Document


 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
FORM 10-K/A
(Amendment No. 1)
______________________________________________________
(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2017
or
☐ 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: 001-37447
____________________________________________________________________
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12143001&doc=14
8point3 Energy Partners LP
(Exact name of Registrant as specified in its Charter)
______________________________________________________________________________
Delaware
 
47-3298142
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
77 Rio Robles
San Jose, California
 
95134
(Address of principal
executive offices)
 
(Zip Code)
(408) 240-5500
(Registrant’s telephone number, including area code)
_______________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Class A Shares representing limited partner interests
 
NASDAQ Global Select Market
(Title of each class)
 
(Name of exchange on which registered
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  ☐    No  ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required 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.    Yes  ☒    No  ☐
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ☒    No  ☐





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of 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.   ☒
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Small reporting company ☐
Emerging growth company ☒
 
 
(Do not check if a small reporting company)
 
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
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 7(a)(2)(B) of the Securities Act. ☒
The aggregate market value of the registrant’s Class A Shares held by non-affiliates on May 31, 2017, the last business day of the Registrant’s most recently completed second fiscal quarter (based on the closing sale price of $13.64 of the Registrant’s Class A shares, as reported by the NASDAQ Global Select Market on such date) was approximately $382.0 million.
As of March 19, 2018, 28,093,305 shares of the Registrant’s Class A Shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
 





EXPLANATORY NOTE

8point3 Energy Partners LP (the “Partnership”) is filing this Amendment No. 1 on Form 10-K/A (this “Form 10-K/A”) to include in its Annual Report on Form 10-K for the fiscal year ended November 30, 2017 (the “Original 10-K”), pursuant to Rule 3-09 of Regulation S-X under the Securities Exchange Act of 1934, financial statements and related notes of SG2 Holdings, LLC (“SG2 Holdings”), NS Solar Holdings, LLC (“North Star Holdings”), and Parrey Holding Company, LLC (“Henrietta Holdings”), in which the Partnership owns a 49% interest, as well as Desert Stateline Holdings, LLC ("Stateline Holdings") in which the Partnership owns a 34% interest.

Rule 3-09 of Regulation S-X provides that if a 50% or less-owned person accounted for by the equity method meets the first or third condition of the significant subsidiary tests set forth in Rule 1-02(w) of Regulation S-X, substituting 20% for 10%, separate annual financial statements for such 50% or less-owned person corresponding to the periods covered by the financial statements of the Partnership included in the Original 10-K shall be filed. SG2 Holdings met the significance test in fiscal 2017, 2016 and 2015. North Star Holdings met the significance test in fiscal 2017 and 2015. Henrietta Holdings and Stateline Holdings met the significance test in fiscal 2017. As a result, the Partnership has included in this Form 10-K/A separate annual consolidated financial statements for these investees. The consolidated financial statements of SG2 Holdings and North Star Holdings are audited as of December 31, 2017 and 2016 and for the periods ended December 31, 2017, 2016, and 2015. Henrietta Holdings and Stateline Holdings are audited as of and for the periods ended December 31, 2017 and 2016. The consolidated financial statements are prepared in accordance with U.S. GAAP.

Item 15 is the only portion of the Original 10-K being supplemented or amended by this Form 10-K/A. Additionally, in connection with the filing of this Form 10-K/A and pursuant to SEC rules, the Partnership is including the consents of the independent auditors of SG2 Holdings, North Star Holdings, Henrietta Holdings and Stateline Holdings and currently dated certifications. This Form 10-K/A does not otherwise update any exhibits as originally filed and does not otherwise reflect events occurring after the original filing date of the Original 10-K. Accordingly, this Form 10-K/A should be read in conjunction with the Partnership’s filings with the SEC subsequent to the filing of the Original 10-K.






PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)    The following documents are filed as a part of this Annual Report on Form 10-K.

(1)
Financial Statements:

The financial statements and supplementary information listed in the Index to Financial Statements, which appears in Part II, Item 8. “Financial Statements and Supplementary Data,” are filed as part the Original 10-K.
 
(2)
Financial Statement Schedule:

All financial statement schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or Notes to Consolidated Financial Statements under Part II, Item 8. “Financial Statements and Supplementary Data” of the Original 10-K.

The consolidated financial statements of SG2 Holdings, North Star Holdings and Henrietta Holdings, 49% owned equity method investees, as well as Stateline Holdings, a 34% owned equity method investee, required pursuant to Rule 3-09 of the Securities and Exchange Commission’s Regulation S-X, are provided as Exhibit 99.1, Exhibit 99.2, Exhibit 99.3, Exhibit 99.4, Exhibit 99.5 and Exhibit 99.6 to this Form 10-K/A. The consolidated financial statements of SG2 Holdings and North Star Holdings are audited as of December 31, 2017 and 2016 and for the periods ended December 31, 2017, 2016, and 2015. Henrietta Holdings and Stateline Holdings are audited as of and for the periods ended December 31, 2017 and 2016. The consolidated financial statements are prepared in accordance with U.S. GAAP.
 
(3)
Exhibits: See Item 15(b) below.

(b)    Exhibits: The exhibits listed on the Index to Exhibits on the Original 10-K are amended by the addition of the exhibits listed on the accompanying Index to Exhibits in this Form 10-K/A.






Exhibit Index
Exhibit
 
 
 
Incorporated by Reference
Number
 
Description
 
Form
 
File No.
 
Exhibit
 
Filing Date
23.1*
 
 
 
 
 
23.2*
 
 
 
 
 
31.1*
 
 
 
 
 
31.2*
 
 
 
 
 
32.1**
 
 
 
 
 
32.2**
 
 
 
 
 
99.1*
 
 
 
 
 
99.2*
 
 
 
 
 
99.3*
 
 
 
 
 
99.4*
 
 
 
 
 
99.5*
 
 
 
 
 
99.6*
 
 
 
 
 
*
Filed herewith
**
Furnished herewith






SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
8point3 Energy Partners LP
 
 
 
 
 
 
By:
8point3 General Partner, LLC
 
 
 
its general partner
 
 
 
 
Date:
March 21, 2018
By:
/s/ CHARLES D. BOYNTON
 
 
 
Charles D. Boynton
 
 
 
Chairman of the Board, Chief Executive Officer and Director
(Principal Executive Officer)



Exhibit
Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-205655) and Amendment No. 1 to the Registration Statement on Form S-3 (No. 333-212366) of 8point3 Energy Partners LP of our reports dated February 15, 2018, relating to the consolidated balance sheets of SG2 Holdings, LLC and Subsidiary; NS Solar Holdings, LLC and Subsidiary; and Desert Stateline, LLC and Subsidiary as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in members’ equity, and cash flows for the years then ended; our report dated February 28, 2017, relating to the consolidated balance sheets of SG2 Holdings, LLC and Subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in members’ equity, and cash flows for the years then ended; and our report dated February 28, 2017, relating to the consolidated balance sheets of NS Solar Holdings, LLC and Subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in members’ equity, and cash flows for the year ended December 31, 2016 and the period from April 30, 2015 (Date of Acquisition) to December 31, 2015, which appear in this Form 10-K/A.
 

/s/ Frazier & Deeter, LLC
March 21, 2018


Exhibit
Exhibit 23.2

Consent of Independent Auditors

We consent to the incorporation by reference in Registration Statement No. 333-205655 on Form S-8 and Amendment No. 1 to Registration Statement No. 333-212366 on Form S-3 of 8point3 Energy Partners LP of our report dated March 6, 2018, relating to the consolidated financial statements of Parrey Holding Company, LLC and Subsidiaries appearing in this Form 10-K/A of 8point3 Energy Partners LP for the year ended November 30, 2017.


/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 21, 2018



Exhibit
Exhibit 31.1

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles D. Boynton, certify that:

1.
I have reviewed this Annual Report on Form 10-K/A (Amendment No.1) of 8point3 Energy Partners LP;

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 officer 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 officer 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.

Date:
March 21, 2018
By:
/s/ CHARLES D. BOYNTON
 
 
 
Charles D. Boynton
 
 
 
Chairman of the Board, Chief Executive Officer and Director of 8point3 General Partner, LLC
(Principal Executive Officer)



Exhibit
Exhibit 31.2

CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Bryan Schumaker, certify that:

1.
I have reviewed this Annual Report on Form 10-K/A (Amendment No. 1) of 8point3 Energy Partners LP;

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 officer 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 officer 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.

Date:
March 21, 2018
By:
/s/ BRYAN SCHUMAKER
 
 
 
Bryan Schumaker
 
 
 
Chief Financial Officer and Interim Chief Accounting Officer
of 8point3 General Partner, LLC
(Principal Financial Officer)



Exhibit
Exhibit 32.1

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 8point3 Energy Partners LP (the “Partnership”) on Form 10-K/A (Amendment No. 1) for the period ended November 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Charles D. Boynton, Chief Executive Officer of 8point3 General Partner, LLC, the general partner of the Partnership, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report 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 Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership.

Date:
March 21, 2018
By:
/s/ CHARLES D. BOYNTON
 
 
 
Charles D. Boynton
 
 
 
Chairman of the Board, Chief Executive Officer and Director of 8point3 General Partner, LLC
(Principal Executive Officer)



Exhibit
Exhibit 32.2

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 8point3 Energy Partners LP (the “Partnership”) on Form 10-K/A (Amendment No. 1) for the period ended November 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryan Schumaker, Interim Chief Financial Officer and Chief Accounting Officer of 8point3 General Partner, LLC, the general partner of the Partnership, hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)
The Report 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 Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership.

Date:
March 21, 2018
By:
/s/ BRYAN SCHUMAKER
 
 
 
Bryan Schumaker
 
 
 
Chief Financial Officer and Interim Chief Accounting Officer
of 8point3 General Partner, LLC
(Principal Financial Officer)



Exhibit
Exhibit 99.1

Independent Auditors' Report


Members
SG2 Holdings, LLC


We have audited the accompanying financial statements of SG2 Holdings, LLC and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in members' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America; 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 audits. We conducted our audits 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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SG2 Holdings, LLC and Subsidiary as of December 31, 2017 and 2016, and the consolidated results of their income and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 15, 2018




CONSOLIDATED BALANCE SHEETS
SG2 Holdings, LLC and Subsidiary

 
December 31, 2017
December 31, 2016
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash
$
799

$
148

Receivables:
 
 
Customer accounts receivable
3,094

4,660

Affiliated

37

Prepaid expenses
1,585

3,770

Total current assets
5,478

8,615

Noncurrent assets:
 
 
Property, plant, and equipment
 
 
In service
713,060

712,487

Less accumulated provision for depreciation
(65,256
)
(44,830
)
Plant in service, net of depreciation
647,804

667,657

Construction work in progress
19


Prepaid transmission services
14,646

15,713

Special deposits
83

83

Total noncurrent assets
662,552

683,453

Total Assets
$
668,030

$
692,068

Liabilities and Members’ Equity
 
 
Liabilities:
 
 
Current liabilities:
 
 
Accounts payable
$
170

$
618

Accounts payable - affiliated
1,039

770

Other current liabilities
41


Total current liabilities
1,250

1,388

Noncurrent liabilities:
 
 
Asset retirement obligations
6,461

6,172

Other deferred credits and liabilities
494

707

Total noncurrent liabilities
6,955

6,879

Total Liabilities
8,205

8,267

Members’ equity:
 
 
Capital
623,164

659,731

Retained earnings
36,661

24,070

Total Members’ Equity
659,825

683,801

Total Liabilities and Members’ Equity
$
668,030

$
692,068

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
SG2 Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Revenues
$
43,388

$
42,988

Operating Expenses:
 
 

Operations and maintenance
7,346

7,809

Depreciation
20,715

20,680

Taxes other than income taxes
278

(372
)
Total operating expenses
28,339

28,117

Operating Income
15,049

14,871

Interest income
326

604

Other expense
(2,784
)
(357
)
Net Income
$
12,591

$
15,118


The accompanying notes are an integral part of these consolidated financial statements.


2

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
SG2 Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Total Members' Equity, beginning of period
$
683,801

$
707,417

Capital distributions
(36,567
)
(38,734
)
Net income
$
12,591

$
15,118

Total Members' Equity, end of period
$
659,825

$
683,801


The accompanying notes are an integral part of these consolidated financial statements.


3

CONSOLIDATED STATEMENTS OF CASH FLOWS
SG2 Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Activities:
 
 
Net income
$
12,591

$
15,118

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
Depreciation
20,715

20,680

Other, net
1,892

689

Changes in certain current assets and liabilities —
 
 
-Receivables
1,603

3,031

-Other current assets
1,146

11

-Accounts payable 
(178
)
(142
)
-Accrued taxes

(655
)
-Other current liabilities
41

19

Net cash provided from operating activities
37,810

38,751

Investing Activities:
 
 
Property additions
(592
)
(450
)
Construction receivables/payables, net


Net cash used for investing activities
(592
)
(450
)
Financing Activities:
 
 
Capital contributions


Capital distributions
(36,567
)
(38,734
)
Net cash used for financing activities
(36,567
)
(38,734
)
Net Change in Cash
651

(433
)
Cash at Beginning of Period
148

581

Cash at End of Period
$
799

$
148


The accompanying notes are an integral part of these consolidated financial statements.


4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SG2 Holdings, LLC (SG2 Holdings) is a holding company that was formed on September 5, 2014 and on October 22, 2014 acquired 100% of the membership interests of SG2 Imperial Valley, LLC (Imperial Valley, and collectively, the Company). Imperial Valley was formed on December 13, 2011 for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility with a capacity of approximately 150 megawatts (MW) located in Imperial County, California, which began commercial operation on November 26, 2014.

The Company is a partnership with Class A membership interests owned by a wholly-owned subsidiary of Southern Power Company (SPC or Class A Member), and Class B membership interests owned by a wholly-owned subsidiary of 8point3 Operating Company, LLC (Class B Member).

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements requires the use of estimates, and actual results may differ.

Recently Issued Accounting Standards

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (ASC 606), replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.

The Company has completed the evaluation of all revenue streams, which are derived from the purchase power agreement (PPA), and determined the adoption of ASC 606 will not change the current timing or amounts of revenue recognized in the Company's financial statements. The PPA is excluded from the scope of ASC 606 and included in the scope of the current leasing guidance (ASC 840).

The new standard is effective for periods beginning after December 15, 2018 for non-public companies and early adoption is permitted. The Company intends to use the modified retrospective method of adoption effective January 1, 2018. The Company has also elected to utilize practical expedients which allow it to apply the standard to open contracts at the date of adoption and to reflect the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price for contracts modified before the effective date. The adoption of ASC 606 will not result in a cumulative adjustment as of the adoption date.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 for non-public companies and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019.

The Company has completed a detailed inventory and analysis of its leases, which comprise the PPA and land leases for its renewable generation facilities. While the Company has not yet determined the ultimate impact, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet for lessee arrangements. See Note 4 for details of the Company’s undiscounted lease commitment.


5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

Concentration of Credit Risk

The entire output of the facility is contracted under a 25-year PPA with San Diego Gas and Electric Company resulting in a significant concentration of credit risk as it relates to the customer accounts receivable. In addition, the PPA requires that a portion of the revenues are collected directly from the California Independent System Operator. However, the Company does not believe significant credit risk exists at December 31, 2017 due to the creditworthiness of the counterparties. There are no past due amounts from the counterparties at December 31, 2017.

Cash

The Company considers unrestricted cash on hand and deposits in banks to be cash.

Income Taxes

The Company and its subsidiary are limited liability companies treated as a partnership and a single-member disregarded entity, respectively, for income tax purposes. Therefore, federal and state income taxes are not recognized in these consolidated financial statements.

Property, Plant and Equipment

Property, plant, and equipment (PP&E) is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis.

Asset Retirement Obligations

The Company’s asset retirement obligations (ARO) relate to the leased land where the solar facility is located. Upon termination of the lease, the land is required to be restored to an agreed-upon condition. The Company’s AROs are based on future estimated costs associated with the dismantlement, demolition, and removal of the solar facility and could differ significantly when they are incurred.

AROs are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and estimable, and are then accreted to their future value. Costs are capitalized as part of the related long-lived asset and depreciated over 35 years. Details of the AROs included in the consolidated balance sheets are as follows:
 
December 31,
(in thousands)
2017
2016
Balance, at beginning of period
$
6,172

$
5,896

Accretion expense
289

276

Balance, at end of period
$
6,461

$
6,172

 
Long-Lived Assets

The Company’s long-lived assets include PP&E. The Company evaluates impairment of these long-lived assets when events or changes in circumstances indicate that the carrying values may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows compared to carrying value. If the estimated undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined and an impairment loss is recorded. During the years ended December 31, 2017 and 2016, there were no impairment charges recorded.


6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

Prepaid Transmission Services

In conjunction with the acquisition of Imperial Valley, the Company acquired a long-term prepaid for transmission services representing network and transmission upgrades that will be reimbursed to the Company through reductions to transmission invoices from the Imperial Irrigation District over 25 years from the acquisition date. The prepaid was recorded at fair value at the acquisition date and subsequently adjusted in 2017 with a charge of $2.4 million reflected in other expense on the consolidated statements of income for the year ended December 31, 2017. At December 31, 2017 and 2016, $1.2 million and $3.2 million is recorded in prepaid expenses within current assets and $14.6 million and $15.7 million is recorded in noncurrent assets, respectively, in the consolidated balance sheets.

Revenues

The Company is a lessor under the terms of a PPA for the sale of electricity and green attributes. The PPA has been evaluated and classified as an operating lease. Under this agreement, revenues are accounted for as contingent revenues and, therefore, the Company recognizes revenues based upon rates specified in the PPA when electricity is delivered. The Company commenced the recognition of revenue upon commercial operation of the facility on November 26, 2014.

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the presentation at December 31, 2017. Total members’ equity, net income, and total cash flows are unchanged due to these reclassifications.

2. MEMBERS’ CAPITAL

SG2 Holdings operates under the amended Limited Liability Company Agreement dated November 26, 2014.

The Class A Member owns 100% of the Class A membership interests of SG2 Holdings and is entitled to 51% of all cash distributions from SG2 Holdings. In addition, the Class A Member is entitled to substantially all of the federal tax benefits with respect to the solar facility. The Class B Member owns 100% of the Class B membership interests of SG2 Holdings and is entitled to 49% of all cash distributions from SG2 Holdings.

3. RELATED-PARTY TRANSACTIONS

The Company has entered into an operations and maintenance agreement with First Solar Electric (California), Inc., a wholly-owned subsidiary of First Solar, Inc., that expires in 2024 to provide operations and maintenance services. First Solar, Inc. owns a noncontrolling 28.0% limited liability company interest in the Class B Member. Expenses recorded during the years ended December 31, 2017 and 2016 were $3.2 million and $3.1 million, respectively. At both December 31, 2017 and 2016, $0.8 million was included in accounts payable - affiliated in the consolidated balance sheets.

The Company has also entered into an ongoing management service agreement with Southern Power Company to provide management and general and administrative services. Expenses recorded for the years ended December 31, 2017 and 2016 were $0.3 million in both years. At December 31, 2017 and 2016, $23,000 and $25,000, respectively, was included in accounts payable - affiliated in the consolidated balance sheets.

At December 31, 2017, SPC had $11.0 million of parent guarantees, $5.0 million of surety bonds, and $0.1 million of cash collateral issued on behalf of the Company. Fees charged by SPC for these arrangements were $0.4 million for both years ended December 31, 2017 and 2016.

4. COMMITMENTS AND CONTINGENCIES

Operating Lease

The Company is obligated under a 30-year, non-cancelable land lease for its solar facility which initially expires in 2043, but contains a 10-year renewal option and inflation-adjusted rent escalation clauses. The related rentals are recognized on a straight-line basis. Rent expense for the years ended December 31, 2017 and 2016 was approximately $1.1 million and $1.6 million, respectively. The Company includes lease extensions that cover the useful life of the solar facility in its computation of minimum lease payments.


7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

Details of the Company’s future minimum lease commitments at December 31, 2017 are as follows:
(in thousands)
Lease
Commitment
2018
$
1,298

2019
1,311

2020
1,324

2021
1,338

2022
1,351

Thereafter
44,997

Total
$
51,619


Legal Proceedings

Occasionally, the Company may be party to various lawsuits, claims, and other legal and regulatory proceedings that arise in the ordinary course of business. These actions may seek, among other things, compensation, civil penalties, or injunctive or declaratory relief. The Company does not have any legal proceedings that are pending.

Environmental Contingencies

The Company periodically reviews its compliance obligations related to environmental regulations, including site restoration and remediation. At December 31, 2017 and 2016, there were no known environmental contingencies that required the Company to recognize a liability.

5. SUBSEQUENT EVENTS

Subsequent events have been evaluated through February 15, 2018, the date these consolidated financial statements were available to be issued, and there were no events requiring recognition or disclosure.


8
Exhibit
Exhibit 99.2

Independent Auditors' Report


Members
NS Solar Holdings, LLC

We have audited the accompanying financial statements of NS Solar Holdings, LLC and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in members' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America; 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 audits. We conducted our audits 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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NS Solar Holdings, LLC and Subsidiary as of December 31, 2017 and 2016, and the consolidated results of their income and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 15, 2018




CONSOLIDATED BALANCE SHEETS
NS Solar Holdings, LLC and Subsidiary

 
December 31, 2017
December 31, 2016
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash
$
250

$
171

Receivables:
 
 
Customer accounts receivable
730

637

Other
5,162

5,155

Affiliated
124


Prepaid expenses
230

237

Other current assets
26


Total current assets
6,522

6,200

Noncurrent assets:
 
 
Property, plant, and equipment
 
 
In service
268,278

268,261

Less accumulated provision for depreciation
(19,828
)
(12,136
)
Plant in service, net of depreciation
248,450

256,125

PPA intangible, net of amortization of $3,101 and $1,875, respectively
21,406

22,632

Interconnection receivable
6,070

10,233

Total noncurrent assets
275,926

288,990

Total Assets
$
282,448

$
295,190

Liabilities and Members’ Equity
 
 
Liabilities:
 
 
Current liabilities:
 
 
Accounts payable
$
60

$
66

Accounts payable - affiliated
341

327

Accrued taxes

250

Other current liabilities
38


Total current liabilities
439

643

Noncurrent liabilities:
 
 
Asset retirement obligations
2,018

1,917

Other deferred credits and liabilities
681

709

Total noncurrent liabilities
2,699

2,626

Total Liabilities
3,138

3,269

Members’ equity:
 
 
Capital
259,341

280,582

Retained earnings
19,969

11,339

Total Members’ Equity
279,310

291,921

Total Liabilities and Members’ Equity
$
282,448

$
295,190

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
NS Solar Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Revenues
$
18,790

$
17,176

Operating Expenses:
 
 
Operations and maintenance
2,500

2,838

Depreciation
7,793

7,774

Taxes other than income taxes
(52
)
314

Total operating expenses
10,241

10,926

Operating Income
8,549

6,250

Interest income
507

1,191

Other expense
(426
)
(470
)
Net Income
$
8,630

$
6,971


The accompanying notes are an integral part of these consolidated financial statements.


2

CONSOLIDATED STATEMENTS OF CHANGES OF MEMBERS' EQUITY
NS Solar Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Total Members' Equity, beginning of period
$
291,921

$
307,083

Capital contributions

759

Capital distributions
(21,241
)
(22,892
)
Net income
8,630

6,971

Total Members' Equity, end of period
$
279,310

$
291,921


The accompanying notes are an integral part of these consolidated financial statements.


3

CONSOLIDATED STATEMENTS OF CASH FLOWS
NS Solar Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Activities:
 
 
Net income
$
8,630

$
6,971

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
Depreciation
7,793

7,774

Amortization of PPA intangible
1,226

1,225

Other, net
(29
)
349

Changes in certain current assets and liabilities —
 
 
-Receivables
(274
)
2

-Accrued interest income
(507
)
(1,191
)
-Prepaid expenses 
7

52

-Accounts payable 
8

(67
)
-Accrued taxes 
(250
)
160

-Other current liabilities 
37

8

Net cash provided from operating activities
$
16,641

$
15,283

Investing Activities:
 
 
Property additions
(43
)
(249
)
Interconnection refund
4,722

7,072

Net cash provided from investing activities
4,679

6,823

Financing Activities:
 
 
Proceeds from capital contributions

759

Capital distributions
(21,241
)
(22,892
)
Net cash used for financing activities
(21,241
)
(22,133
)
Net Change in Cash
79

(27
)
Cash at Beginning of Period
171

198

Cash at End of Period
$
250

$
171


The accompanying notes are an integral part of these consolidated financial statements.

4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NS Solar Holdings, LLC (NS Holdings) is a holding company that was formed on April 9, 2015 and owns 100% of the membership interests of North Star Solar, LLC (North Star, and collectively with NS Holdings, the Company). North Star was formed on January 28, 2010 for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility with a capacity of approximately 61 megawatts (MW) located in Fresno County, California, which began commercial operation on June 20, 2015.

The Company is a partnership with Class A membership interests owned by a wholly-owned subsidiary of Southern Power Company (SPC or Class A Member), and Class B membership interests owned by a wholly-owned subsidiary of 8point3 Operating Company, LLC (Class B Member).

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements requires the use of estimates, and actual results may differ.

Recently Issued Accounting Standards

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (ASC 606), replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.

The Company has completed the evaluation of all revenue streams, which are derived from the purchase power agreement (PPA), and determined the adoption of ASC 606 will not change the current timing or amounts of revenue recognized in the Company's financial statements. The PPA is excluded from the scope of ASC 606 and included in the scope of the current leasing guidance (ASC 840).

The new standard is effective for periods beginning after December 15, 2018 for non-public companies and early adoption is permitted. The Company intends to use the modified retrospective method of adoption effective January 1, 2018. The Company has also elected to utilize practical expedients which allow it to apply the standard to open contracts at the date of adoption and to reflect the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price for contracts modified before the effective date. The adoption of ASC 606 will not result in a cumulative adjustment as of the adoption date.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 for non-public companies and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019.

The Company has completed a detailed inventory and analysis of its leases, which comprise the PPA and land leases for its renewable generation facilities. While the Company has not yet determined the ultimate impact, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet for lessee arrangements. See Note 4 for details of the Company’s undiscounted lease commitment.


5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

Concentration of Credit Risk

The entire output of the facility is contracted under a 20-year PPA with Pacific Gas and Electric Company. As such, the Company has a significant concentration of credit risk with customer accounts. However, the Company does not believe significant credit risk exists at December 31, 2017 due to creditworthiness of the counterparty. There are no past due amounts from the counterparty at December 31, 2017.

Cash

The Company considers unrestricted cash on hand and deposits in banks to be cash.

Income Taxes

The Company and its subsidiaries are limited liability companies treated as a partnership and single-member disregarded entities, respectively, for income tax purposes. Therefore, federal and state income taxes are not recognized in these consolidated financial statements.

Property, Plant and Equipment

Property, plant and equipment (PP&E) is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis.

Asset Retirement Obligations

The Company’s asset retirement obligations (ARO) relate to the leased land where the solar facility is located. Upon termination of the lease, the land is required to be restored to an agreed-upon condition. The Company’s AROs are based on future estimated costs associated with the dismantlement, demolition, and removal of the solar facility and could differ significantly when they are incurred.

AROs are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and estimable, and are then accreted to their future value. Costs are capitalized as part of the related long-lived asset and depreciated over 35 years. Details of the AROs included in the consolidated balance sheets are as follows:
 
December 31,
(in thousands)
2017
2016
Balance, at beginning of period
$
1,917

$
1,821

Accretion expense
101

96

Balance, at end of period
$
2,018

$
1,917


Long-Lived Assets and Intangibles

The Company’s long-lived assets include PP&E and the PPA intangible. The Company evaluates impairment of these long-lived assets when events or changes in circumstances indicate that the carrying value may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows compared to carrying value. If the estimated undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined and an impairment loss is recorded. During the years ended December 31, 2017 and 2016, there were no impairment charges recorded.


6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

For the years ended December 31, 2017 and 2016, amortization expense for the acquired PPA was approximately $1.2 million in both years, and is recorded in operating revenues in the consolidated statements of income. Amortization expense for future periods is as follows:
(in thousands)
Amortization
Expense 
2018
$
1,225

2019
1,225

2020
1,225

2021
1,225

2022
1,225

Thereafter
15,281

Total
$
21,406


Interconnection Receivable

In conjunction with the construction of the solar facility, the Company has a receivable related to transmission interconnection costs that represents network upgrades that will be reimbursed to the Company through levelized payments over a five-year period. At December 31, 2017 and 2016, $5.1 million and $5.2 million is recorded in other receivables within current assets and $6.1 million and $10.2 million is recorded in noncurrent assets, respectively, in the consolidated balance sheets.

Revenues

The Company is a lessor under the terms of a PPA for the sale of electricity and green attributes. The PPA has been evaluated and classified as an operating lease. Under this agreement, revenues are accounted for as contingent revenues and, therefore, the Company recognizes revenues based upon rates specified in the PPA when electricity is delivered. The Company commenced the recognition of revenue upon commercial operation of the facility on June 20, 2015.

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the presentation at December 31, 2017. Total members’ equity, net income, and total cash flows are unchanged due to these reclassifications.

2. MEMBERS’ CAPITAL

NS Holdings operates under the amended Limited Liability Company Agreement dated April 30, 2015.

The Class A Member owns 100% of the Class A membership interests of NS Holdings and is entitled to 51% of all cash distributions from NS Holdings. In addition, the Class A Member is entitled to substantially all of the federal tax benefits with respect to the solar facility. The Class B Member owns 100% of the Class B membership interests of NS Holdings and is entitled to 49% of all cash distributions from NS Holdings.

3. RELATED-PARTY TRANSACTIONS

The Company has entered into an operations and maintenance agreement with First Solar Electric (California), Inc., a wholly- owned subsidiary of First Solar, that expires in 2025 to provide operations and maintenance services. First Solar, Inc. owns a noncontrolling 28.0% limited liability company interest in the Class B Member. Expenses recorded for the years ended December 31, 2017 and 2016 were $1.1 million and $1.2 million, respectively. At both December 31, 2017 and 2016, $0.3 million was included in accounts payable - affiliated in the consolidated balance sheets.

The Company has also entered into an ongoing management service agreement with Southern Power Company to provide management and general and administrative services. Expenses recorded during the years ended December 31, 2017 and 2016 were approximately $0.2 million in both years. At both December 31, 2017 and 2016, $13,000 was included in accounts payable - affiliated in the consolidated balance sheets.

At December 31, 2017, SPC had $12.6 million of letters of credit and $1.5 million of surety bonds issued on behalf of the Company. Fees charged by SPC for these arrangements were $0.4 million and $0.5 million for the years ended December 31,

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

2017 and 2016, respectively.
4. COMMITMENTS AND CONTINGENCIES

Operating Lease

The Company is obligated under a 30-year, non-cancelable land lease for its solar facility which initially expires in 2044 but contains a 10-year renewal option and inflation-adjusted rent escalation clauses. The related rentals are recognized on a straight-line basis. Rent expense for the years ended December 31, 2017 and 2016, was $0.8 million and $1.2 million, respectively. The Company includes lease extensions that cover the useful life of the solar facility in its computation of minimum lease payments.

Details of the Company’s future minimum lease commitments at December 31, 2017 are as follows:
(in thousands)
Lease
Commitment
2018
$
866

2019
875

2020
884

2021
893

2022
901

Thereafter
34,998

Total
$
39,417


Legal Proceedings

Occasionally, the Company may be party to various lawsuits, claims, and other legal and regulatory proceedings that arise in the ordinary course of business. These actions may seek, among other things, compensation, civil penalties, or injunctive or declaratory relief. The Company does not have any legal proceedings that are pending.

Environmental Contingencies

The Company periodically reviews its compliance obligations related to environmental regulations, including site restoration and remediation. At December 31, 2017 and 2016, there were no known environmental contingencies that required the Company to recognize a liability.

5. SUBSEQUENT EVENTS

Subsequent events have been evaluated through February 15, 2018, the date these consolidated financial statements were available to be issued, and there were no events requiring recognition or disclosure.


8
Exhibit
Exhibit 99.3

Independent Auditors' Report


Members
Parrey Holding Company, LLC:

We have audited the accompanying consolidated financial statements of Parrey Holding Company, LLC and Subsidiaries (the “Company”), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, changes of members’ equity, and cash flows for the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; 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 audits. We conducted our audits 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 auditor’s 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 Company’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 Company’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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Parrey Holding Company, LLC and Subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016 in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, in connection with the acquisition of Parrey Holding Company, LLC by Southern Renewable Partnerships, LLC, a new basis of accounting was established as of July 1, 2016. Our opinion is not modified with respect to this matter.

/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 6, 2018


CONSOLIDATED BALANCE SHEETS
Parrey Holding Company, LLC and Subsidiaries

 
December 31, 2017
December 31, 2016
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash
$
857

$
2,142

Receivables:
 
 
Customer accounts receivable
977

2,028

Other
4,185

4,102

Affiliated

1,347

Prepaid expenses
804

168

Total current assets
6,823

9,787

Noncurrent assets:
 
 
Property, plant, and equipment
 
 
In service
335,279

335,238

Less accumulated provision for depreciation
(13,899
)
(4,827
)
Plant in service, net of depreciation
321,380

330,411

PPA intangible, net of amortization of $4,813 and $963, respectively
72,188

76,037

Interconnection receivable
8,191

11,890

Special deposits
150

150

Total noncurrent assets
401,909

418,488

Total Assets
$
408,732

$
428,275

Liabilities and Members’ Equity
 
 
Liabilities:
 
 
Current liabilities:
 
 
Accounts payable - other
$
95

$
75

Accounts payable - affiliated
28

2,746

Other current liabilities
149


Total current liabilities
272

2,821

Noncurrent liabilities:
 
 
Asset retirement obligations
1,907

1,820

Other deferred credits and liabilities
1,416

518

Total noncurrent liabilities
3,323

2,338

Total Liabilities
3,595

5,159

Members’ equity:
 
 
Capital
397,134

424,791

Retained earnings (accumulated deficit)
8,003

(1,675
)
Total Members’ Equity
405,137

423,116

Total Liabilities and Members’ Equity
$
408,732

$
428,275

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
Parrey Holding Company, LLC and Subsidiaries

 
Year Ended
December 31, 2017
Period from June 16, 2016
(Date of Inception) to
December 31, 2016
 
(in thousands)
Operating Revenues
$
22,332

$
5,250

Operating Expenses:
 
 
Operations and maintenance
4,300

1,578

Depreciation
9,159

4,862

Taxes other than income taxes
47

61

Total operating expenses
13,506

6,501

Operating Income (Loss)
8,826

(1,251
)
Interest income
1,408


Other (expense) income
(556
)
115

Interest expense, net of amounts capitalized

(539
)
Net Income (Loss)
$
9,678

$
(1,675
)

The accompanying notes are an integral part of these consolidated financial statements.


2

CONSOLIDATED STATEMENTS OF CHANGES OF MEMBERS’ EQUITY
Parrey Holding Company, LLC and Subsidiaries

 
Year Ended
December 31, 2017
Period from June 16, 2016
(Date of Inception) to
December 31, 2016
 
(in thousands)
Total Members' Equity, beginning of period
$
423,116

$

Capital contributions

427,542

Capital distributions
(27,657
)
(2,751
)
Net income (loss)
9,678

(1,675
)
Total Members' Equity, end of period
$
405,137

$
423,116


The accompanying notes are an integral part of these consolidated financial statements.


3

CONSOLIDATED STATEMENTS OF CASH FLOWS
Parrey Holding Company, LLC and Subsidiaries

 
Year Ended
December 31, 2017
Period from June 16, 2016
(Date of Inception) to
December 31, 2016
 
(in thousands)
Operating Activities:
 
 
Net income (loss)
$
9,678

$
(1,675
)
Adjustments to reconcile net income (loss) to net cash provided from operating activities —
 
 
Depreciation
9,159

4,862

Amortization of PPA intangible
3,850

963

Accrued interest income
(1,408
)
(140
)
Other, net
896

625

Changes in certain current assets and liabilities -
 
 
-Receivables
2,399

(3,375
)
-Prepaid expenses 
(636
)
(99
)
-Accounts payable 
(2,700
)
930

-Other current liabilities
149


Net cash provided from operating activities
21,387

2,091

Investing Activities:
 
 
Business combinations

(425,302
)
Property additions
(41
)
(1,330
)
Interconnection refund
5,026


Net cash provided from (used for) investing activities
4,985

(426,632
)
Financing Activities:
 
 
Proceeds from capital contributions

427,542

Capital distributions
(27,657
)
(859
)
Net cash (used for) provided from financing activities
(27,657
)
426,683

Net Change in Cash
(1,285
)
2,142

Cash at Beginning of Period
2,142


Cash at End of Period
$
857

$
2,142


The accompanying notes are an integral part of these consolidated financial statements.


4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parrey Holding Company, LLC and Subsidiaries

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Parrey Holding Company, LLC (Parrey Holding and together with its subsidiaries, the Company) is a holding company that was formed on June 16, 2016 (Date of Inception) by a wholly-owned subsidiary of SunPower Corporation (SunPower), and on July 1, 2016, acquired 100% of the membership interests of Parrey Parent, LLC, which owns 100% of Parrey, LLC (Parrey or the Project). Parrey was formed on October 27, 2008, for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility (Henrietta) with a capacity of approximately 102 megawatts located in Kings County, California.

The Company is a partnership with Class A membership interests owned by a wholly-owned subsidiary of Southern Power Company (SPC), the Class A Member, and Class B membership interests owned by a subsidiary of 8point3 Operating Company, LLC, the Class B Member. Prior to September 29, 2016, the Class B membership interests were owned by a wholly-owned subsidiary of SunPower.

Change in Control

On July 1, 2016 (Date of Acquisition), Class A Member acquired 100% of the Class A membership interests in Parrey Holding from SunPower, the developer of the Project and the seller. Concurrently, Parrey Holding acquired 100% of the membership interests of Parrey Parent, LLC, the owner of Parrey, for an aggregate purchase price of approximately $425.0 million from SunPower AssetCo, LLC, a wholly-owned subsidiary of SunPower. The Class A Member and a subsidiary of SunPower contributed a total of $254.5 million and $170.5 million, respectively, towards the $425.0 million aggregate purchase price of Parrey Parent, LLC. As part of the purchase price the members assumed a $216.7 million construction loan at Parrey that was fully repaid on September 29, 2016 through the members’ capital contributions.

The acquisition of Parrey Holding by SPC resulted in a change in control, where the Company’s assets and liabilities were accordingly adjusted to fair value on July 1, 2016 by applying the principals of “push-down” accounting through equity. From the Date of Inception until the Date of Acquisition, there were no significant operations of the Company.

During the year ended December 31, 2017, allocations of the purchase price were finalized with no changes to amounts originally recorded. The fair values of assets acquired were recorded as follows:
(in millions)
Fair Value
Construction work in progress
$
332.1

Interconnection receivable
15.9

PPA intangible
77.0

Aggregate purchase price
$
425.0


Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements requires the use of estimates, and actual results may differ.

Recently Issued Accounting Standards

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (ASC 606), replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parrey Holding Company, LLC and Subsidiaries


The Company has completed the evaluation of all revenue streams, which are derived from a power purchase agreement (PPA), and determined the adoption of ASC 606 will not change the current timing or amounts of revenue recognized in the Company's financial statements. The PPA is excluded from the scope of ASC 606 and included in the scope of the current leasing guidance (ASC 840).

The new standard is effective for periods beginning after December 15, 2018 for non-public companies and early adoption is permitted. The Company intends to use the modified retrospective method of adoption effective January 1, 2018. The Company has also elected to utilize practical expedients which allow it to apply the standard to open contracts at the date of adoption and to reflect the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price for contracts modified before the effective date. The adoption of ASC 606 will not result in a cumulative adjustment as of the adoption date.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 for non-public companies and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019.

The Company has completed a detailed inventory and analysis of its leases, which comprise a PPA and a land lease for its renewable generation facility. While the Company has not yet determined the ultimate impact, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet for lessee arrangements. See Note 4 for details of the Company’s undiscounted lease commitment.

Concentration of Risk

The entire output of the facility is contracted under a 20-year PPA with Pacific Gas and Electric Company resulting in a significant concentration of credit risk as it relates to its customer accounts receivable. However, the Company does not believe significant credit risk exists at December 31, 2017 due to the creditworthiness of the counterparty. There are no past due amounts from the counterparty at December 31, 2017.

Cash

The Company considers unrestricted cash on hand and deposits in banks to be cash.

Income Taxes

The Company and its subsidiaries are limited liability companies treated as a partnership and single-member disregarded entities, respectively, for income tax purposes. Therefore, federal and state income taxes are not recognized in these consolidated financial statements.

Property, Plant, and Equipment

Property, plant, and equipment (PP&E) is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis. See Change in Control above for information related to the accounting for the Parrey acquisition.

Asset Retirement Obligations

The Company’s asset retirement obligations (ARO) relate to the leased land where the solar facility is located. Upon termination of the lease, the land is required to be restored to an agreed-upon condition. The Company’s AROs are based on future estimated costs associated with the dismantlement, demolition, and removal of the solar facility and could differ significantly when they are incurred.


6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parrey Holding Company, LLC and Subsidiaries

AROs are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and estimable, and are then accreted to their future value. Costs are capitalized as part of the related long-lived asset and depreciated over 35 years. Details of the AROs included in the consolidated balance sheets are as follows:
 
December 31,
(in thousands)
2017
2016
Balance, at beginning of period
$
1,820

$

Liability incurred

1,785

Accretion expense
87

35

Balance, at end of period
$
1,907

$
1,820


Long-Lived Assets

The Company’s long-lived assets include PP&E and the PPA intangible. The Company evaluates impairment of these long-lived assets when events or changes in circumstances indicate that the carrying values may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows compared to carrying value. If the estimated undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined and an impairment loss is recorded. During the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016, there were no impairment charges recorded.

For the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016, amortization expense for the acquired PPA intangible was approximately $3.9 million and $1.0 million, respectively, and is recorded in operating revenues in the consolidated statements of income. Amortization expense for future periods is as follows:
(in thousands)
Amortization
Expense 
2018
$ 3,850
2019
3,850
2020
3,850
2021
3,850
2022
3,850
Thereafter
52,938
Total
$ 72,188

Interconnection Receivable

In conjunction with the construction of the solar facility, the Company has a receivable related to transmission interconnection costs that represents network upgrades that will be reimbursed to the Company through levelized payments over a five-year period. At December 31, 2017 and 2016, $4.2 million and $4.1 million is recorded in other receivables within current assets and $8.2 million and $11.9 million is recorded in noncurrent assets, respectively, in the consolidated balance sheets.

Revenues

The Company is a lessor under the terms of a PPA for the sale of electricity and green attributes. The Company was also a lessor under the terms of a short-term PPA for the sale of electricity and green attributes that expired on September 29, 2016. The PPAs have been evaluated and classified as operating leases. Under these agreements, revenues are accounted for as contingent revenues and, therefore, the Company recognizes revenues based upon rates specified in the PPAs when electricity is delivered. The Company commenced the recognition of revenue upon commercial operation of the facility on July 25, 2016.

2. MEMBERS’ CAPITAL

Parrey Holding operates under the amended Limited Liability Company Agreement dated June 16, 2016.

During the period from June 16, 2016 (Date of Inception) to December 31, 2016, the Company received equity contributions of approximately $427.5 million, including the “push-down” accounting adjustments for fair value discussed above. The Class A

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parrey Holding Company, LLC and Subsidiaries

Member contributed approximately $255.9 million. The Class B Member contributed approximately $171.6 million.

The Class A Member owns 100% of the Class A membership interests of Parrey Holding, and is entitled to 51% of all cash distributions from Parrey Holding. In addition, the Class A Member is entitled to substantially all of the federal tax benefits with respect to the solar facility. The Class B Member owns 100% of the Class B membership interests of Parrey Holding, and is entitled to 49% of all cash distributions from Parrey Holding.

3. RELATED-PARTY TRANSACTIONS

The Company has entered into an engineering, procurement, and construction agreement (EPC) that expires when contractual provisions are fulfilled, and an operations and maintenance agreement with SunPower Corporation, Systems (SP Systems), a wholly-owned subsidiary of SunPower, that expires 2021. Expenses recorded for the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016 were $1.3 million and $0.6 million, respectively.

The Company has also entered into an ongoing management service agreement with SPC to provide management and general and administrative services. Expenses recorded during the year ended December 31, 2017 and for the period from June 16, 2016 (Date of Inception) to December 31, 2016 were approximately $0.3 million and $0.1 million, respectively. At December 31, 2017 and 2016, $23,000 and $69,000, respectively, was included in accounts payable - affiliated in the consolidated balance sheets related to this arrangement.

At both December 31, 2017 and 2016, SPC had $10.1 million of parent guarantees, $0.7 million of surety bonds, and $0.2 million of cash collateral issued on behalf of the Company primarily related to PPA and decommissioning requirements. Fees charged by SPC for these arrangements were $0.5 million for the year ended December 31, 2017 and were $25,000 for the period from June 16, 2016 (Date of Inception) to December 31, 2016.

The Company has a land lease with a related party, HA Henrietta LLC, which is a subsidiary of SunPower. See Note 4 for additional information.

4. COMMITMENTS AND CONTINGENCIES

Operating Lease

The Company is obligated under a 31-year, non-cancelable land lease for its solar facility which initially expires in 2046, but contains two, five-year lease extension options. The related rentals are recognized on a straight-line basis. Rent expense for the year ended December 31, 2017 and for the period from July 1, 2016 (Date of Acquisition) to December 31, 2016 was $1.3 million and $0.5 million, respectively. The Company includes lease extensions that cover the useful life of the solar facility in its computation of minimum lease payments.

Details of the Company’s future minimum lease commitments at December 31, 2017 are as follows:
(in thousands)
Lease
Commitment
2018
$
648

2019
818

2020
839

2021
860

2022
881

Thereafter
36,393

Total
$
40,439


Legal Proceedings

Occasionally, the Company may be party to various lawsuits, claims, and other legal and regulatory proceedings that arise in the ordinary course of business. These actions may seek, among other things, compensation, civil penalties, or injunctive or declaratory relief. The Company does not have any legal proceedings that are pending.


8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Parrey Holding Company, LLC and Subsidiaries

Environmental Contingencies

The Company periodically reviews its compliance obligations related to environmental regulations, including site restoration and remediation. At December 31, 2017 and 2016, there were no known environmental contingencies that required the Company to recognize a liability.

5. SUBSEQUENT EVENTS

Subsequent events have been evaluated through March 6, 2018, the date these consolidated financial statements were available to be issued, and there were no events requiring recognition or disclosure.


9
Exhibit
Exhibit 99.4

Independent Auditors' Report


Members
Desert Stateline Holdings, LLC


We have audited the accompanying financial statements of Desert Stateline Holdings, LLC and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, changes in members' equity, and cash flows for the years then, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America; 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 audits. We conducted our audits 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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Desert Stateline Holdings, LLC and Subsidiary as of December 31, 2017 and 2016, and the consolidated results of their income and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 15, 2018





CONSOLIDATED BALANCE SHEETS
Desert Stateline Holdings, LLC and Subsidiary

 
December 31, 2017
December 31, 2016
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash
$
8,912

$
8,914

Receivables:
 
 
Customer accounts receivable
5,309

3,910

Other
7,936

7,727

Affiliated
785

45

Prepaid expenses
753

2,855

Total current assets
23,695

23,451

Noncurrent assets:
 
 
Property, plant, and equipment
 
 
In service
1,237,035

1,231,822

Less accumulated provision for depreciation
(63,994
)
(28,858
)
Plant in service, net of depreciation
1,173,041

1,202,964

PPA intangible, net of amortization of $16,614 and $4,204, respectively
231,603

244,013

Interconnection receivable
19,748

27,647

Total noncurrent assets
1,424,392

1,474,624

Total Assets
$
1,448,087

$
1,498,075

Liabilities and Members’ Equity
 
 
Liabilities:
 
 
Current liabilities:
 
 
Accounts payable
$
3,815

$
99

Accounts payable - affiliated
1,187

1,167

Contract retention
2,795

3,151

Other current liabilities
3,227

269

Total current liabilities
11,024

4,686

Noncurrent liabilities:
 
 
Asset retirement obligations
6,655

7,439

Other deferred credits and liabilities
3,485

2,347

Total noncurrent liabilities
10,140

9,786

Total Liabilities
21,164

14,472

Members’ equity:
 
 
Capital
1,353,643

1,452,877

Retained earnings
73,280

30,726

Total Members’ Equity
1,426,923

1,483,603

Total Liabilities and Members’ Equity
$
1,448,087

$
1,498,075

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
Desert Stateline Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Revenues
$
88,895

$
67,426

Operating Expenses:
 
 
Operations and maintenance
8,822

6,470

Depreciation
35,410

28,579

Taxes other than income taxes
767

360

Total operating expenses
44,999

35,409

Operating Income
43,896

32,017

Interest income
2,038

448

Other expense
(3,380
)
(959
)
Net Income
$
42,554

$
31,506


The accompanying notes are an integral part of these consolidated financial statements.


2

CONSOLIDATED STATEMENTS OF CHANGES OF MEMBERS' EQUITY
Desert Stateline Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Total Members' Equity, beginning of period
$
1,483,603

$
844,814

Capital contributions
385

665,744

Capital distributions
(99,619
)
(58,461
)
Net income
42,554

31,506

Total Members' Equity, end of period
$
1,426,923

$
1,483,603


The accompanying notes are an integral part of these consolidated financial statements.


3

CONSOLIDATED STATEMENTS OF CASH FLOWS
Desert Stateline Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2017
Year Ended
December 31, 2016
 
(in thousands)
Operating Activities:
 
 
Net income
$
42,554

$
31,506

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
Depreciation
35,410

28,579

Amortization of PPA intangible
12,410

4,204

Other, net
1,139

1,996

Changes in certain current assets and liabilities —
 
 
-Receivables
(2,177
)
(3,320
)
-Accrued interest income
(2,038
)
(448
)
-Prepaid expenses 
2100

(2,463
)
-Accounts payable 
67

(1,083
)
-Other current liabilities 
459

1,125

Net cash provided from operating activities
89,924

60,096

Investing Activities:
 
 
Property additions
(102
)
(522,432
)
Construction receivables/payables, net
(356
)
(140,603
)
Interconnection refund
9,766

4,570

Net cash provided from (used for) investing activities
9,308

(658,465
)
Financing Activities:
 
 
Proceeds from capital contributions
385

665,744

Capital distributions
(99,619
)
(58,461
)
Net cash (used for) provided from financing activities
(99,234
)
607,283

Net Change in Cash
(2
)
8,914

Cash at Beginning of Period
8,914


Cash at End of Period
$
8,912

$
8,914

Supplemental Cash Flow Information:
 
 
Noncash transactions —
 
 
Accrued property additions
$
6,169

$
3,151


The accompanying notes are an integral part of these consolidated financial statements.


4

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Desert Stateline Holdings, LLC and Subsidiary


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Desert Stateline Holdings, LLC (Desert Stateline Holdings) is a holding company that was formed on August 12, 2015 and owns 100% of the membership interests of Desert Stateline, LLC (Desert Stateline, and collectively with Desert Stateline Holdings, the Company). Desert Stateline was formed on May 18, 2009 for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility with a capacity of approximately 300 megawatts (MW) located in San Bernardino County, California.

The Company is a partnership with Class A membership interests owned by a wholly-owned subsidiary of Southern Power Company (SPC or Class A Member), and Class B membership interests owned by a wholly-owned subsidiary of 8point3 Operating Company, LLC (Class B Member).

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements requires the use of estimates, and actual results may differ.

Recently Issued Accounting Standards

In 2014, the FASB issued ASC 606, Revenue from Contracts with Customers (ASC 606), replacing the existing accounting standard and industry specific guidance for revenue recognition with a five-step model for recognizing and measuring revenue from contracts with customers. The underlying principle of the standard is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. The new standard also requires enhanced disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows arising from contracts with customers.

The Company has completed the evaluation of all revenue streams, which are derived from the purchase power agreement (PPA), and determined the adoption of ASC 606 will not change the current timing or amounts of revenue recognized in the Company's financial statements. The PPA is excluded from the scope of ASC 606 and included in the scope of the current leasing guidance (ASC 840).

The new standard is effective for periods beginning after December 15, 2018 for non-public companies and early adoption is permitted. The Company intends to use the modified retrospective method of adoption effective January 1, 2018. The Company has also elected to utilize practical expedients which allow it to apply the standard to open contracts at the date of adoption and to reflect the aggregate effect of all modifications when identifying performance obligations and allocating the transaction price for contracts modified before the effective date. The adoption of ASC 606 will not result in a cumulative adjustment as of the adoption date.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires lessees to recognize on the balance sheet a lease liability and a right-of-use asset for all leases. ASU 2016-02 also changes the recognition, measurement, and presentation of expense associated with leases and provides clarification regarding the identification of certain components of contracts that would represent a lease. The accounting required by lessors is relatively unchanged. ASU 2016-02 is effective for fiscal years beginning after December 15, 2019 for non-public companies and early adoption is permitted. The Company will adopt the new standard effective January 1, 2019.

The Company has completed a detailed inventory and analysis of its leases, which comprise the PPA and land leases for its renewable generation facilities. While the Company has not yet determined the ultimate impact, adoption of ASU 2016-02 is expected to have a significant impact on the Company's balance sheet for lessee arrangements. See Note 4 for details of the Company’s undiscounted lease commitment.


5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Desert Stateline Holdings, LLC and Subsidiary


Concentration of Credit Risk

The entire output of the solar facility is contracted under a 20-year PPA with Southern California Edison Company resulting in a significant concentration of credit risk as it relates to the customer accounts receivable. However, the Company does not believe significant credit risk exists at December 31, 2017 due to the creditworthiness of the counterparty. There are no past due amounts from the counterparty at December 31, 2017.

Cash

The Company considers unrestricted cash on hand and deposits in banks to be cash.

Income Taxes

The Company and its subsidiary are limited liability companies treated as a partnership and a single-member disregarded entity, respectively, for income tax purposes. Therefore, federal and state income taxes are not recognized in these consolidated financial statements.

Property, Plant, and Equipment

Property, plant, and equipment (PP&E) is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis.

Asset Retirement Obligations

The Company’s asset retirement obligations (ARO) relate to the leased land where the solar facility is located. Upon termination of the lease, the land is required to be restored to an agreed-upon condition. The Company’s AROs are based on future estimated costs associated with the dismantlement, demolition, and removal of the solar facility and could differ significantly when they are incurred.

AROs are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and estimable, and are then accreted to their future value. Costs are capitalized as part of the related long-lived asset and depreciated over 35 years. During 2017, future estimated costs were adjusted and are reflected as a cash flow revision in the table below. Details of the AROs included in the consolidated balance sheet are as follows:
 
December 31,
(in thousands)
2017
2016
Balance, at beginning of period
$
7,439

$
870

Liability incurred

6,430

Accretion expense
274

139

Cash flow revision
(1,058
)

Balance, at end of period
$
6,655

$
7,439


Long-Lived Assets and Intangibles

The Company’s long-lived assets include PP&E and the PPA intangible. The Company evaluates impairment of these long-lived assets when events or changes in circumstances indicate that the carrying values may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows compared to carrying value. If the estimated undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined and an impairment loss is recorded. During the years ended December 31, 2017 and 2016, there were no impairment charges recorded.


6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Desert Stateline Holdings, LLC and Subsidiary


For the years ended December 31, 2017 and 2016, amortization expense for the acquired PPA was approximately $12.4 million and $4.2 million, respectively, and is recorded in operating revenues in the consolidated statements of income. Amortization expense for future periods is as follows:
(in thousands)
Amortization
Expense
2018
$
12,410

2019
12,410

2020
12,410

2021
12,410

2022
12,410

Thereafter
169,553

Total
$
231,603


Interconnection Receivable

In conjunction with the construction of the solar facility, the Company has a receivable related to transmission interconnection costs that represents network upgrades that is being reimbursed to the Company through levelized payments over a five-year period. At December 31, 2017 and 2016, $7.9 million and $7.7 million, respectively, is recorded in other receivables within current assets and $19.7 million and $27.6 million, respectively, is recorded in noncurrent assets in the consolidated balance sheets.

Revenues

The Company is a lessor under the terms of a PPA for the sale of electricity and green attributes. The PPA has been evaluated and classified as an operating lease. Under this agreement, revenues are accounted for as contingent revenues and, therefore, the Company recognizes revenues based upon rates specified in the PPA when electricity is delivered. The Company commenced the recognition of revenue upon commercial operation of each phase of the facility at various dates from December 2015 through July 2016.

Reclassification

Certain amounts reported in prior years have been reclassified to conform to the presentation at December 31, 2017. Total members’ equity, net income, and total cash flows are unchanged due to these reclassifications.

2. MEMBERS’ CAPITAL

Desert Stateline Holdings operates under the amended Limited Liability Company Agreement dated August 31, 2015.

The Class A Member owns 100% of the Class A membership interests of Desert Stateline Holdings and, after acquiring a 15% additional membership interest from the Class B Member on March 29, 2016, is entitled to 66% of all cash distributions from Desert Stateline Holdings. In addition, the Class A Member is entitled to substantially all of the federal tax benefits with respect to the solar facility. The Class B Member owns 100% of the Class B membership interests of Desert Stateline Holdings and is entitled to 34% of all cash distributions from Desert Stateline Holdings.

3. RELATED-PARTY TRANSACTIONS

The Company has entered into an operations and maintenance agreement with First Solar Electric (California), Inc., a wholly-owned subsidiary of First Solar, that expires in 2025 to provide operations and maintenance services. First Solar, Inc. owns a noncontrolling 28.0% limited liability company interest in the Class B Member. Expenses recorded during the years ended December 31, 2017 and 2016 were $4.5 million and $3.4 million, respectively. At both December 31, 2017 and 2016, $1.1 million was included in accounts payable - affiliated in the consolidated balance sheets.

The Company has also entered into an ongoing management service agreement with Southern Power Company to provide management and general and administrative services. Expenses recorded during the years ended December 31, 2017 and 2016 were $0.5 million in both years. At December 31, 2017 and 2016, $43,000 and $44,000, respectively, was included in accounts payable - affiliated in the consolidated balance sheets.


7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Desert Stateline Holdings, LLC and Subsidiary


At December 31, 2017, SPC had $81.0 million of cash collateral, $27.7 million of parent guarantees, $4.0 million of surety bonds, and $1.9 million of letters of credit issued on behalf of the Company. Fees charged by SPC for these arrangements were $3.4 million and $1.0 million for the years ended December 31, 2017 and 2016, respectively.

4. COMMITMENTS AND CONTINGENCIES

Operating Lease

The Company is obligated under a 30-year, non-cancelable land lease for its solar facility which expires in 2044. The lease includes an annual base rent for the acreage of the land and a MW capacity fee based on MW capacity. The MW capacity fee is phased-in over a five-year period after commercial operation (at the rate of 20 percent for the first year, 40 percent for the second year, 60 percent for the third year, 80 percent for the fourth year, and 100 percent for the fifth and subsequent years of operations). The related rentals are recognized on a straight-line basis. Rent expense for the years ended December 31, 2017 and 2016 were $2.3 million and $2.1 million, respectively. The Company includes lease extensions that cover the useful life of the solar facility in its computation of minimum lease payments.

Details of the Company’s future minimum lease commitments at December 31, 2017 are as follows:
(in thousands)
Lease
Commitment
2018
$
2,320

2019
2,431

2020
2,464

2021
2,464

2022
2,464

Thereafter
68,956

Total
$
81,099


Legal Proceedings

Occasionally, the Company may be party to various lawsuits, claims, and other legal and regulatory proceedings that arise in the ordinary course of business. These actions may seek, among other things, compensation, civil penalties, or injunctive or declaratory relief. The Company does not have any legal proceedings that are pending.

Environmental Contingencies

The Company periodically reviews its compliance obligations related to environmental regulations, including site restoration and remediation. At December 31, 2017 and 2016, there were no known environmental contingencies that required the Company to recognize a liability.

5. SUBSEQUENT EVENTS

Subsequent events have been evaluated through February 15, 2018, the date these consolidated financial statements were available to be issued, and there were no events requiring recognition or disclosure.


8
Exhibit
Exhibit 99.5

Independent Auditors' Report


Members
SG2 Holdings, LLC


We have audited the accompanying financial statements of SG2 Holdings, LLC and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in members' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity 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 audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States.  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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SG2 Holdings, LLC and Subsidiary at December 31, 2016 and 2015, and the consolidated results of their income and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
 
/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 28, 2017





CONSOLIDATED BALANCE SHEETS
SG2 Holdings, LLC and Subsidiary

 
December 31, 2016
December 31, 2015
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
148

$
581

Receivables:
 
 
Customer accounts receivable
4,660

7,729

Affiliated companies
37


Other receivables
83

80

Prepaid expenses
3,770

2,862

Total current assets
8,698

11,252

Noncurrent assets:
 
 
Property, plant, and equipment:
 
 
In service
712,487

712,037

Less accumulated provision for depreciation
(44,830
)
(24,427
)
Plant in service, net of depreciation
667,657

687,610

Prepaid transmission services
15,713

16,995

Total noncurrent assets
683,370

704,605

Total Assets
$
692,068

$
715,857

Liabilities and Members' Equity
 
 
Liabilities:
 
 
Current Liabilities:
 
 
Accounts payable
$
618

$
611

Accounts payable - affiliated
26

175

Accrued taxes

655

Long-Term service agreement accrual
744

726

Total current liabilities
1,388

2,167

Noncurrent liabilities:
 
 
Asset retirement obligations
6,172

5,896

Other deferred credits and liabilities
707

377

Total noncurrent liabilities
6,879

6,273

Members’ equity:
 
 
Capital
659,731

698,465

Retained earnings
24,070

8,952

Total members’ equity
683,801

707,417

Total Liabilities and Members’ Equity
$
692,068

$
715,857

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
SG2 Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2016
Year Ended
December 31, 2015
 
(in thousands)
Operating Revenues
$
42,988

$
41,951

Operating Expenses:
 
 
Operations and maintenance
7,809

8,260

Depreciation
20,680

22,465

Taxes other than income taxes
(372
)
884

Total operating expenses
28,117

31,609

Operating Income
14,871

10,342

Interest income
604

634

Other expense
(357
)
(441
)
Net Income
$
15,118

$
10,535


The accompanying notes are an integral part of these consolidated financial statements.




CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
SG2 Holdings, LLC and Subsidiary

 
Total Members' Equity
 
(in thousands)
Balance at December 31, 2014
$
719,769

Capital contributions
5,994

Capital distributions
(28,881
)
Net income
10,535

Balance at December 31, 2015
$
707,417

Capital distributions
(38,734
)
Net income
15,118

Balance at December 31, 2016
$
683,801


The accompanying notes are an integral part of these consolidated financial statements.




CONSOLIDATED STATEMENTS OF CASH FLOWS
SG2 Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2016
Year Ended
December 31, 2015
 
(in thousands)
Operating Activities:
 
 
Net income
$
15,118

$
10,535

Adjustments to reconcile net income to net cash provided from operating activities —
 
 
Depreciation
20,680

22,465

Other, net
689

585

Changes in certain current assets and liabilities —
 
 
Receivables
3,031

(5,024
)
Other current assets
11

(361
)
Accounts payable 
(142
)
(1,312
)
Taxes accrued
(655
)
603

Other current liabilities
19

192

Net cash provided from operating activities
38,751

27,683

Investing Activities:
 
 
Property additions
(450
)
(24
)
Construction receivables/payables, net

(4,715
)
Net cash used for investing activities
(450
)
(4,739
)
Financing Activities:
 
 
Proceeds from capital contributions

5,994

Distributions to members
(38,734
)
(28,881
)
Net cash used for financing activities
(38,734
)
(22,887
)
Net Change in Cash and Cash Equivalents
(433
)
57

Cash and Cash Equivalents at Beginning of Period
581

524

Cash and Cash Equivalents at End of Period
$
148

$
581


The accompanying notes are an integral part of these consolidated financial statements.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SG2 Holdings, LLC (SG2 Holdings) is a holding company that was formed on September 5, 2014 and on October 22, 2014 acquired 100% of the membership interests of SG2 Imperial Valley, LLC (Imperial Valley, and collectively, the Company). Imperial Valley was formed on December 13, 2011 for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility with a capacity of approximately 150 megawatts (MW) located in Imperial County, California, which began commercial operation on November 26, 2014.

The Company is a partnership with Class A membership interests owned by Southern Renewable Partnerships, LLC (SRP), a wholly-owned subsidiary of Southern Power Company, and Class B membership interests owned by FSAM SG2 Holdings, LLC, a wholly-owned subsidiary of 8point3 Operating Company LLC as of December 31, 2016.

Basis of Presentation

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements requires the use of estimates, and the actual results may differ from those estimates.

Concentration of Credit Risk

The entire output of the plant is contracted under a 25-year power purchase agreement (PPA) with San Diego Gas and Electric Company, a subsidiary of Sempra Energy, in the state of California. In addition the PPA requires that a portion of the revenues are collected directly from the California Independent System Operator. The Company has a significant concentration of credit risk related to its accounts receivable arising from the PPA, however, the Company does not believe significant credit risk exists at December 31, 2016, because of the creditworthiness of the counterparties.

Cash and Cash Equivalents

The Company considers unrestricted cash on hand and deposits in banks to be cash and cash equivalents; such balances approximated fair value at December 31, 2016.

Income Taxes

The Company and its subsidiary are limited liability companies treated as a partnership and a single-member disregarded entity, respectively, for income tax purposes. As such, federal and state income taxes are generally not recognized at the entity level but instead, income is taxed at the owner-member level. Accordingly, the partnership does not have liabilities for federal or state taxes and, therefore, no current income taxes or deferred income taxes are reflected in the consolidated financial statements.

Property, Plant and Equipment

Property, plant, and equipment (PP&E) is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis. The Company’s significant estimates include the carrying amount and the estimated useful lives of its long-lived assets.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

Asset Retirement Obligations

Asset retirement obligations are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and accreted to their future value. The costs are capitalized as part of the related long-lived asset and depreciated over 35 years.

The Company’s asset retirement obligations relate to leased land upon which the solar facility was constructed. Upon termination of the lease, the leased land must be restored to an agreed-upon condition. See Note 3 for further information.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If the estimate of undiscounted future cash flows is less than the carrying value of the asset, the fair value of the asset is determined and a loss is recorded. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change. As of December 31, 2016, no impairment has been recorded.

Prepaid Transmission Services

In conjunction with the acquisition of Imperial Valley, the Company acquired a long-term prepaid for transmission services that represents network and transmission upgrades that will be reimbursed to the Company through reductions to transmission invoices from the Imperial Irrigation District over approximately 19 years. The prepaid was recorded at fair value at the acquisition date. Transmission costs are expensed and the prepaid is reduced as transmission services are rendered. The current portion of the prepaid transmission services, included in prepaid expenses was $3.2 million and $2.3 million at December 31, 2016 and 2015, respectively.

Revenues

The Company is a lessor under the terms of a 25-year PPA for the sale of electricity and green attributes. The PPA has been evaluated and classified as an operating lease. Under this agreement, the revenues are accounted for as contingent rents and thus the Company recognizes revenue based upon rates specified in the PPA when the electricity is delivered. The Company commenced the recognition of revenue in the consolidated statement of income upon commercial operation of the facility on November 26, 2014.

2. MEMBERS’ EQUITY

SG2 Holdings operates under the amended Limited Liability Company Agreement dated November 26, 2014.

For the year ended December 31, 2015, the Company received equity contributions of $6.0 million. The Class A Member contributed $4.2 million and the Class B Member contributed $1.8 million during 2015. The Company did not receive any equity contributions during the year ended December 31, 2016.

The Class A Member owns 100% of the Class A membership interests of SG2 Holdings and is entitled to 51% of all cash distributions from SG2 Holdings. The Class B Member owns 100% of the Class B membership interests of SG2 Holdings and is entitled to 49% of all cash distributions from SG2 Holdings. In addition, the Class A Member is entitled to substantially all of the federal tax benefits with respect to the solar facility.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

3. ASSET RETIREMENT OBLIGATIONS

The Company has recorded the following asset retirement obligation:
 
2016
2015
                                                                  
(in thousands)
Beginning of period
$
5,896

$
4,475

Liability incurred

1,154

Accretion expense
276

267

End of period
$
6,172

$
5,896


The estimated liability is based on the future estimated costs associated with the dismantlement, demolition and removal of the solar power plant. The estimate of the asset retirement obligation is based on projected future retirement costs and requires management to exercise significant judgment. Such costs could differ significantly when they are incurred.

4. RELATED-PARTY TRANSACTIONS

Parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

The Company has an operations and maintenance agreement with First Solar Electric (California), Inc., a wholly-owned subsidiary of First Solar, to provide operations and maintenance services and has a management service agreement with a related party, Southern Power Company, to provide management and general and administrative services. During 2016 and 2015 the Company recorded costs of approximately $3.0 million for operations and maintenance service expenses incurred from First Solar Electric (California), Inc. and approximately $0.3 million and $0.2 million, respectively, of management and general and administrative service expenses incurred from Southern Power Company. As of December 31, 2016 and 2015, balances related to these arrangements of $26,000 and $175,000, respectively were included in accounts payable - affiliated in the accompanying balance sheet.

5. COMMITMENTS AND CONTINGENCIES

Operating Lease

The Company is obligated under a 30-year non-cancelable operating lease related to land for its solar facility, which contains a 10-year renewal option and inflation-adjusted rent escalation clauses. The related rentals are charged to expense on a straight-line basis. Rent expense for the years ended December 31, 2016 and 2015 under the land lease was approximately $1.6 million. The Company includes lease extensions in its computation of minimum lease payments, which are recognized on a straight-line basis over the minimum lease term.

Below is a summary of the Company’s future minimum lease commitments as of December 31, 2016:
 
2017
2018
2019
2020
2021
Thereafter
Total
 
(in thousands)
Land leases
$
1,270

$
1,282

$
1,295

$
1,308

$
1,321

$
52,452

$
58,928


Legal Proceedings

The Company does not have any legal proceedings that are currently pending. Occasionally, the Company may be party to various lawsuits, claims and other legal and regulatory proceedings that arise in the ordinary course of business. These actions may seek, among other things, compensation, civil penalties, or injunctive or declaratory relief.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SG2 Holdings, LLC and Subsidiary

Environmental Contingencies

The Company reviews its obligations as they relate to compliance with environmental laws, including site restoration and remediation. As of December 31, 2016 and December 31, 2015, there were no known environmental contingencies that required the Company to recognize a liability.

6. SUBSEQUENT EVENTS

Subsequent events have been evaluated through February 28, 2017, the date these financial statements were available to be issued.



Exhibit
Exhibit 99.6

Report of Independent Auditors


Members
NS Solar Holdings, LLC


We have audited the accompanying financial statements of NS Solar Holdings, LLC and Subsidiary, which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of income, changes in members' equity, and cash flows for the year ended December 31, 2016 and for the period from April 30, 2015 (Date of Acquisition) to December 31, 2015, and the related notes to the consolidated financial statements.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in conformity 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 audits.  We conducted our audits in accordance with auditing standards generally accepted in the United States.  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 audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of NS Solar Holdings, LLC and Subsidiary at December 31, 2016 and 2015, and the consolidated results of their income and their cash flows for the year ended December 31, 2016 and for the period from April 30, 2015 (Date of Acquisition) to December 31, 2015 in conformity with U.S. generally accepted accounting principles.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, in connection with the acquisition of NS Solar Holdings, LLC by Southern Renewable Partnerships, LLC, a new basis of accounting was established as of April 30, 2015.  Our opinion is not modified with respect to this matter.

/s/ Frazier & Deeter, LLC
Atlanta, Georgia
February 28, 2017




CONSOLIDATED BALANCE SHEETS
NS Solar Holdings, LLC and Subsidiary

 
December 31, 2016
December 31, 2015
 
(in thousands)
Assets
 
 
Current assets:
 
 
Cash and cash equivalents
$
171

$
198

Receivables:
 
 
Customer accounts receivable
637

586

Affiliated

53

Other receivables
5,155

6,873

Prepaid expenses
237

289

Total current assets
6,200

7,999

Noncurrent assets:
 
 
Property, plant, and equipment:
 
 
In service
268,261

268,012

Less accumulated provision for depreciation
(12,136
)
(4,458
)
Plant in service, net of depreciation
256,125

263,554

PPA intangible, net of amortization of $1,875 and $650, respectively
22,632

23,857

Interconnection receivable
10,233

14,396

Total noncurrent assets
288,990

301,807

Total Assets
$
295,190

$
309,806

Liabilities and Members' Equity
 
 
Liabilities:
 
 
Current liabilities:
 
 
Accounts payable
$
66

$
118

Accounts payable - affiliated
46

61

Accrued taxes
250

90

Other current liabilities
281

274

Total current liabilities
643

543

Noncurrent liabilities:
 
 
Asset retirement obligation
1,917

1,821

Other deferred credits and liabilities
709

359

Total noncurrent liabilities
2,626

2,180

Members’ equity:
 
 
Capital
280,582

302,715

Retained earnings
11,339

4,368

Total members’ equity
291,921

307,083

Total Liabilities and Members’ Equity
$
295,190

$
309,806

Commitments and Contingent Matters (See notes)
 
 

The accompanying notes are an integral part of these consolidated financial statements.


1

CONSOLIDATED STATEMENTS OF INCOME
NS Solar Holdings, LLC and Subsidiary

 
Year ended
December 31, 2016
Period from April 30, 2015 (Date of Acquisition) to December 31, 2015
 
(in thousands)
Operating Revenues
$
17,176

$
10,762

Operating Expenses:
 
 
Operations and maintenance
2,838

1,852

Depreciation
7,774

4,504

Taxes other than income taxes
314

213

Total operating expenses
10,926

6,569

Operating Income
6,250

4,193

Interest income
1,191

456

Other expense
(470
)
(281
)
Net Income
$
6,971

$
4,368


The accompanying notes are an integral part of these consolidated financial statements.




CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
NS Solar Holdings, LLC and Subsidiary

 
Total Members’ Equity
 
(in thousands)
Balance at April 30, 2015
$

Capital contributions
307,220

Capital distributions
(4,505
)
Net income
4,368

Balance at December 31, 2015
$
307,083

Capital contributions
759

Capital distributions
(22,892
)
Net income
6,971

Balance at December 31, 2016
$
291,921


The accompanying notes are an integral part of these consolidated financial statements.




CONSOLIDATED STATEMENTS OF CASH FLOWS
NS Solar Holdings, LLC and Subsidiary

 
Year Ended
December 31, 2016
Period from April 30, 2015 (Date of Acquisition) to December 31, 2015
 
(in thousands)
Operating Activities:
 
 

Net income
$
6,971

$
4,368

Adjustments to reconcile net income to net cash provided from operating activities-
 
 
Depreciation
7,774

4,504

Amortization of PPA intangible
1,225

650

Other, net
349

362

Changes in certain current assets and liabilities -
 

 

Receivables
7,074

(640
)
Accrued interest income
(1,191
)
(456
)
Prepaid expenses
52

(289
)
Accounts payable 
(67
)
178

Accrued taxes
160

90

Other current liabilities
8

274

Net cash provided from operating activities
22,355

9,041

Investing Activities:
 

 

Property additions
(249
)
(237,344
)
Net cash used for investing activities
(249
)
(237,344
)
Financing Activities:
 

 

Proceeds from capital contributions
759

233,006

Capital distributions
(22,892
)
(4,505
)
Net cash (used for) provided from financing activities
(22,133
)
228,501

Net Change in Cash and Cash Equivalents
(27
)
198

Cash and Cash Equivalents at Beginning of Period
198


Cash and Cash Equivalents at End of Period
$
171

$
198


The accompanying notes are an integral part of these consolidated financial statements.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NS Solar Holdings, LLC (NS Holdings) is a holding company that was formed on April 9, 2015 and owns 100% of the membership interests of North Star Solar, LLC (North Star, and collectively with NS Holdings, the Company). North Star was formed on January 28, 2010 for the purpose of developing, constructing, owning and operating a utility-scale solar photovoltaic facility with a capacity of approximately 61 megawatts (MW) located in Fresno County, California, which began commercial operation (COD) on June 20, 2015.

The Company is a partnership with Class A membership interests owned by Southern Renewable Partnerships, LLC (SRP), a wholly-owned subsidiary of Southern Power Company, and Class B membership interests owned by FSAM NS Holdings, LLC (FSAM), a wholly-owned subsidiary of 8point3 Operating Company LLC as of December 31, 2016.

Change in Control

On April 30, 2015, (the Date of Acquisition) SRP acquired 100% of the Class A membership interests of NS Holdings and FSAM acquired 100% of the Class B membership interests of NS Holdings, both from First Solar Development, Inc., a wholly-owned subsidiary of First Solar Inc. (First Solar), and became contingently obligated to pay $233 million of construction payables through COD, for an aggregate purchase price of approximately $307 million. The fair values of the initial assets and liabilities acquired have been finalized and were recorded as approximately $266 million of property, plant, and equipment (PP&E), $25 million as an intangible asset, $21 million as a receivable related to transmission interconnection costs and $238 million as construction payables.

The acquisition of NS Holdings resulted in a change in control, where the Company’s assets and liabilities were accordingly adjusted by an aggregate amount of $74 million in fair value on April 30, 2015 by applying the principals of “push-down” accounting through equity, and are thus recorded as non cash transactions.

Basis of Presentation    

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts and results of operations of the Company and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements requires the use of estimates, and the actual results may differ from those estimates.

Concentration of Credit Risk

The entire output of the solar facility is contracted under a 20-year power purchase agreement (PPA) with Pacific Gas and Electric Company in the state of California. The Company has a significant concentration of credit risk related to its accounts receivable arising from the PPA, however, the Company does not believe significant credit risk exists at December 31, 2016, because of the creditworthiness of the counterparty. There are no past due amounts from the counterparty at December 31, 2016.

Cash and Cash Equivalents

The Company considers unrestricted cash on hand and deposits in banks to be cash and cash equivalents; such balances approximated fair value at December 31, 2016.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NS Solar Holdings, LLC and Subsidiary

Income Taxes

The Company and its subsidiary are limited liability companies treated as a partnership and a single-member disregarded entity, respectively, for income tax purposes. As such, federal and state income taxes are generally not recognized at the entity level but instead, income is taxed at the owner-member level. Accordingly, the partnership does not have liabilities for federal or state taxes and, therefore, no current income taxes or deferred income taxes are reflected in the consolidated financial statements.

Property, Plant and Equipment

Property, plant and equipment is stated at original cost, less accumulated depreciation. Capital additions and betterments that increase the useful lives of the assets are capitalized. Solar facility equipment and related assets are depreciated over their estimated useful lives of up to 35 years on a straight-line basis. The Company’s significant estimates include the carrying amount and the estimated useful lives of its long-lived assets.

Asset Retirement Obligations

Asset retirement obligations are computed as the present value of the ultimate costs for an asset’s future retirement and are recorded in the period in which the liability is incurred and accreted to their future value. The costs are capitalized as part of the related long-lived asset and depreciated over 35 years.

The Company’s asset retirement obligations relate to leased land upon which the solar facility was constructed. Upon termination of the lease, the leased land must be restored to an agreed-upon condition. See Note 3 for further information.

Impairment of Long-Lived Assets and Intangibles

The Company evaluates long-lived assets and finite-lived intangibles for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company's intangible asset is an acquired PPA that is amortized over the 20-year term of the PPA. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If the estimate of undiscounted future cash flows is less than the carrying value of the asset, the fair value of the asset is determined and a loss is recorded. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change. As of December 31, 2016, no impairment has been recorded.

The amortization expense for the acquired PPA is recorded in operating revenues. The amortization expense for future periods is as follows:
(in thousands)
Amortization
Expense
2017