event that additional working capital is required by to cause the assets to be properly operated and maintained and to pay for the costs, expenses, obligations and liabilities of Chestnut Fund, then the Company shall have the right, but not the obligation, to provide all or part of the funds needed by the Company in the form of a member loan. This loan was funded through an intercompany borrowing from the Company's Class B Member, Renew DG Holding. As of December 31, 2018 and 2017, $1.6 million and $1.9 million, respectively, was outstanding under a member loan, which is recorded in short-term debt – affiliate on the consolidated balance sheets.
(8) Commitments and Contingencies
In the normal course of business, the Company is subject to various claims and litigation. Management of the Company expects that these various litigation items will not have a material adverse effect on the results of operations, cash flows, or financial position of the Company.
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Land Leases
The projects owned by the Company entered into various land lease agreements through 2053 where their respective solar energy facilities are located. During the terms of the leases, the Company will operate the solar energy facilities to supply electric energy to the customers of the previously described community solar installations. The Company is responsible for all operating costs, repairs and maintenance, and insurance related to the facilities. Lease expense is recognized on a straight-line basis when the agreements include escalating payments over the lease term. For the year ended December 31, 2018 and the period from September 26, 2017 through December 31, 2017, the Company recorded rent expense of $2.4 million and $123 thousand, respectively, which is included in cost of operations in the consolidated statement of income.
Future minimum payments under noncancelable land leases as of December 31, 2018 are estimated as follows (in thousands):
Year ending December 31: | CS4 Fund | Chestnut Fund | ||||
2019 | $ | 204 | 1,377 | |||
2020 | 254 | 1,399 | ||||
2021 | 258 | 1,422 | ||||
2022 | 263 | 1,475 | ||||
2023 | 267 | 1,499 | ||||
Thereafter | 7,706 | 29,815 | ||||
$ | 8,952 | 36,987 | ||||
(9) Subsequent Events
On January 15, 2019, CS4 Borrower borrowed an additional $1.5 million under the construction loan and $8.5 million under the ITC bridge loan.
On January 28, 2019, Chestnut Fund made the second installment payment related to DG Marathon LLC of $6.0 million, of which $1.8 million was contributed by its tax equity investor and $4.2 million was contributed by the Company.
On January 31, 2019, Chestnut Fund Borrower borrowed an additional $2.6 million under the term loan in accordance with its credit agreement.
On February 19, 2019, CS4 Fund acquired Sartell Solar LLC from CS4 Seller and made its first installment payment of $4.2 million, of which $1.5 million was contributed by the tax equity investor and $2.7 million was contributed by the Company.
On March 21, 2019, CS4 Borrower borrowed an additional $27.7 million under the construction loan and $16.5 million under the ITC bridge loan.
The Company has evaluated subsequent events from the balance sheet date through March 28, 2019, the date at which the consolidated financial statements were available to be issued, and determined that there are no other items to disclose.
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