1015-00001 · Graymont Brothers Inc · Diligence/Tax

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT

MEMORANDUM

April 25, 2022

FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP

TO: Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP

CC: Theodore Langston, Billing Partner; Brendan Walsh, Lead Associate; Natasha Forbes, Working Associate

RE: Due Diligence Memorandum — Tax Structure and Tax-Equity Arrangements of Calloway-Briggs Renewables Inc. (C&H Matter No. 1015-00001)

Purpose. This memorandum summarizes the findings from the tax due diligence conducted in connection with the proposed initial public offering of approximately $600,000,000 of common stock of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") on the New York Stock Exchange. It analyzes CBR's current C-corporation tax structure, evaluates alternative IPO structures (Up-C and Down-C), reviews the tax-equity partnership-flip arrangements (particularly the Solaris West partnership with Veltara Basin Financial LLC), assesses ITC and PTC eligibility across the project portfolio, examines the HLBV accounting methodology, and identifies ITC recapture risks in connection with the IPO. This memorandum was prepared in coordination with Kessler McBride & Associates LLP (Alan Kessler and Linda McBride), CBR's external tax advisor, and with reference to materials provided by CBR's finance team (Priya Anand, SVP, Finance & Treasurer, and Marcus Yoon, CFO) and audited financial statements prepared by Ashford & Pemberton LLP (Gregory Sondheim, Lead Engagement Partner).

The scope of this memorandum encompasses federal income tax matters, structural alternatives, and the tax-equity analysis. Certain related workstreams — including the Section 409A Valuation Review (Document 105), the draft tax opinion for inclusion as an exhibit to the Registration Statement on Form S-1 (Document 106), and the State and Local Tax Nexus Memorandum (Document 107) — are being addressed in separate memoranda and are cross-referenced herein as appropriate.

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I. Executive Summary

CBR is organized as a Delaware C-corporation (EIN: 83-4027615), incorporated on September 15, 2014, by Garrett Calloway and Elaine Briggs. The Company's principal executive offices are located at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746. CBR is a utility-scale renewable energy company that develops, owns, and operates a portfolio of solar photovoltaic, onshore wind, and battery energy storage projects across the southwestern United States, with a total operational and under-construction capacity of approximately 3,080 MW and a development pipeline of approximately 6.2 GW.

Corporate Structure. The corporate structure flows as follows: CBR (parent, Delaware C-corp) holds 100% of the membership interests in CBR Holdings LLC (Delaware LLC), which in turn holds 100% of the membership interests in Calloway-Briggs Operating Company LLC ("CB Operating," Texas LLC). CB Operating, the primary operating entity, in turn holds 100% of the membership interests in each of the individual project-level special purpose vehicles ("SPVs"), with the exception of the Solaris West tax-equity partnership structure discussed in detail in Section IV below.

Pre-IPO Capitalization. Pre-IPO ownership is approximately as follows: Pinnacle Vista Capital Partners III, LP and its affiliated co-investment vehicles (collectively, "Pinnacle Vista") hold approximately 62% of the outstanding shares; co-founders Garrett Calloway and Elaine Briggs and members of management hold approximately 24%; and earlier-stage investors and employees participating in the Company's equity incentive plans hold approximately 14%. All outstanding equity consists of shares of common stock (100,000,000 shares outstanding on a fully diluted basis following the pre-IPO reclassification, par value $0.01 per share). There are no outstanding shares of preferred stock, and the Series A and Series B preferred stock previously outstanding were converted into common stock in connection with the pre-IPO reclassification effected on March 28, 2022.

IPO Structure Recommendation. Based on the analysis set forth in Section III below, we recommend that the Company proceed with its existing C-corporation structure for the IPO rather than converting to an Up-C or Down-C structure. This recommendation is grounded in several considerations, including: (a) the structural simplicity of proceeding with the existing C-corp; (b) Pinnacle Vista's exit timeline, as the Series III Fund is a 2016 vintage fund with a typical 7- to 10-year investment horizon; (c) the absence of a significant tax-basis step-up benefit that would justify the complexity and cost of an Up-C restructuring; and (d) the avoidance of tax receivable agreement ("TRA") complexity, which would add a contingent liability, create administrative burden, and introduce potential investor confusion for a first-time public company.

Key Tax Matters Requiring S-1 Disclosure. The following tax matters have been identified as requiring disclosure in the Registration Statement on Form S-1 (File No. 333-264891), either in the risk factors, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), business description, or tax consequences sections:

(a) the Solaris West tax-equity partnership-flip structure with Veltara Basin Financial LLC, including the terms of the partnership agreement and CBR's obligations thereunder;

(b) ITC and PTC eligibility across the Company's project portfolio, including the applicable rates, phase-down schedules, and the risk that legislative changes could affect the availability or value of such credits;

(c) the HLBV (Hypothetical-Liquidation-at-Book-Value) accounting methodology used to allocate income and loss in connection with the Solaris West partnership, including the sensitivity of such allocations to changes in key assumptions;

(d) ITC recapture risk analysis in connection with the IPO and potential post-IPO change-of-control scenarios, noting in particular that the five-year recapture period for the Solaris West project runs through Q3 2025 and for the Painted Rock Solar project through Q4 2025;

(e) Section 409A cheap-stock considerations, which are cross-referenced to the separate Section 409A Valuation Review Memorandum (Document 105) and may require disclosure in the executive compensation section of the S-1; and

(f) state and local tax nexus across Texas, New Mexico, Arizona, California, and Oklahoma, which is cross-referenced to the separate State and Local Tax Nexus Memorandum (Document 107).

The remainder of this memorandum addresses each of these matters in detail.

II. Corporate Structure and Tax Classification

A. Current Entity Structure

The following summarizes each entity in the CBR corporate structure, its jurisdiction of organization, its tax classification for federal income tax purposes, and its role within the organizational hierarchy. An entity organizational chart with tax-classification annotations is set forth in Appendix A.

Calloway-Briggs Renewables Inc. CBR is a corporation organized under the laws of the State of Delaware. It is classified as a C-corporation for federal income tax purposes and serves as the ultimate parent of the consolidated group. CBR files a consolidated federal income tax return as the common parent. Its Employer Identification Number is 83-4027615. CBR was incorporated on September 15, 2014, and its registered agent in Delaware is Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801.

CBR Holdings LLC. CBR Holdings LLC is a limited liability company organized under the laws of the State of Delaware. It is a single-member LLC, with CBR as its sole member. CBR Holdings LLC has not filed an entity classification election on Form 8832 and is therefore treated as a disregarded entity for federal income tax purposes pursuant to Treasury Regulation § 301.7701-3(b)(1)(ii). CBR Holdings LLC serves as an intermediate holding company and was formed primarily for liability-insulation and structural purposes.

Calloway-Briggs Operating Company LLC. CB Operating is a limited liability company organized under the laws of the State of Texas. It is a single-member LLC, with CBR Holdings LLC as its sole member. Like CBR Holdings, CB Operating has not filed an entity classification election and is treated as a disregarded entity for federal income tax purposes. CB Operating is the primary operating entity and holds direct ownership interests in each of the project-level SPVs described below. CB Operating employs the majority of the Company's workforce (approximately 340 employees as of December 31, 2021) and is the counterparty to the Company's material commercial contracts, including power purchase agreements ("PPAs"), engineering, procurement, and construction ("EPC") agreements, and operations and maintenance ("O&M") agreements.

Project-Level SPVs. Each project-level SPV is a limited liability company organized under the laws of the state indicated below and is 100% owned by CB Operating. With the critical exception of Solaris West Solar LLC (which has been restructured as a partnership to accommodate the tax-equity investment, as described in Section IV), each SPV is treated as a disregarded entity for federal income tax purposes. The project-level SPVs are as follows:

(i) Solaris West Solar LLC (Texas) — Solaris West project (450 MW utility-scale solar PV, Pecos County, Texas; commercial operation date ("COD") Q3 2020). This entity is treated as a partnership for federal income tax purposes following the admission of Veltara Basin Financial LLC as a member. See Section IV.

(ii) Red Mesa Wind Energy LLC (Oklahoma) — Red Mesa Wind project (380 MW onshore wind, Custer County, Oklahoma; COD Q1 2019).

(iii) Painted Rock Solar LLC (Arizona) — Painted Rock Solar project (320 MW solar PV, Maricopa County, Arizona; COD Q4 2020).

(iv) Pronghorn Wind LLC (Texas) — Pronghorn Wind project (510 MW onshore wind, Nolan County, Texas; COD Q2 2021).

(v) Brazos Energy Storage LLC (Texas) — Brazos Storage project (200 MW / 800 MWh battery energy storage system ("BESS"), Fort Bend County, Texas; COD Q4 2021).

(vi) Mesquite Wind Holdings LLC (Texas) — Mesquite Wind project (420 MW onshore wind, Oldham County, Texas; under construction, expected COD Q3 2022).

(vii) Cimarron Solar Development LLC (New Mexico) — Cimarron Solar project (350 MW solar PV, Doña Ana County, New Mexico; under construction, expected COD Q1 2023).

(viii) CBR Development Co. LLC (Texas) — Pipeline development entity responsible for the Company's approximately 6.2 GW development pipeline, including the Copper Basin Solar + Storage project (750 MW solar + 300 MW / 1,200 MWh BESS, Riverside County, California; expected COD Q2 2025) and additional early-stage projects across the southwestern United States.

As noted above, all LLCs below CBR are single-member LLCs treated as disregarded entities for federal tax purposes, with the sole exception of Solaris West Solar LLC, which is treated as a partnership following the admission of Veltara Basin Financial LLC as a tax-equity investor. The significance of this classification is addressed in detail in Section IV.

Texas Franchise Tax. It should be noted that the State of Texas does not impose a state corporate income tax; however, Texas imposes a franchise tax (commonly referred to as the "margin tax") on entities doing business in Texas. CB Operating and each of the Texas-organized SPVs (Solaris West Solar LLC, Pronghorn Wind LLC, Brazos Energy Storage LLC, Mesquite Wind Holdings LLC, and CBR Development Co. LLC) are subject to the Texas franchise tax. The franchise tax is computed based on the lesser of: (a) 70% of total revenue, (b) total revenue minus cost of goods sold, or (c) total revenue minus total compensation. The tax rate applicable to CBR's entities is 0.75% (the rate applicable to entities other than those primarily engaged in wholesale or retail trade, for which the rate is 0.375%). The impact of the Texas franchise tax on the Company's effective tax rate is addressed in the SALT Nexus Memorandum (Document 107).

State Tax Nexus. CBR has operations and established tax nexus in five states: Texas, New Mexico, Arizona, California, and Oklahoma. The California corporate income tax rate of 8.84% applies to the Painted Rock Solar LLC operations conducted in Arizona (with California income sourced based on sales-factor apportionment) and to future Copper Basin operations in Riverside County, California. The Oklahoma corporate income tax rate of 4.0% applies to the Red Mesa Wind Energy LLC operations in Custer County, Oklahoma. The New Mexico corporate income tax rate of 5.9% applies to the Cimarron Solar Development LLC operations in Doña Ana County, New Mexico. The Arizona corporate income tax rate of 4.9% applies to the Painted Rock Solar LLC operations in Maricopa County, Arizona. A detailed analysis of state and local tax obligations, filing requirements, apportionment methodology, and exposure is set forth in the separate SALT Nexus Memorandum (Document 107).

B. Tax Consolidation and Filing

CBR files a consolidated federal income tax return as the common parent of a consolidated group within the meaning of Treasury Regulation § 1.1502-1(h). The consolidated group includes CBR and all of its domestic subsidiaries that are includible corporations within the meaning of Section 1504(b) of the Internal Revenue Code. Because the LLC subsidiaries below CBR are treated as disregarded entities for federal tax purposes, they are not separate "includible corporations" but rather are included in the consolidated return as divisions of CBR. The practical effect is that all items of income, deduction, gain, loss, and credit recognized by the disregarded-entity subsidiaries are reported on CBR's consolidated federal income tax return.

The Solaris West tax-equity partnership, in which Veltara Basin Financial LLC holds a membership interest alongside CB Operating, is treated as a partnership for federal income tax purposes. Solaris West Solar LLC files IRS Form 1065 (U.S. Return of Partnership Income) and issues Schedule K-1s to each partner. The CBR-side allocations of partnership income, loss, deductions, and credits flow through CB Operating (a disregarded entity) and are reported on CBR's consolidated federal income tax return. Veltara Basin Financial LLC, as the tax-equity investor, reports its allocable share of partnership items on its own federal and state income tax returns.

CBR's consolidated group also files state income, franchise, and other tax returns in each state in which it has nexus, as described above and in the SALT Nexus Memorandum. The Company's tax department, led by Priya Anand (SVP, Finance & Treasurer), manages the preparation and filing of all federal and state returns, with assistance from Kessler McBride & Associates LLP as outside tax advisors.

C. Historical Tax Positions

We have reviewed the federal and state income tax returns of CBR and its subsidiaries for fiscal years 2019, 2020, and 2021, as well as supporting workpapers and schedules prepared by Kessler McBride & Associates LLP and CBR's internal tax staff.

Significant items identified in the historical tax returns include the following:

Accelerated depreciation. CBR has claimed accelerated depreciation under the Modified Accelerated Cost Recovery System ("MACRS") on its renewable-energy assets. Solar property is generally classified as five-year MACRS property under Section 168(e)(3)(B)(vi), and wind energy property is similarly classified as five-year MACRS property. CBR has elected to claim 100% first-year bonus depreciation under Section 168(k) on eligible assets placed in service after September 27, 2017 (as permitted by the Tax Cuts and Jobs Act of 2017). The aggregate depreciation deductions claimed by the consolidated group were approximately $187.3 million in FY 2020 and approximately $261.8 million in FY 2021, reflecting the successive placed-in-service dates of the Painted Rock Solar, Pronghorn Wind, and Brazos Storage projects.

Investment Tax Credits. The ITC under Section 48 was claimed on the Solaris West and Painted Rock Solar projects. For Solaris West, the ITC was claimed by the tax-equity partnership (allocated to Veltara Basin Financial LLC). For Painted Rock Solar, the ITC was claimed directly by CBR's consolidated group. The aggregate ITC claimed by the consolidated group (excluding the Solaris West partnership) was approximately $83.2 million in FY 2020 (attributable to the Painted Rock Solar project).

Production Tax Credits. The PTC under Section 45 was claimed on the Red Mesa Wind and Pronghorn Wind projects. PTC is recognized on a per-kWh basis over a 10-year period from the COD. Aggregate PTC claimed by the consolidated group was approximately $28.6 million in FY 2019, approximately $29.1 million in FY 2020, and approximately $47.3 million in FY 2021 (reflecting the addition of the Pronghorn Wind project in Q2 2021).

Net operating losses. CBR generated a net operating loss of approximately $22.4 million in FY 2019. Under the Tax Cuts and Jobs Act of 2017, as amended by the CARES Act of 2020, NOLs arising in taxable years beginning after December 31, 2017, may be carried forward indefinitely but generally may not be carried back (with certain temporary exceptions under the CARES Act for taxable years beginning in 2018, 2019, and 2020). CBR did not elect to carry back its FY 2019 NOL under the CARES Act and instead carried it forward. The FY 2019 NOL was partially utilized in FY 2020 and FY 2021, with approximately $8.7 million remaining as of December 31, 2021. Additionally, the NOL deduction is limited to 80% of taxable income for taxable years beginning after December 31, 2020, which may limit utilization in future periods.

IRS and State Tax Audits. Based on representations from CBR management (Priya Anand, Marcus Yoon) and confirmations from Kessler McBride & Associates LLP, there are no open IRS audits or examinations of CBR or any of its subsidiaries. CBR has not received any notice of audit, notice of deficiency, or similar correspondence from the Internal Revenue Service or any state tax authority for any taxable year. The applicable statutes of limitations for the FY 2019 federal return (filed October 15, 2020, with an extension) will remain open until October 15, 2023, absent an extension or waiver.

Uncertain Tax Positions. We have reviewed the tax provision and related disclosures in the audited financial statements for FY 2019, FY 2020, and FY 2021, as prepared by Ashford & Pemberton LLP. No material uncertain tax positions have been identified under ASC 740-10 (formerly FIN 48). The Company's tax provision is clean, meaning there are no reserves for uncertain tax positions recorded in the financial statements. Ashford & Pemberton (Gregory Sondheim, Lead Engagement Partner; Irene Valdez, Senior Manager) confirmed this assessment in connection with their audit procedures and in their review of the tax provision for the Q1 2022 interim financial statements included in Amendment No. 2 to the Registration Statement.

III. Up-C vs. Down-C vs. C-Corp Structure Analysis

A. Overview of Alternative IPO Structures

In connection with any IPO of a company with significant pre-IPO equity holders, it is customary to evaluate whether the Company's existing organizational structure is optimal for the public markets or whether a restructuring into an alternative structure would yield meaningful tax and economic benefits to the pre-IPO holders and/or the public company. The three principal structural alternatives are summarized below.

C-Corporation (Current Structure). CBR is already organized as a C-corporation. Under the current structure, the IPO proceeds flow directly to CBR (for primary shares offered by the Company) and to the selling stockholder, Pinnacle Vista (for secondary shares). The structure is straightforward: all public stockholders hold shares of common stock in CBR, a single class of publicly traded equity. There is no tax receivable agreement, no exchangeable partnership units, and no dual-class equity structure related to the organizational form. Pre-IPO holders receive shares of a C-corporation and are taxed on dividends at the applicable rate when and if dividends are declared. There is no mechanism for a tax-basis step-up upon the exchange of pre-IPO interests for publicly traded shares, because the pre-IPO holders already own shares of the C-corporation.

Up-C Structure. An "Up-C" structure is commonly employed in IPOs where the pre-IPO business is conducted through a partnership or LLC taxed as a partnership. In a typical Up-C IPO, a newly formed corporation (the "PubCo") conducts an IPO and uses the proceeds to acquire a limited partnership or LLC interest in the operating entity. The pre-IPO holders retain their partnership or LLC interests, which are exchangeable over time for shares of PubCo on a one-for-one basis. The exchange of a partnership interest for PubCo shares triggers a Section 754 election and a corresponding step-up in the tax basis of the underlying partnership assets equal to the excess of the exchange price over the pre-IPO holder's existing tax basis. This basis step-up generates additional depreciation and amortization deductions for PubCo, reducing its future tax liability. The pre-IPO holders and PubCo typically enter into a tax receivable agreement ("TRA"), under which PubCo agrees to pay the pre-IPO holders a specified percentage (typically 85%) of the tax savings realized as a result of the basis step-up. The Up-C structure is most commonly used in private equity-backed IPOs where the operating entity has historically been a partnership and where significant built-in gain or embedded appreciation in the assets would produce a meaningful basis step-up upon exchange.

Down-C Structure. The "Down-C" structure is a less common variant in which the corporate entity is interposed below the partnership level rather than above it. In a Down-C, the corporation is a subsidiary of the operating partnership and conducts a portion of the business in corporate form while the remainder continues to be conducted through the partnership. This structure is used in certain circumstances where regulatory, contractual, or other considerations make it impractical to restructure the entire business into a corporation at the top level. The Down-C structure introduces additional complexity and is generally disfavored unless there is a compelling non-tax reason for its use.

B. Analysis and Recommendation

Recommendation. We recommend that CBR proceed with its existing C-corporation structure for the IPO. We do not recommend restructuring into an Up-C or Down-C structure.

Rationale. The basis for this recommendation is as follows:

1. Structural Simplicity. CBR is already organized as a C-corporation. The Company has been a C-corporation since its incorporation in 2014 and has operated in corporate form throughout its existence. Converting to an Up-C structure would require significant restructuring, including: (a) the formation of a new holding company; (b) the contribution of all of CBR's assets and liabilities to a newly formed operating partnership; (c) the execution of exchange agreements between the pre-IPO holders and the new holding company; (d) the negotiation and execution of a tax receivable agreement; (e) the adoption of a dual-class equity structure (common stock for public investors and exchangeable units plus a corresponding number of shares of a new class of voting-only stock for pre-IPO holders); and (f) the amendment of all material contracts, credit agreements, and governmental permits to reflect the new organizational structure. Given the IPO timeline — the Company's Registration Statement on Form S-1 was initially filed with the SEC on April 1, 2022, and SEC oral clearance was received on June 14, 2022, with target pricing anticipated within days of the effectiveness of the Registration Statement — any restructuring would introduce unacceptable complexity, delay, and transaction risk. The Company, the underwriters (led by Hargrove Keating & Co. as lead bookrunner), and all parties to the transaction have structured the offering around the existing C-corp architecture, and the Registration Statement and all ancillary documents reflect this structure.

2. Pinnacle Vista Exit Horizon. Pinnacle Vista Capital Partners III, LP is a 2016 vintage private equity fund (Series III Fund, with approximately $4.8 billion in aggregate committed capital). Pinnacle Vista's initial investment in CBR was approximately $385 million in 2017, with a follow-on investment of approximately $120 million in 2019, for an aggregate investment of approximately $505 million. Pinnacle Vista currently holds approximately 62% of CBR's outstanding shares (pre-IPO) and is selling approximately $150 million of secondary shares (6,818,182 shares at an assumed $22.00 per share offering price, the midpoint of the estimated price range) in the IPO. An Up-C structure is most economically beneficial where pre-IPO holders intend to retain their partnership interests for an extended period post-IPO, thereby deferring the exchange (and the associated basis step-up) over time and maximizing the present value of TRA payments. Given Pinnacle Vista's fund vintage and the typical 7- to 10-year investment horizon for a private equity fund of its type, Pinnacle Vista is likely to seek a complete or substantially complete exit from its CBR position within approximately 2 to 4 years following the IPO. Over such a compressed time horizon, the incremental benefit of the Up-C basis step-up mechanism would be limited, as the majority of exchanges would occur relatively quickly, concentrating the basis step-ups into a short period and reducing the present-value benefit.

3. Basis Step-Up Analysis. The economic case for an Up-C structure depends critically on the magnitude of the tax-basis step-up that would be generated upon the exchange of partnership units for PubCo shares. A significant step-up arises when there is a substantial difference between the "inside basis" of the partnership's assets (i.e., the tax basis of the assets as reflected on the partnership's books) and the "outside basis" of the pre-IPO holders' partnership interests (which, upon an exchange at the IPO price, would be stepped up to reflect the fair market value of the PubCo shares received). Because CBR was already a C-corporation when Pinnacle Vista invested, there is no "inside basis" versus "outside basis" Disconnect of the type that typically drives Up-C economics. The assets of the business have already been acquired at fair market value within the corporate structure; depreciation has been claimed on those assets using the tax basis established at the time of acquisition or construction; and there is no significant built-in gain or loss at the entity level that would generate a meaningful basis step-up through a Section 754 election. In short, the incremental depreciation and amortization deductions that would result from an Up-C restructuring are not sufficient to justify the complexity and cost of the restructuring.

4. TRA Avoidance. Tax receivable agreements add significant complexity to a public company's financial reporting and ongoing operations. A TRA creates a contingent liability on the balance sheet (recorded at fair value under GAAP), which fluctuates with changes in the expected timing and amount of future tax savings. This introduces volatility into reported earnings and complicates the already-complex HLBV accounting applicable to the Solaris West partnership (discussed in Section VI). In addition, a TRA imposes ongoing administrative burden, including the calculation and verification of TRA payments, the maintenance of detailed records of basis step-ups and their utilization, and the potential for disputes between the Company and the TRA holders regarding the computation of tax savings. For a first-time public company, these complexities can create investor confusion and potentially depress valuation multiples. Eliminating the TRA also simplifies the underwriting process: during the organizational meeting held March 14–18, 2022, representatives of Hargrove Keating & Co. (lead bookrunner) and the underwriters' counsel, Prescott, Danforth & Yee LLP, confirmed their strong preference for a clean C-corp structure and expressed concern that an Up-C would add complexity to the marketing narrative and potentially narrow the investor base.

5. Investor Preference. Based on our experience with renewable-energy IPOs and feedback from the underwriting syndicate, institutional investors in the renewables sector generally prefer straightforward C-corporation structures. A C-corp structure eliminates several common concerns, including: (a) the administrative burden of receiving Schedule K-1s (which arise in Up-C structures where investors hold partnership units); (b) unrelated business taxable income ("UBTI") concerns for tax-exempt investors such as pension funds, endowments, and foundations; (c) the complexity of tracking and valuing TRA obligations; and (d) the dual-class equity structure that is inherent in the Up-C format (where pre-IPO holders have both economic partnership units and voting-only shares, creating a divergence between economic ownership and voting power that some institutional investors view unfavorably).

6. Double Taxation Consideration. We acknowledge that the C-corporation structure results in double taxation — corporate-level tax on the Company's income plus shareholder-level tax on distributions and dividends — whereas a partnership structure (as in an Up-C) provides a single level of tax at the partner level. However, this consideration is significantly mitigated in CBR's case by several factors. First, CBR does not anticipate paying cash dividends to stockholders in the foreseeable future; the Company's reinvestment strategy and the dividend restrictions in its credit facility with Veltrano National Bank (Term Loan B and Revolving Credit Facility) prohibit or restrict dividend payments. Second, the significant depreciation deductions (100% first-year bonus depreciation under Section 168(k)) and tax credits (ITC and PTC) available to the consolidated group substantially reduce CBR's effective federal income tax rate in the near to medium term. Based on projections prepared by Kessler McBride & Associates LLP, CBR's effective federal income tax rate is expected to be approximately 3–5% for FY 2022 and FY 2023, rising to approximately 12–15% as accelerated depreciation deductions roll off and PTC eligibility periods expire for the earliest projects.

Coordination with Kessler McBride & Associates LLP. Alan Kessler and Linda McBride of Kessler McBride & Associates LLP have independently analyzed the relative economic benefits of the C-corp, Up-C, and Down-C structures for the CBR IPO. Their analysis confirms that the present-value benefit of an Up-C TRA, given Pinnacle Vista's expected hold period and the absence of significant basis step-up potential, would not justify the restructuring cost and complexity. Their quantitative analysis estimated the aggregate present-value benefit of TRA payments to Pinnacle Vista, under a range of assumptions regarding the timing of unit exchanges, at approximately $18–25 million — a figure that is modest relative to Pinnacle Vista's approximately $1.36 billion pre-IPO equity value (based on the midpoint offering price) and would be further reduced by the transaction costs, professional fees, and execution risk associated with the restructuring. Kessler McBride's analysis has been reviewed and is on file as a supporting workpaper (Document 112 — KMA Up-C vs. C-Corp Economic Analysis).

IV. Tax-Equity Partnership-Flip Structure — Solaris West

A. Structure Overview

Project. Solaris West is a 450 MW utility-scale solar photovoltaic project located in Pecos County, Texas. The project achieved commercial operation in Q3 2020 and consists of approximately 1.2 million solar panels across approximately 4,500 acres of leased ranchland. The project sells electricity under a 15-year power purchase agreement with Meridian Energy Partners, a Texas retail electric provider.

Project SPV. The Solaris West project is owned and operated by Solaris West Solar LLC, a Texas limited liability company. Prior to the admission of the tax-equity investor, Solaris West Solar LLC was a single-member LLC owned 100% by CB Operating and treated as a disregarded entity for federal tax purposes. In connection with the tax-equity investment, the operating agreement of Solaris West Solar LLC was amended and restated to admit Veltara Basin Financial LLC as a member, thereby converting the entity from a disregarded entity to a partnership for federal tax purposes.

Tax-Equity Investor. The tax-equity investor is Veltara Basin Financial LLC, a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. Veltara Basin Financial is a subsidiary of Veltara Basin Holdings, Inc., a diversified financial services company. The primary contact for the tax-equity investment is Karen Fujimoto, Partner, Tax Equity Investments. Veltara Basin is an experienced and active tax-equity investor in the renewable-energy sector, with a portfolio of approximately $4.2 billion in tax-equity commitments across solar, wind, and storage projects.

Investment Amount. Veltara Basin Financial invested $280,000,000 in Solaris West Solar LLC. The investment was funded in a single closing on July 15, 2020, following the achievement of certain construction milestones and satisfaction of conditions precedent set forth in the Amended and Restated Limited Liability Company Agreement.

Structure. The Solaris West tax-equity arrangement is structured as a "partnership flip," which is the predominant structure for tax-equity investments in the U.S. renewable-energy sector. Under this structure, the partnership allocates substantially all of the tax benefits associated with the project — including the Investment Tax Credit under Section 48 of the Internal Revenue Code and accelerated depreciation deductions under MACRS — to the tax-equity investor (Veltara Basin Financial) during the "pre-flip" period. The pre-flip period continues until the tax-equity investor achieves its target after-tax yield (typically expressed as an internal rate of return). Upon achievement of the target yield (the "flip date," which is expected to occur in 2028 based on current projections), the allocation percentages "flip," and the managing member (CB Operating, on behalf of CBR) receives the substantial majority of tax allocations and cash distributions going forward. Following the flip, CBR (through CB Operating) holds a call option to purchase Veltara Basin Financial's remaining interest in the partnership at fair market value (determined as of the flip date by an independent appraisal).

Pre-Flip Allocation. During the pre-flip period, the allocations are as follows:

• Tax allocations (income, loss, deductions, ITC): Approximately 99% to Veltara Basin Financial; approximately 1% to CBR (through CB Operating).

• Cash distributions: Cash distributions are subject to a negotiated waterfall. CBR (through CB Operating) receives a preferred return on its capital account balance, followed by distributions to Veltara Basin Financial sufficient to achieve its target yield, with remaining distributions split pursuant to the waterfall provisions of the partnership agreement.

Post-Flip Allocation (Expected 2028). Following the flip date, the allocations shift as follows:

• Tax allocations: Approximately 95% to CBR (through CB Operating); approximately 5% to Veltara Basin Financial.

• Cash distributions: Approximately 95% to CBR; approximately 5% to Veltara Basin Financial.

• Call option: CBR (through CB Operating) has the right, but not the obligation, to purchase Veltara Basin Financial's remaining 5% interest in the partnership at fair market value, as determined by an independent appraiser selected by the parties.

ITC Claimed. The Solaris West project claimed the 26% Investment Tax Credit, which is the rate applicable to solar energy property that began construction before January 1, 2020, and was placed in service within four calendar years after the year construction began (i.e., before January 1, 2024). The ITC was allocated to Veltara Basin Financial in accordance with Section 48 of the Code and the allocation provisions of the partnership agreement. The aggregate ITC associated with the Solaris West project was approximately $112 million (based on the eligible cost basis of the solar energy property).

B. Partnership Agreement Key Terms

The governing document for the Solaris West tax-equity partnership is the Amended and Restated Limited Liability Company Agreement of Solaris West Solar LLC, dated as of July 15, 2020 (the "Solaris West Partnership Agreement"), among Calloway-Briggs Operating Company LLC, as managing member, and Veltara Basin Financial LLC, as tax-equity member.

Managing Member. CB Operating serves as the managing member of Solaris West Solar LLC and is responsible for the day-to-day operations and maintenance of the Solaris West project. CB Operating has authority to make all ordinary-course decisions regarding the project, including entering into O&M contracts, managing the PPA relationship, conducting routine maintenance and repairs, and preparing and filing tax returns for the partnership.

Major Decisions Requiring Veltara Basin Consent. The following actions require the prior written consent of Veltara Basin Financial (the "Major Decision" provisions):

(a) any sale, transfer, lease, exchange, or other disposition of all or any material portion of the project assets;

(b) any encumbrance of the project assets (other than permitted liens);

(d) any modification, amendment, termination, or waiver of the power purchase agreement or interconnection agreement;

(e) any change of the managing member;

(f) any change of control of CBR or CB Operating (as defined below);

(g) the admission of any additional members to the partnership;

(h) any merger, consolidation, or dissolution of the partnership;

(i) the commencement of any bankruptcy or insolvency proceeding; and

(j) any amendment to the partnership agreement.

Change of Control Definition. The partnership agreement defines "Change of Control" to include any transaction or series of related transactions resulting in a person or group (other than Pinnacle Vista Capital Partners III, LP and its affiliates) acquiring more than 50% of the voting interests of CBR. This definition is significant in the context of the IPO because of the potential concern that the IPO could constitute a Change of Control. Based on our analysis, the IPO as currently structured would not constitute a Change of Control under the partnership agreement for the following reasons:

(a) No single acquirer will obtain more than 50% of the post-IPO voting power of CBR in connection with the IPO. The offering involves the issuance of new shares to public investors and the sale of secondary shares by Pinnacle Vista, with no single investor expected to acquire a controlling block.

(b) Pinnacle Vista will retain approximately 49% of the post-IPO voting power of CBR (in the base offering scenario, assuming no exercise of the underwriters' overallotment option) or approximately 47% (assuming full exercise of the overallotment option). Pinnacle Vista is expressly carved out of the Change of Control definition.

(c) The Company's Amended and Restated Stockholders' Agreement, to be entered into in connection with the IPO, preserves Pinnacle Vista's board designation rights on a step-down basis (3 of 9 directors at ≥40% ownership; 2 of 9 directors at ≥20% ownership; 1 of 9 directors at ≥10% ownership; no designation rights below 10%). These provisions further ensure that no third party acquires control of CBR's governance immediately following the IPO.

IPO Consent and Notice Requirements. Notwithstanding the foregoing analysis, the Solaris West Partnership Agreement requires that CB Operating provide written notice to Veltara Basin Financial of any IPO of CBR and provide a written confirmation from counsel (Calderwood & Harkness LLP) that the IPO does not constitute a "Recapture Event" (as discussed in Section IV.D below) or a "Change of Control" under the partnership agreement. We have prepared a draft consent request letter (Document 114 — Draft Consent Request Letter to Veltara Basin Financial LLC) and have transmitted it to Whitfield Archer & Doss LLP (counsel to Pinnacle Vista Capital Partners III, LP) for review and directly to Veltara Basin Financial (attention: Karen Fujimoto). As of the date of this memorandum, we are awaiting Veltara Basin's written confirmation. Receipt of this confirmation is a condition that must be satisfied prior to the pricing of the offering.

C. Rev. Proc. 2007-65 Safe Harbor Analysis

The Solaris West partnership-flip structure was designed to comply with the safe harbor set forth in Revenue Procedure 2007-65, 2007-2 C.B. 967. Rev. Proc. 2007-65 provides a safe harbor for partnership-flip arrangements involving wind energy facilities claiming the Production Tax Credit under Section 45. While Rev. Proc. 2007-65 by its express terms applies to wind PTC partnerships, the IRS has not issued comparable formal guidance specifically addressing solar ITC partnerships. However, it is well-established market practice — and the prevailing view among tax practitioners and tax-equity investors — that the principles of Rev. Proc. 2007-65 are applied by analogy to solar ITC partnership-flip structures. The IRS has not challenged the application of Rev. Proc. 2007-65 principles to solar ITC partnerships, and the large majority of tax-equity transactions in the solar sector are structured with reference to these principles.

The key requirements of the Rev. Proc. 2007-65 safe harbor, and the basis for our conclusion that the Solaris West structure satisfies each requirement, are as follows:

(a) Minimum unconditional investment. The tax-equity investor must make a minimum unconditional investment of at least 20% of its total investment at the time of closing. Veltara Basin Financial's entire $280 million investment was funded unconditionally at the single closing on July 15, 2020, which represents 100% of its total investment. This requirement is satisfied.

(b) Reasonably anticipated profit. The tax-equity investor must have a reasonably anticipated profit from the investment, taking into account both cash distributions and tax benefits (including the ITC and depreciation deductions). The financial model prepared by CBR's finance team and reviewed by Kessler McBride & Associates LLP demonstrates that Veltara Basin Financial has a reasonably anticipated pre-tax and after-tax profit from the investment under the base-case projections. This requirement is satisfied.

(c) No "put" or guaranteed return. The arrangement must not include a put option or other mechanism that would guarantee the tax-equity investor a return on or of its investment, which could cause the arrangement to be recharacterized as a loan rather than a partnership interest. The Solaris West Partnership Agreement does not contain any put option, guaranteed return, or similar feature. Veltara Basin Financial's return is dependent on the actual performance of the project (including electricity generation, PPA revenues, and the availability and value of tax benefits). This requirement is satisfied.

(d) Meaningful downside risk. The tax-equity investor must bear meaningful downside risk with respect to its investment. Veltara Basin Financial's return is subject to project-performance risk (e.g., lower-than-expected solar irradiance, equipment failure, curtailment), PPA counterparty credit risk, and regulatory and legislative risk (including the risk that the ITC could be challenged or reduced). Veltara Basin Financial does not have a guaranteed return of its capital contribution. This requirement is satisfied.

(e) Flip based on target yield. The flip must occur upon the tax-equity investor's achievement of a target yield (i.e., a specified after-tax internal rate of return), rather than on a fixed calendar date. The Solaris West Partnership Agreement provides that the flip occurs upon Veltara Basin Financial's achievement of a specified after-tax target yield. The expected flip date of 2028 is a projection based on the base-case financial model, not a contractual fixed date. This requirement is satisfied.

Kessler McBride & Associates LLP (Linda McBride) has independently reviewed the Solaris West Partnership Agreement and the related financial model and confirmed that the partnership-flip structure complies with the safe-harbor principles set forth in Rev. Proc. 2007-65, as applied by analogy to solar ITC structures. Their analysis is documented in a separate letter (Document 113 — KMA Safe Harbor Analysis Letter, dated March 22, 2022).

D. ITC Recapture Risk

Statutory Framework. Under Section 50(a) of the Internal Revenue Code, the Investment Tax Credit is subject to recapture if the property with respect to which the credit was claimed ceases to be "investment credit property" within five years after being placed in service. The recapture amount is reduced ratably over the five-year period: if the cessation occurs in the first full year after the property is placed in service, 100% of the ITC is recaptured; in the second year, 80%; in the third year, 60%; in the fourth year, 40%; and in the fifth year, 20%. After the expiration of the five-year period, no recapture applies.

Recapture Period for Solaris West. The Solaris West project was placed in service in Q3 2020. Accordingly, the five-year recapture period runs through Q3 2025. During this period, any event that causes the Solaris West solar energy property to cease to be investment credit property — including a disposition of the property, a change in use, or certain changes in ownership — could trigger recapture of all or a portion of the ITC.

Events Triggering Recapture. The following events could trigger ITC recapture:

(a) a sale, exchange, or other disposition of the solar energy property (i.e., the physical panels, inverters, and related equipment);

(b) a cessation of the use of the property as solar energy property (e.g., a change in use to a non-qualifying purpose);

(c) a change in ownership of the entity claiming the ITC (Veltara Basin Financial, as the partner to whom the ITC was allocated) that results in the property ceasing to qualify as investment credit property; and

(d) certain structural changes to the partnership that effectively terminate the partnership for federal tax purposes (e.g., a sale or exchange of 50% or more of the total interests in partnership capital and profits within a 12-month period, which could constitute a "technical termination" under former Section 708(b)(1)(B), although this provision was repealed by the Tax Cuts and Jobs Act for partnership taxable years beginning after December 31, 2017).

Analysis of the IPO as a Potential Recapture Trigger. We have analyzed whether the proposed IPO of CBR common stock could constitute a recapture event with respect to the Solaris West ITC. Our analysis concludes that the IPO does not trigger ITC recapture for the following reasons:

(a) No disposition of project assets. The IPO does not involve a sale, exchange, or other disposition of the Solaris West project assets (i.e., the solar panels, inverters, racking systems, and other energy property). The project assets will remain within Solaris West Solar LLC before and after the IPO, with no change in the ownership of the physical property.

(b) Sale of parent-level stock, not partnership interests. The IPO involves the sale of shares of CBR common stock (the ultimate parent corporation), not the sale of membership interests in Solaris West Solar LLC. Under applicable Treasury regulations and IRS guidance, a change in ownership at the top-tier parent level — where the parent corporation is several tiers above the partnership — does not, by itself, constitute a disposition of partnership property or a change in the partnership structure sufficient to trigger ITC recapture. The chain of ownership between CBR (the entity whose shares are being sold) and Solaris West Solar LLC (the entity holding the ITC property) includes two intervening entities (CBR Holdings LLC and CB Operating), and the ownership of interests in Solaris West Solar LLC by CB Operating (as managing member) and Veltara Basin Financial (as tax-equity member) remains unchanged.

(c) Partnership structure unchanged. Solaris West Solar LLC will remain a partnership with the same two members (CB Operating and Veltara Basin Financial) after the IPO. There is no admission or withdrawal of partners, no change in the partnership allocations, and no amendment to the partnership agreement in connection with the IPO. The identity and ownership percentage of each partner remains identical before and after the IPO.

(d) Pinnacle Vista secondary sale. Pinnacle Vista's sale of 6,818,182 shares of CBR common stock ($150 million at the midpoint offering price) in the secondary component of the IPO is a sale of CBR common stock, not a sale of partnership interests in Solaris West Solar LLC. This transaction occurs at the CBR parent level and does not affect the membership interests in, or the property held by, Solaris West Solar LLC. Accordingly, the Pinnacle Vista secondary sale does not trigger ITC recapture.

Caveat — Post-IPO Change of Control. While the IPO itself does not trigger ITC recapture, there is a risk that a post-IPO change of control at the CBR level could indirectly trigger recapture. Specifically, if a post-IPO acquirer were to obtain control of CBR and subsequently cause CB Operating to be removed as managing member of Solaris West Solar LLC, or to force a sale of the project assets, recapture risk would arise. Additionally, if a post-IPO transaction were to result in a sale or exchange of 50% or more of the total interests in Solaris West Solar LLC's capital and profits (though the technical termination rule under former Section 708(b)(1)(B) was repealed by the Tax Cuts and Jobs Act for partnership taxable years beginning after December 31, 2017, other structural changes could still be relevant).

The following provisions mitigate this risk during the immediate post-IPO period:

(a) Lock-up agreements. All directors, executive officers, Pinnacle Vista Capital Partners III, LP and its affiliates, and all other stockholders holding 1% or more of CBR's outstanding shares have entered into lock-up agreements with the underwriters, restricting the sale, transfer, or pledge of CBR shares for a period of 180 days following the date of the final prospectus, subject to customary exceptions.

(b) Stockholders' agreement. The Amended and Restated Stockholders' Agreement preserves Pinnacle Vista's board designation rights on a step-down basis and includes standstill provisions that restrict third parties from acquiring a controlling stake in CBR without board approval.

(c) Change-of-control consent requirement. Any Change of Control (as defined in the Solaris West Partnership Agreement) would require the prior written consent of Veltara Basin Financial, providing an additional layer of protection against an involuntary change in the partnership structure.

Disclosure Recommendation. We recommend that the S-1 risk factors section include a risk factor discussing ITC recapture risk. The risk factor should specifically note that the five-year recapture period for the Solaris West project runs through Q3 2025 and that, while the IPO itself does not trigger recapture, certain post-IPO events (including a change of control of CBR or a forced disposition of project assets) could result in recapture of all or a portion of the approximately $112 million ITC claimed by Veltara Basin Financial on the Solaris West project. The risk factor should also note that recapture, if triggered, would result in a loss to Veltara Basin Financial and could give rise to indemnification obligations of CBR under the tax indemnification provisions of the Solaris West Partnership Agreement.

V. ITC and PTC Eligibility Across the Portfolio

A. Investment Tax Credit (ITC) — Solar Projects

The Investment Tax Credit under Section 48 of the Internal Revenue Code is available for solar energy property placed in service before the applicable statutory deadline. The ITC rate has been subject to a phase-down schedule, with the following rates applicable to CBR's solar projects:

Solaris West and Painted Rock Solar. Each of these projects claimed the 26% ITC, which is the rate applicable to solar energy property that began construction before January 1, 2020, and was placed in service within four calendar years after the calendar year in which construction began (i.e., before January 1, 2024, for projects that began construction in 2019). Both projects satisfy the "begun construction" test under IRS Notice 2018-59 (which consolidated and superseded prior notices). Specifically, both projects satisfy both the Physical Work Test (significant physical work of a nature that is relevant to the construction of the project was performed before January 1, 2020) and the Five Percent Safe Harbor (at least 5% of the total cost of the project was incurred before January 1, 2020). Documentation supporting begun-construction compliance for each project — including equipment purchase orders, construction contracts, invoices, proof of payment, and contemporaneous records — has been reviewed and is summarized in the Safe Harbor Documentation Checklist (Appendix E).

For the Solaris West project, as discussed in Section IV, the ITC was claimed by the tax-equity partnership and allocated to Veltara Basin Financial LLC. For the Painted Rock Solar project, no tax-equity structure is in place, and the ITC was claimed directly by CBR's consolidated group. The aggregate ITC claimed on the Painted Rock Solar project was approximately $83.2 million.

Cimarron Solar (Under Construction). The Cimarron Solar project began construction in 2021 and is expected to achieve COD in Q1 2023. Under the phase-down schedule applicable to solar energy property prior to the enactment of the Inflation Reduction Act of 2022, projects that began construction in 2020, 2021, or 2022 are eligible for a 26% ITC, with the rate declining to 22% for projects beginning construction in 2023 and to 10% (the permanent rate for commercial solar property) for projects beginning construction in 2024 or later. The Cimarron project's 2021 begin-construction date qualifies it for the 26% ITC.

It should be noted that the Inflation Reduction Act of 2022 ("IRA"), signed into law on August 16, 2022, may extend, modify, or increase the ITC rates applicable to solar and other clean energy projects. As of the date of this memorandum (April 25, 2022), the IRA had not yet been enacted, and our analysis is based on pre-IRA law. If the offering is reactivated following the enactment of the IRA (the offering has been dormant since June 17, 2022; see Section X), the ITC analysis for Cimarron Solar and the development-pipeline projects should be updated to reflect the new statutory framework.

CBR's management has not yet determined whether to pursue a tax-equity partnership structure for the Cimarron Solar project. If a tax-equity structure is implemented, the ITC would be allocated to the tax-equity investor rather than claimed by CBR's consolidated group, and the HLBV accounting methodology (discussed in Section VI) would need to be applied to the new partnership. This determination is expected to be made prior to the Cimarron project's COD.

B. Production Tax Credit (PTC) — Wind Projects

The Production Tax Credit under Section 45 of the Internal Revenue Code is available for electricity produced from wind energy facilities during a 10-year period beginning on the date the facility is placed in service. The PTC rate has been subject to a phase-down for wind projects, with the following rates applicable to CBR's wind projects:

Red Mesa Wind. The Red Mesa Wind project began construction in 2017 and achieved COD in Q1 2019. Projects that began construction in 2016 or 2017 qualify for 100% of the full PTC rate (i.e., no phase-down). The PTC rate for wind energy is adjusted annually for inflation; for 2021, the inflation-adjusted PTC rate was $0.026 per kWh. Red Mesa Wind's 10-year PTC eligibility period runs from Q1 2019 through Q1 2029. Based on Red Mesa's actual generation of approximately 1,300,000 MWh per year (estimated capacity factor of approximately 39%), the project generates approximately $33.8 million per year in PTC.

Pronghorn Wind. The Pronghorn Wind project began construction in 2019 and achieved COD in Q2 2021. Under the phase-down schedule, projects that began construction in 2019 qualify for 60% of the full PTC rate. The PTC rate applicable to Pronghorn (60% of the inflation-adjusted rate) was approximately $0.0156 per kWh for 2021. Pronghorn Wind's 10-year PTC eligibility period runs from Q2 2021 through Q2 2031.

Mesquite Wind (Under Construction). The Mesquite Wind project began construction in 2020 and is expected to achieve COD in Q3 2022. Projects that began construction in 2020 qualify for 60% of the full PTC rate (the same percentage as projects beginning construction in 2019). Mesquite Wind's expected 10-year PTC eligibility period would run from Q3 2022 through Q3 2032.

No Tax-Equity Structure for Wind Projects. No tax-equity partnership structure exists for any of CBR's wind projects. The PTC for each wind project is claimed directly by CBR's consolidated group on its federal income tax return. CBR's management has indicated that it did not pursue tax-equity financing for the wind projects because the PTC (which is a per-kWh credit claimed over 10 years) is less efficient to monetize through a partnership-flip structure than the ITC (which is a one-time credit based on the cost basis of the property), and because CBR had sufficient tax capacity to utilize the PTC directly at the time the wind projects were placed in service.

C. Battery Energy Storage

Brazos Energy Storage. The Brazos Storage project (200 MW / 800 MWh battery energy storage system, Fort Bend County, Texas; COD Q4 2021) is a standalone battery energy storage facility. As of the date of this memorandum, standalone battery storage is not eligible for the Investment Tax Credit under Section 48 of the Internal Revenue Code. The ITC under Section 48 applies to "energy property," which is defined to include solar energy property, fuel cell property, microturbine property, combined heat and power system property, small wind energy property, and certain other specified types of property — but does not include standalone energy storage property under pre-IRA law. Accordingly, CBR did not claim the ITC on the Brazos Storage project.

We note, however, that the Inflation Reduction Act of 2022, if enacted as proposed at the time of this memorandum, would extend ITC eligibility to standalone energy storage facilities with a capacity of 5 kWh or more. If the IRA is enacted and the offering is reactivated, the S-1 disclosure should be updated to address the potential ITC eligibility of the Brazos Storage project (which, having been placed in service in Q4 2021, may or may not qualify for the new ITC depending on t

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
MEMORANDUM
April 25, 2022
FROM: Leonard Cross, Specialist Partner, Tax, Calderwood & Harkness LLP
TO: Jennifer Kwon, Responsible Partner, Capital Markets, Calderwood & Harkness LLP
CC: Theodore Langston, Billing Partner; Brendan Walsh, Lead Associate; Natasha Forbes, Working Associate
RE: Due Diligence Memorandum — Tax Structure and Tax-Equity Arrangements of Calloway-Briggs Renewables Inc. (C&H Matter No. 1015-00001)
Purpose. This memorandum summarizes the findings from the tax due diligence conducted in connection with the proposed initial public offering of approximately $600,000,000 of common stock of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") on the New York Stock Exchange. It analyzes CBR's current C-corporation tax structure, evaluates alternative IPO structures (Up-C and Down-C), reviews the tax-equity partnership-flip arrangements (particularly the Solaris West partnership with Veltara Basin Financial LLC), assesses ITC and PTC eligibility across the project portfolio, examines the HLBV accounting methodology, and identifies ITC recapture risks in connection with the IPO. This memorandum was prepared in coordination with Kessler McBride & Associates LLP (Alan Kessler and Linda McBride), CBR's external tax advisor, and with reference to materials provided by CBR's finance team (Priya Anand, SVP, Finance & Treasurer, and Marcus Yoon, CFO) and audited financial statements prepared by Ashford & Pemberton LLP (Gregory Sondheim, Lead Engagement Partner).
The scope of this memorandum encompasses federal income tax matters, structural alternatives, and the tax-equity analysis. Certain related workstreams — including the Section 409A Valuation Review (Document 105), the draft tax opinion for inclusion as an exhibit to the Registration Statement on Form S-1 (Document 106), and the State and Local Tax Nexus Memorandum (Document 107) — are being addressed in separate memoranda and are cross-referenced herein as appropriate.
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I. Executive Summary
CBR is organized as a Delaware C-corporation (EIN: 83-4027615), incorporated on September 15, 2014, by Garrett Calloway and Elaine Briggs. The Company's principal executive offices are located at 4200 Ridgeline Parkway, Suite 1100, Austin, Texas 78746. CBR is a utility-scale renewable energy company that develops, owns, and operates a portfolio of solar photovoltaic, onshore wind, and battery energy storage projects across the southwestern United States, with a total operational and under-construction capacity of approximately 3,080 MW and a development pipeline of approximately 6.2 GW.
Corporate Structure. The corporate structure flows as follows: CBR (parent, Delaware C-corp) holds 100% of the membership interests in CBR Holdings LLC (Delaware LLC), which in turn holds 100% of the membership interests in Calloway-Briggs Operating Company LLC ("CB Operating," Texas LLC). CB Operating, the primary operating entity, in turn holds 100% of the membership interests in each of the individual project-level special purpose vehicles ("SPVs"), with the exception of the Solaris West tax-equity partnership structure discussed in detail in Section IV below.
Pre-IPO Capitalization. Pre-IPO ownership is approximately as follows: Pinnacle Vista Capital Partners III, LP and its affiliated co-investment vehicles (collectively, "Pinnacle Vista") hold approximately 62% of the outstanding shares; co-founders Garrett Calloway and Elaine Briggs and members of management hold approximately 24%; and earlier-stage investors and employees participating in the Company's equity incentive plans hold approximately 14%. All outstanding equity consists of shares of common stock (100,000,000 shares outstanding on a fully diluted basis following the pre-IPO reclassification, par value $0.01 per share). There are no outstanding shares of preferred stock, and the Series A and Series B preferred stock previously outstanding were converted into common stock in connection with the pre-IPO reclassification effected on March 28, 2022.
IPO Structure Recommendation. Based on the analysis set forth in Section III below, we recommend that the Company proceed with its existing C-corporation structure for the IPO rather than converting to an Up-C or Down-C structure. This recommendation is grounded in several considerations, including: (a) the structural simplicity of proceeding with the existing C-corp; (b) Pinnacle Vista's exit timeline, as the Series III Fund is a 2016 vintage fund with a typical 7- to 10-year investment horizon; (c) the absence of a significant tax-basis step-up benefit that would justify the complexity and cost of an Up-C restructuring; and (d) the avoidance of tax receivable agreement ("TRA") complexity, which would add a contingent liability, create administrative burden, and introduce potential investor confusion for a first-time public company.
Key Tax Matters Requiring S-1 Disclosure. The following tax matters have been identified as requiring disclosure in the Registration Statement on Form S-1 (File No. 333-264891), either in the risk factors, Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), business description, or tax consequences sections:
(a) the Solaris West tax-equity partnership-flip structure with Veltara Basin Financial LLC, including the terms of the partnership agreement and CBR's obligations thereunder;
(b) ITC and PTC eligibility across the Company's project portfolio, including the applicable rates, phase-down schedules, and the risk that legislative changes could affect the availability or value of such credits;
(c) the HLBV (Hypothetical-Liquidation-at-Book-Value) accounting methodology used to allocate income and loss in connection with the Solaris West partnership, including the sensitivity of such allocations to changes in key assumptions;
(d) ITC recapture risk analysis in connection with the IPO and potential post-IPO change-of-control scenarios, noting in particular that the five-year recapture period for the Solaris West project runs through Q3 2025 and for the Painted Rock Solar project through Q4 2025;
(e) Section 409A cheap-stock considerations, which are cross-referenced to the separate Section 409A Valuation Review Memorandum (Document 105) and may require disclosure in the executive compensation section of the S-1; and
(f) state and local tax nexus across Texas, New Mexico, Arizona, California, and Oklahoma, which is cross-referenced to the separate State and Local Tax Nexus Memorandum (Document 107).
The remainder of this memorandum addresses each of these matters in detail.
II. Corporate Structure and Tax Classification
A. Current Entity Structure
The following summarizes each entity in the CBR corporate structure, its jurisdiction of organization, its tax classification for federal income tax purposes, and its role within the organizational hierarchy. An entity organizational chart with tax-classification annotations is set forth in Appendix A.
Calloway-Briggs Renewables Inc. CBR is a corporation organized under the laws of the State of Delaware. It is classified as a C-corporation for federal income tax purposes and serves as the ultimate parent of the consolidated group. CBR files a consolidated federal income tax return as the common parent. Its Employer Identification Number is 83-4027615. CBR was incorporated on September 15, 2014, and its registered agent in Delaware is Penmark Industries, 1209 Orange Street, Wilmington, Delaware 19801.
CBR Holdings LLC. CBR Holdings LLC is a limited liability company organized under the laws of the State of Delaware. It is a single-member LLC, with CBR as its sole member. CBR Holdings LLC has not filed an entity classification election on Form 8832 and is therefore treated as a disregarded entity for federal income tax purposes pursuant to Treasury Regulation § 301.7701-3(b)(1)(ii). CBR Holdings LLC serves as an intermediate holding company and was formed primarily for liability-insulation and structural purposes.
Calloway-Briggs Operating Company LLC. CB Operating is a limited liability company organized under the laws of the State of Texas. It is a single-member LLC, with CBR Holdings LLC as its sole member. Like CBR Holdings, CB Operating has not filed an entity classification election and is treated as a disregarded entity for federal income tax purposes. CB Operating is the primary operating entity and holds direct ownership interests in each of the project-level SPVs described below. CB Operating employs the majority of the Company's workforce (approximately 340 employees as of December 31, 2021) and is the counterparty to the Company's material commercial contracts, including power purchase agreements ("PPAs"), engineering, procurement, and construction ("EPC") agreements, and operations and maintenance ("O&M") agreements.
Project-Level SPVs. Each project-level SPV is a limited liability company organized under the laws of the state indicated below and is 100% owned by CB Operating. With the critical exception of Solaris West Solar LLC (which has been restructured as a partnership to accommodate the tax-equity investment, as described in Section IV), each SPV is treated as a disregarded entity for federal income tax purposes. The project-level SPVs are as follows:
(i) Solaris West Solar LLC (Texas) — Solaris West project (450 MW utility-scale solar PV, Pecos County, Texas; commercial operation date ("COD") Q3 2020). This entity is treated as a partnership for federal income tax purposes following the admission of Veltara Basin Financial LLC as a member. See Section IV.
(ii) Red Mesa Wind Energy LLC (Oklahoma) — Red Mesa Wind project (380 MW onshore wind, Custer County, Oklahoma; COD Q1 2019).
(iii) Painted Rock Solar LLC (Arizona) — Painted Rock Solar project (320 MW solar PV, Maricopa County, Arizona; COD Q4 2020).
(iv) Pronghorn Wind LLC (Texas) — Pronghorn Wind project (510 MW onshore wind, Nolan County, Texas; COD Q2 2021).
(v) Brazos Energy Storage LLC (Texas) — Brazos Storage project (200 MW / 800 MWh battery energy storage system ("BESS"), Fort Bend County, Texas; COD Q4 2021).
(vi) Mesquite Wind Holdings LLC (Texas) — Mesquite Wind project (420 MW onshore wind, Oldham County, Texas; under construction, expected COD Q3 2022).
(vii) Cimarron Solar Development LLC (New Mexico) — Cimarron Solar project (350 MW solar PV, Doña Ana County, New Mexico; under construction, expected COD Q1 2023).
(viii) CBR Development Co. LLC (Texas) — Pipeline development entity responsible for the Company's approximately 6.2 GW development pipeline, including the Copper Basin Solar + Storage project (750 MW solar + 300 MW / 1,200 MWh BESS, Riverside County, California; expected COD Q2 2025) and additional early-stage projects across the southwestern United States.
As noted above, all LLCs below CBR are single-member LLCs treated as disregarded entities for federal tax purposes, with the sole exception of Solaris West Solar LLC, which is treated as a partnership following the admission of Veltara Basin Financial LLC as a tax-equity investor. The significance of this classification is addressed in detail in Section IV.
Texas Franchise Tax. It should be noted that the State of Texas does not impose a state corporate income tax; however, Texas imposes a franchise tax (commonly referred to as the "margin tax") on entities doing business in Texas. CB Operating and each of the Texas-organized SPVs (Solaris West Solar LLC, Pronghorn Wind LLC, Brazos Energy Storage LLC, Mesquite Wind Holdings LLC, and CBR Development Co. LLC) are subject to the Texas franchise tax. The franchise tax is computed based on the lesser of: (a) 70% of total revenue, (b) total revenue minus cost of goods sold, or (c) total revenue minus total compensation. The tax rate applicable to CBR's entities is 0.75% (the rate applicable to entities other than those primarily engaged in wholesale or retail trade, for which the rate is 0.375%). The impact of the Texas franchise tax on the Company's effective tax rate is addressed in the SALT Nexus Memorandum (Document 107).
State Tax Nexus. CBR has operations and established tax nexus in five states: Texas, New Mexico, Arizona, California, and Oklahoma. The California corporate income tax rate of 8.84% applies to the Painted Rock Solar LLC operations conducted in Arizona (with California income sourced based on sales-factor apportionment) and to future Copper Basin operations in Riverside County, California. The Oklahoma corporate income tax rate of 4.0% applies to the Red Mesa Wind Energy LLC operations in Custer County, Oklahoma. The New Mexico corporate income tax rate of 5.9% applies to the Cimarron Solar Development LLC operations in Doña Ana County, New Mexico. The Arizona corporate income tax rate of 4.9% applies to the Painted Rock Solar LLC operations in Maricopa County, Arizona. A detailed analysis of state and local tax obligations, filing requirements, apportionment methodology, and exposure is set forth in the separate SALT Nexus Memorandum (Document 107).
B. Tax Consolidation and Filing
CBR files a consolidated federal income tax return as the common parent of a consolidated group within the meaning of Treasury Regulation § 1.1502-1(h). The consolidated group includes CBR and all of its domestic subsidiaries that are includible corporations within the meaning of Section 1504(b) of the Internal Revenue Code. Because the LLC subsidiaries below CBR are treated as disregarded entities for federal tax purposes, they are not separate "includible corporations" but rather are included in the consolidated return as divisions of CBR. The practical effect is that all items of income, deduction, gain, loss, and credit recognized by the disregarded-entity subsidiaries are reported on CBR's consolidated federal income tax return.
The Solaris West tax-equity partnership, in which Veltara Basin Financial LLC holds a membership interest alongside CB Operating, is treated as a partnership for federal income tax purposes. Solaris West Solar LLC files IRS Form 1065 (U.S. Return of Partnership Income) and issues Schedule K-1s to each partner. The CBR-side allocations of partnership income, loss, deductions, and credits flow through CB Operating (a disregarded entity) and are reported on CBR's consolidated federal income tax return. Veltara Basin Financial LLC, as the tax-equity investor, reports its allocable share of partnership items on its own federal and state income tax returns.
CBR's consolidated group also files state income, franchise, and other tax returns in each state in which it has nexus, as described above and in the SALT Nexus Memorandum. The Company's tax department, led by Priya Anand (SVP, Finance & Treasurer), manages the preparation and filing of all federal and state returns, with assistance from Kessler McBride & Associates LLP as outside tax advisors.
C. Historical Tax Positions
We have reviewed the federal and state income tax returns of CBR and its subsidiaries for fiscal years 2019, 2020, and 2021, as well as supporting workpapers and schedules prepared by Kessler McBride & Associates LLP and CBR's internal tax staff.
Significant items identified in the historical tax returns include the following:
Accelerated depreciation. CBR has claimed accelerated depreciation under the Modified Accelerated Cost Recovery System ("MACRS") on its renewable-energy assets. Solar property is generally classified as five-year MACRS property under Section 168(e)(3)(B)(vi), and wind energy property is similarly classified as five-year MACRS property. CBR has elected to claim 100% first-year bonus depreciation under Section 168(k) on eligible assets placed in service after September 27, 2017 (as permitted by the Tax Cuts and Jobs Act of 2017). The aggregate depreciation deductions claimed by the consolidated group were approximately $187.3 million in FY 2020 and approximately $261.8 million in FY 2021, reflecting the successive placed-in-service dates of the Painted Rock Solar, Pronghorn Wind, and Brazos Storage projects.
Investment Tax Credits. The ITC under Section 48 was claimed on the Solaris West and Painted Rock Solar projects. For Solaris West, the ITC was claimed by the tax-equity partnership (allocated to Veltara Basin Financial LLC). For Painted Rock Solar, the ITC was claimed directly by CBR's consolidated group. The aggregate ITC claimed by the consolidated group (excluding the Solaris West partnership) was approximately $83.2 million in FY 2020 (attributable to the Painted Rock Solar project).
Production Tax Credits. The PTC under Section 45 was claimed on the Red Mesa Wind and Pronghorn Wind projects. PTC is recognized on a per-kWh basis over a 10-year period from the COD. Aggregate PTC claimed by the consolidated group was approximately $28.6 million in FY 2019, approximately $29.1 million in FY 2020, and approximately $47.3 million in FY 2021 (reflecting the addition of the Pronghorn Wind project in Q2 2021).
Net operating losses. CBR generated a net operating loss of approximately $22.4 million in FY 2019. Under the Tax Cuts and Jobs Act of 2017, as amended by the CARES Act of 2020, NOLs arising in taxable years beginning after December 31, 2017, may be carried forward indefinitely but generally may not be carried back (with certain temporary exceptions under the CARES Act for taxable years beginning in 2018, 2019, and 2020). CBR did not elect to carry back its FY 2019 NOL under the CARES Act and instead carried it forward. The FY 2019 NOL was partially utilized in FY 2020 and FY 2021, with approximately $8.7 million remaining as of December 31, 2021. Additionally, the NOL deduction is limited to 80% of taxable income for taxable years beginning after December 31, 2020, which may limit utilization in future periods.
IRS and State Tax Audits. Based on representations from CBR management (Priya Anand, Marcus Yoon) and confirmations from Kessler McBride & Associates LLP, there are no open IRS audits or examinations of CBR or any of its subsidiaries. CBR has not received any notice of audit, notice of deficiency, or similar correspondence from the Internal Revenue Service or any state tax authority for any taxable year. The applicable statutes of limitations for the FY 2019 federal return (filed October 15, 2020, with an extension) will remain open until October 15, 2023, absent an extension or waiver.
Uncertain Tax Positions. We have reviewed the tax provision and related disclosures in the audited financial statements for FY 2019, FY 2020, and FY 2021, as prepared by Ashford & Pemberton LLP. No material uncertain tax positions have been identified under ASC 740-10 (formerly FIN 48). The Company's tax provision is clean, meaning there are no reserves for uncertain tax positions recorded in the financial statements. Ashford & Pemberton (Gregory Sondheim, Lead Engagement Partner; Irene Valdez, Senior Manager) confirmed this assessment in connection with their audit procedures and in their review of the tax provision for the Q1 2022 interim financial statements included in Amendment No. 2 to the Registration Statement.
III. Up-C vs. Down-C vs. C-Corp Structure Analysis
A. Overview of Alternative IPO Structures
In connection with any IPO of a company with significant pre-IPO equity holders, it is customary to evaluate whether the Company's existing organizational structure is optimal for the public markets or whether a restructuring into an alternative structure would yield meaningful tax and economic benefits to the pre-IPO holders and/or the public company. The three principal structural alternatives are summarized below.
C-Corporation (Current Structure). CBR is already organized as a C-corporation. Under the current structure, the IPO proceeds flow directly to CBR (for primary shares offered by the Company) and to the selling stockholder, Pinnacle Vista (for secondary shares). The structure is straightforward: all public stockholders hold shares of common stock in CBR, a single class of publicly traded equity. There is no tax receivable agreement, no exchangeable partnership units, and no dual-class equity structure related to the organizational form. Pre-IPO holders receive shares of a C-corporation and are taxed on dividends at the applicable rate when and if dividends are declared. There is no mechanism for a tax-basis step-up upon the exchange of pre-IPO interests for publicly traded shares, because the pre-IPO holders already own shares of the C-corporation.
Up-C Structure. An "Up-C" structure is commonly employed in IPOs where the pre-IPO business is conducted through a partnership or LLC taxed as a partnership. In a typical Up-C IPO, a newly formed corporation (the "PubCo") conducts an IPO and uses the proceeds to acquire a limited partnership or LLC interest in the operating entity. The pre-IPO holders retain their partnership or LLC interests, which are exchangeable over time for shares of PubCo on a one-for-one basis. The exchange of a partnership interest for PubCo shares triggers a Section 754 election and a corresponding step-up in the tax basis of the underlying partnership assets equal to the excess of the exchange price over the pre-IPO holder's existing tax basis. This basis step-up generates additional depreciation and amortization deductions for PubCo, reducing its future tax liability. The pre-IPO holders and PubCo typically enter into a tax receivable agreement ("TRA"), under which PubCo agrees to pay the pre-IPO holders a specified percentage (typically 85%) of the tax savings realized as a result of the basis step-up. The Up-C structure is most commonly used in private equity-backed IPOs where the operating entity has historically been a partnership and where significant built-in gain or embedded appreciation in the assets would produce a meaningful basis step-up upon exchange.
Down-C Structure. The "Down-C" structure is a less common variant in which the corporate entity is interposed below the partnership level rather than above it. In a Down-C, the corporation is a subsidiary of the operating partnership and conducts a portion of the business in corporate form while the remainder continues to be conducted through the partnership. This structure is used in certain circumstances where regulatory, contractual, or other considerations make it impractical to restructure the entire business into a corporation at the top level. The Down-C structure introduces additional complexity and is generally disfavored unless there is a compelling non-tax reason for its use.
B. Analysis and Recommendation
Recommendation. We recommend that CBR proceed with its existing C-corporation structure for the IPO. We do not recommend restructuring into an Up-C or Down-C structure.
Rationale. The basis for this recommendation is as follows:
1. Structural Simplicity. CBR is already organized as a C-corporation. The Company has been a C-corporation since its incorporation in 2014 and has operated in corporate form throughout its existence. Converting to an Up-C structure would require significant restructuring, including: (a) the formation of a new holding company; (b) the contribution of all of CBR's assets and liabilities to a newly formed operating partnership; (c) the execution of exchange agreements between the pre-IPO holders and the new holding company; (d) the negotiation and execution of a tax receivable agreement; (e) the adoption of a dual-class equity structure (common stock for public investors and exchangeable units plus a corresponding number of shares of a new class of voting-only stock for pre-IPO holders); and (f) the amendment of all material contracts, credit agreements, and governmental permits to reflect the new organizational structure. Given the IPO timeline — the Company's Registration Statement on Form S-1 was initially filed with the SEC on April 1, 2022, and SEC oral clearance was received on June 14, 2022, with target pricing anticipated within days of the effectiveness of the Registration Statement — any restructuring would introduce unacceptable complexity, delay, and transaction risk. The Company, the underwriters (led by Hargrove Keating & Co. as lead bookrunner), and all parties to the transaction have structured the offering around the existing C-corp architecture, and the Registration Statement and all ancillary documents reflect this structure.
2. Pinnacle Vista Exit Horizon. Pinnacle Vista Capital Partners III, LP is a 2016 vintage private equity fund (Series III Fund, with approximately $4.8 billion in aggregate committed capital). Pinnacle Vista's initial investment in CBR was approximately $385 million in 2017, with a follow-on investment of approximately $120 million in 2019, for an aggregate investment of approximately $505 million. Pinnacle Vista currently holds approximately 62% of CBR's outstanding shares (pre-IPO) and is selling approximately $150 million of secondary shares (6,818,182 shares at an assumed $22.00 per share offering price, the midpoint of the estimated price range) in the IPO. An Up-C structure is most economically beneficial where pre-IPO holders intend to retain their partnership interests for an extended period post-IPO, thereby deferring the exchange (and the associated basis step-up) over time and maximizing the present value of TRA payments. Given Pinnacle Vista's fund vintage and the typical 7- to 10-year investment horizon for a private equity fund of its type, Pinnacle Vista is likely to seek a complete or substantially complete exit from its CBR position within approximately 2 to 4 years following the IPO. Over such a compressed time horizon, the incremental benefit of the Up-C basis step-up mechanism would be limited, as the majority of exchanges would occur relatively quickly, concentrating the basis step-ups into a short period and reducing the present-value benefit.
3. Basis Step-Up Analysis. The economic case for an Up-C structure depends critically on the magnitude of the tax-basis step-up that would be generated upon the exchange of partnership units for PubCo shares. A significant step-up arises when there is a substantial difference between the "inside basis" of the partnership's assets (i.e., the tax basis of the assets as reflected on the partnership's books) and the "outside basis" of the pre-IPO holders' partnership interests (which, upon an exchange at the IPO price, would be stepped up to reflect the fair market value of the PubCo shares received). Because CBR was already a C-corporation when Pinnacle Vista invested, there is no "inside basis" versus "outside basis" Disconnect of the type that typically drives Up-C economics. The assets of the business have already been acquired at fair market value within the corporate structure; depreciation has been claimed on those assets using the tax basis established at the time of acquisition or construction; and there is no significant built-in gain or loss at the entity level that would generate a meaningful basis step-up through a Section 754 election. In short, the incremental depreciation and amortization deductions that would result from an Up-C restructuring are not sufficient to justify the complexity and cost of the restructuring.
4. TRA Avoidance. Tax receivable agreements add significant complexity to a public company's financial reporting and ongoing operations. A TRA creates a contingent liability on the balance sheet (recorded at fair value under GAAP), which fluctuates with changes in the expected timing and amount of future tax savings. This introduces volatility into reported earnings and complicates the already-complex HLBV accounting applicable to the Solaris West partnership (discussed in Section VI). In addition, a TRA imposes ongoing administrative burden, including the calculation and verification of TRA payments, the maintenance of detailed records of basis step-ups and their utilization, and the potential for disputes between the Company and the TRA holders regarding the computation of tax savings. For a first-time public company, these complexities can create investor confusion and potentially depress valuation multiples. Eliminating the TRA also simplifies the underwriting process: during the organizational meeting held March 14–18, 2022, representatives of Hargrove Keating & Co. (lead bookrunner) and the underwriters' counsel, Prescott, Danforth & Yee LLP, confirmed their strong preference for a clean C-corp structure and expressed concern that an Up-C would add complexity to the marketing narrative and potentially narrow the investor base.
5. Investor Preference. Based on our experience with renewable-energy IPOs and feedback from the underwriting syndicate, institutional investors in the renewables sector generally prefer straightforward C-corporation structures. A C-corp structure eliminates several common concerns, including: (a) the administrative burden of receiving Schedule K-1s (which arise in Up-C structures where investors hold partnership units); (b) unrelated business taxable income ("UBTI") concerns for tax-exempt investors such as pension funds, endowments, and foundations; (c) the complexity of tracking and valuing TRA obligations; and (d) the dual-class equity structure that is inherent in the Up-C format (where pre-IPO holders have both economic partnership units and voting-only shares, creating a divergence between economic ownership and voting power that some institutional investors view unfavorably).
6. Double Taxation Consideration. We acknowledge that the C-corporation structure results in double taxation — corporate-level tax on the Company's income plus shareholder-level tax on distributions and dividends — whereas a partnership structure (as in an Up-C) provides a single level of tax at the partner level. However, this consideration is significantly mitigated in CBR's case by several factors. First, CBR does not anticipate paying cash dividends to stockholders in the foreseeable future; the Company's reinvestment strategy and the dividend restrictions in its credit facility with Veltrano National Bank (Term Loan B and Revolving Credit Facility) prohibit or restrict dividend payments. Second, the significant depreciation deductions (100% first-year bonus depreciation under Section 168(k)) and tax credits (ITC and PTC) available to the consolidated group substantially reduce CBR's effective federal income tax rate in the near to medium term. Based on projections prepared by Kessler McBride & Associates LLP, CBR's effective federal income tax rate is expected to be approximately 3–5% for FY 2022 and FY 2023, rising to approximately 12–15% as accelerated depreciation deductions roll off and PTC eligibility periods expire for the earliest projects.
Coordination with Kessler McBride & Associates LLP. Alan Kessler and Linda McBride of Kessler McBride & Associates LLP have independently analyzed the relative economic benefits of the C-corp, Up-C, and Down-C structures for the CBR IPO. Their analysis confirms that the present-value benefit of an Up-C TRA, given Pinnacle Vista's expected hold period and the absence of significant basis step-up potential, would not justify the restructuring cost and complexity. Their quantitative analysis estimated the aggregate present-value benefit of TRA payments to Pinnacle Vista, under a range of assumptions regarding the timing of unit exchanges, at approximately $18–25 million — a figure that is modest relative to Pinnacle Vista's approximately $1.36 billion pre-IPO equity value (based on the midpoint offering price) and would be further reduced by the transaction costs, professional fees, and execution risk associated with the restructuring. Kessler McBride's analysis has been reviewed and is on file as a supporting workpaper (Document 112 — KMA Up-C vs. C-Corp Economic Analysis).
IV. Tax-Equity Partnership-Flip Structure — Solaris West
A. Structure Overview
Project. Solaris West is a 450 MW utility-scale solar photovoltaic project located in Pecos County, Texas. The project achieved commercial operation in Q3 2020 and consists of approximately 1.2 million solar panels across approximately 4,500 acres of leased ranchland. The project sells electricity under a 15-year power purchase agreement with Meridian Energy Partners, a Texas retail electric provider.
Project SPV. The Solaris West project is owned and operated by Solaris West Solar LLC, a Texas limited liability company. Prior to the admission of the tax-equity investor, Solaris West Solar LLC was a single-member LLC owned 100% by CB Operating and treated as a disregarded entity for federal tax purposes. In connection with the tax-equity investment, the operating agreement of Solaris West Solar LLC was amended and restated to admit Veltara Basin Financial LLC as a member, thereby converting the entity from a disregarded entity to a partnership for federal tax purposes.
Tax-Equity Investor. The tax-equity investor is Veltara Basin Financial LLC, a Delaware limited liability company with its principal office at 2029 Century Park East, Suite 1500, Los Angeles, California 90067. Veltara Basin Financial is a subsidiary of Veltara Basin Holdings, Inc., a diversified financial services company. The primary contact for the tax-equity investment is Karen Fujimoto, Partner, Tax Equity Investments. Veltara Basin is an experienced and active tax-equity investor in the renewable-energy sector, with a portfolio of approximately $4.2 billion in tax-equity commitments across solar, wind, and storage projects.
Investment Amount. Veltara Basin Financial invested $280,000,000 in Solaris West Solar LLC. The investment was funded in a single closing on July 15, 2020, following the achievement of certain construction milestones and satisfaction of conditions precedent set forth in the Amended and Restated Limited Liability Company Agreement.
Structure. The Solaris West tax-equity arrangement is structured as a "partnership flip," which is the predominant structure for tax-equity investments in the U.S. renewable-energy sector. Under this structure, the partnership allocates substantially all of the tax benefits associated with the project — including the Investment Tax Credit under Section 48 of the Internal Revenue Code and accelerated depreciation deductions under MACRS — to the tax-equity investor (Veltara Basin Financial) during the "pre-flip" period. The pre-flip period continues until the tax-equity investor achieves its target after-tax yield (typically expressed as an internal rate of return). Upon achievement of the target yield (the "flip date," which is expected to occur in 2028 based on current projections), the allocation percentages "flip," and the managing member (CB Operating, on behalf of CBR) receives the substantial majority of tax allocations and cash distributions going forward. Following the flip, CBR (through CB Operating) holds a call option to purchase Veltara Basin Financial's remaining interest in the partnership at fair market value (determined as of the flip date by an independent appraisal).
Pre-Flip Allocation. During the pre-flip period, the allocations are as follows:
• Tax allocations (income, loss, deductions, ITC): Approximately 99% to Veltara Basin Financial; approximately 1% to CBR (through CB Operating).
• Cash distributions: Cash distributions are subject to a negotiated waterfall. CBR (through CB Operating) receives a preferred return on its capital account balance, followed by distributions to Veltara Basin Financial sufficient to achieve its target yield, with remaining distributions split pursuant to the waterfall provisions of the partnership agreement.
Post-Flip Allocation (Expected 2028). Following the flip date, the allocations shift as follows:
• Tax allocations: Approximately 95% to CBR (through CB Operating); approximately 5% to Veltara Basin Financial.
• Cash distributions: Approximately 95% to CBR; approximately 5% to Veltara Basin Financial.
• Call option: CBR (through CB Operating) has the right, but not the obligation, to purchase Veltara Basin Financial's remaining 5% interest in the partnership at fair market value, as determined by an independent appraiser selected by the parties.
ITC Claimed. The Solaris West project claimed the 26% Investment Tax Credit, which is the rate applicable to solar energy property that began construction before January 1, 2020, and was placed in service within four calendar years after the year construction began (i.e., before January 1, 2024). The ITC was allocated to Veltara Basin Financial in accordance with Section 48 of the Code and the allocation provisions of the partnership agreement. The aggregate ITC associated with the Solaris West project was approximately $112 million (based on the eligible cost basis of the solar energy property).
B. Partnership Agreement Key Terms
The governing document for the Solaris West tax-equity partnership is the Amended and Restated Limited Liability Company Agreement of Solaris West Solar LLC, dated as of July 15, 2020 (the "Solaris West Partnership Agreement"), among Calloway-Briggs Operating Company LLC, as managing member, and Veltara Basin Financial LLC, as tax-equity member.
Managing Member. CB Operating serves as the managing member of Solaris West Solar LLC and is responsible for the day-to-day operations and maintenance of the Solaris West project. CB Operating has authority to make all ordinary-course decisions regarding the project, including entering into O&M contracts, managing the PPA relationship, conducting routine maintenance and repairs, and preparing and filing tax returns for the partnership.
Major Decisions Requiring Veltara Basin Consent. The following actions require the prior written consent of Veltara Basin Financial (the "Major Decision" provisions):
(a) any sale, transfer, lease, exchange, or other disposition of all or any material portion of the project assets;
(b) any encumbrance of the project assets (other than permitted liens);
(c) the incurrence of any indebtedness by the partnership (other than ordinary-course trade payables);
(d) any modification, amendment, termination, or waiver of the power purchase agreement or interconnection agreement;
(e) any change of the managing member;
(f) any change of control of CBR or CB Operating (as defined below);
(g) the admission of any additional members to the partnership;
(h) any merger, consolidation, or dissolution of the partnership;
(i) the commencement of any bankruptcy or insolvency proceeding; and
(j) any amendment to the partnership agreement.
Change of Control Definition. The partnership agreement defines "Change of Control" to include any transaction or series of related transactions resulting in a person or group (other than Pinnacle Vista Capital Partners III, LP and its affiliates) acquiring more than 50% of the voting interests of CBR. This definition is significant in the context of the IPO because of the potential concern that the IPO could constitute a Change of Control. Based on our analysis, the IPO as currently structured would not constitute a Change of Control under the partnership agreement for the following reasons:
(a) No single acquirer will obtain more than 50% of the post-IPO voting power of CBR in connection with the IPO. The offering involves the issuance of new shares to public investors and the sale of secondary shares by Pinnacle Vista, with no single investor expected to acquire a controlling block.
(b) Pinnacle Vista will retain approximately 49% of the post-IPO voting power of CBR (in the base offering scenario, assuming no exercise of the underwriters' overallotment option) or approximately 47% (assuming full exercise of the overallotment option). Pinnacle Vista is expressly carved out of the Change of Control definition.
(c) The Company's Amended and Restated Stockholders' Agreement, to be entered into in connection with the IPO, preserves Pinnacle Vista's board designation rights on a step-down basis (3 of 9 directors at ≥40% ownership; 2 of 9 directors at ≥20% ownership; 1 of 9 directors at ≥10% ownership; no designation rights below 10%). These provisions further ensure that no third party acquires control of CBR's governance immediately following the IPO.
IPO Consent and Notice Requirements. Notwithstanding the foregoing analysis, the Solaris West Partnership Agreement requires that CB Operating provide written notice to Veltara Basin Financial of any IPO of CBR and provide a written confirmation from counsel (Calderwood & Harkness LLP) that the IPO does not constitute a "Recapture Event" (as discussed in Section IV.D below) or a "Change of Control" under the partnership agreement. We have prepared a draft consent request letter (Document 114 — Draft Consent Request Letter to Veltara Basin Financial LLC) and have transmitted it to Whitfield Archer & Doss LLP (counsel to Pinnacle Vista Capital Partners III, LP) for review and directly to Veltara Basin Financial (attention: Karen Fujimoto). As of the date of this memorandum, we are awaiting Veltara Basin's written confirmation. Receipt of this confirmation is a condition that must be satisfied prior to the pricing of the offering.
C. Rev. Proc. 2007-65 Safe Harbor Analysis
The Solaris West partnership-flip structure was designed to comply with the safe harbor set forth in Revenue Procedure 2007-65, 2007-2 C.B. 967. Rev. Proc. 2007-65 provides a safe harbor for partnership-flip arrangements involving wind energy facilities claiming the Production Tax Credit under Section 45. While Rev. Proc. 2007-65 by its express terms applies to wind PTC partnerships, the IRS has not issued comparable formal guidance specifically addressing solar ITC partnerships. However, it is well-established market practice — and the prevailing view among tax practitioners and tax-equity investors — that the principles of Rev. Proc. 2007-65 are applied by analogy to solar ITC partnership-flip structures. The IRS has not challenged the application of Rev. Proc. 2007-65 principles to solar ITC partnerships, and the large majority of tax-equity transactions in the solar sector are structured with reference to these principles.
The key requirements of the Rev. Proc. 2007-65 safe harbor, and the basis for our conclusion that the Solaris West structure satisfies each requirement, are as follows:
(a) Minimum unconditional investment. The tax-equity investor must make a minimum unconditional investment of at least 20% of its total investment at the time of closing. Veltara Basin Financial's entire $280 million investment was funded unconditionally at the single closing on July 15, 2020, which represents 100% of its total investment. This requirement is satisfied.
(b) Reasonably anticipated profit. The tax-equity investor must have a reasonably anticipated profit from the investment, taking into account both cash distributions and tax benefits (including the ITC and depreciation deductions). The financial model prepared by CBR's finance team and reviewed by Kessler McBride & Associates LLP demonstrates that Veltara Basin Financial has a reasonably anticipated pre-tax and after-tax profit from the investment under the base-case projections. This requirement is satisfied.
(c) No "put" or guaranteed return. The arrangement must not include a put option or other mechanism that would guarantee the tax-equity investor a return on or of its investment, which could cause the arrangement to be recharacterized as a loan rather than a partnership interest. The Solaris West Partnership Agreement does not contain any put option, guaranteed return, or similar feature. Veltara Basin Financial's return is dependent on the actual performance of the project (including electricity generation, PPA revenues, and the availability and value of tax benefits). This requirement is satisfied.
(d) Meaningful downside risk. The tax-equity investor must bear meaningful downside risk with respect to its investment. Veltara Basin Financial's return is subject to project-performance risk (e.g., lower-than-expected solar irradiance, equipment failure, curtailment), PPA counterparty credit risk, and regulatory and legislative risk (including the risk that the ITC could be challenged or reduced). Veltara Basin Financial does not have a guaranteed return of its capital contribution. This requirement is satisfied.
(e) Flip based on target yield. The flip must occur upon the tax-equity investor's achievement of a target yield (i.e., a specified after-tax internal rate of return), rather than on a fixed calendar date. The Solaris West Partnership Agreement provides that the flip occurs upon Veltara Basin Financial's achievement of a specified after-tax target yield. The expected flip date of 2028 is a projection based on the base-case financial model, not a contractual fixed date. This requirement is satisfied.
Kessler McBride & Associates LLP (Linda McBride) has independently reviewed the Solaris West Partnership Agreement and the related financial model and confirmed that the partnership-flip structure complies with the safe-harbor principles set forth in Rev. Proc. 2007-65, as applied by analogy to solar ITC structures. Their analysis is documented in a separate letter (Document 113 — KMA Safe Harbor Analysis Letter, dated March 22, 2022).
D. ITC Recapture Risk
Statutory Framework. Under Section 50(a) of the Internal Revenue Code, the Investment Tax Credit is subject to recapture if the property with respect to which the credit was claimed ceases to be "investment credit property" within five years after being placed in service. The recapture amount is reduced ratably over the five-year period: if the cessation occurs in the first full year after the property is placed in service, 100% of the ITC is recaptured; in the second year, 80%; in the third year, 60%; in the fourth year, 40%; and in the fifth year, 20%. After the expiration of the five-year period, no recapture applies.
Recapture Period for Solaris West. The Solaris West project was placed in service in Q3 2020. Accordingly, the five-year recapture period runs through Q3 2025. During this period, any event that causes the Solaris West solar energy property to cease to be investment credit property — including a disposition of the property, a change in use, or certain changes in ownership — could trigger recapture of all or a portion of the ITC.
Events Triggering Recapture. The following events could trigger ITC recapture:
(a) a sale, exchange, or other disposition of the solar energy property (i.e., the physical panels, inverters, and related equipment);
(b) a cessation of the use of the property as solar energy property (e.g., a change in use to a non-qualifying purpose);
(c) a change in ownership of the entity claiming the ITC (Veltara Basin Financial, as the partner to whom the ITC was allocated) that results in the property ceasing to qualify as investment credit property; and
(d) certain structural changes to the partnership that effectively terminate the partnership for federal tax purposes (e.g., a sale or exchange of 50% or more of the total interests in partnership capital and profits within a 12-month period, which could constitute a "technical termination" under former Section 708(b)(1)(B), although this provision was repealed by the Tax Cuts and Jobs Act for partnership taxable years beginning after December 31, 2017).
Analysis of the IPO as a Potential Recapture Trigger. We have analyzed whether the proposed IPO of CBR common stock could constitute a recapture event with respect to the Solaris West ITC. Our analysis concludes that the IPO does not trigger ITC recapture for the following reasons:
(a) No disposition of project assets. The IPO does not involve a sale, exchange, or other disposition of the Solaris West project assets (i.e., the solar panels, inverters, racking systems, and other energy property). The project assets will remain within Solaris West Solar LLC before and after the IPO, with no change in the ownership of the physical property.
(b) Sale of parent-level stock, not partnership interests. The IPO involves the sale of shares of CBR common stock (the ultimate parent corporation), not the sale of membership interests in Solaris West Solar LLC. Under applicable Treasury regulations and IRS guidance, a change in ownership at the top-tier parent level — where the parent corporation is several tiers above the partnership — does not, by itself, constitute a disposition of partnership property or a change in the partnership structure sufficient to trigger ITC recapture. The chain of ownership between CBR (the entity whose shares are being sold) and Solaris West Solar LLC (the entity holding the ITC property) includes two intervening entities (CBR Holdings LLC and CB Operating), and the ownership of interests in Solaris West Solar LLC by CB Operating (as managing member) and Veltara Basin Financial (as tax-equity member) remains unchanged.
(c) Partnership structure unchanged. Solaris West Solar LLC will remain a partnership with the same two members (CB Operating and Veltara Basin Financial) after the IPO. There is no admission or withdrawal of partners, no change in the partnership allocations, and no amendment to the partnership agreement in connection with the IPO. The identity and ownership percentage of each partner remains identical before and after the IPO.
(d) Pinnacle Vista secondary sale. Pinnacle Vista's sale of 6,818,182 shares of CBR common stock ($150 million at the midpoint offering price) in the secondary component of the IPO is a sale of CBR common stock, not a sale of partnership interests in Solaris West Solar LLC. This transaction occurs at the CBR parent level and does not affect the membership interests in, or the property held by, Solaris West Solar LLC. Accordingly, the Pinnacle Vista secondary sale does not trigger ITC recapture.
Caveat — Post-IPO Change of Control. While the IPO itself does not trigger ITC recapture, there is a risk that a post-IPO change of control at the CBR level could indirectly trigger recapture. Specifically, if a post-IPO acquirer were to obtain control of CBR and subsequently cause CB Operating to be removed as managing member of Solaris West Solar LLC, or to force a sale of the project assets, recapture risk would arise. Additionally, if a post-IPO transaction were to result in a sale or exchange of 50% or more of the total interests in Solaris West Solar LLC's capital and profits (though the technical termination rule under former Section 708(b)(1)(B) was repealed by the Tax Cuts and Jobs Act for partnership taxable years beginning after December 31, 2017, other structural changes could still be relevant).
The following provisions mitigate this risk during the immediate post-IPO period:
(a) Lock-up agreements. All directors, executive officers, Pinnacle Vista Capital Partners III, LP and its affiliates, and all other stockholders holding 1% or more of CBR's outstanding shares have entered into lock-up agreements with the underwriters, restricting the sale, transfer, or pledge of CBR shares for a period of 180 days following the date of the final prospectus, subject to customary exceptions.
(b) Stockholders' agreement. The Amended and Restated Stockholders' Agreement preserves Pinnacle Vista's board designation rights on a step-down basis and includes standstill provisions that restrict third parties from acquiring a controlling stake in CBR without board approval.
(c) Change-of-control consent requirement. Any Change of Control (as defined in the Solaris West Partnership Agreement) would require the prior written consent of Veltara Basin Financial, providing an additional layer of protection against an involuntary change in the partnership structure.
Disclosure Recommendation. We recommend that the S-1 risk factors section include a risk factor discussing ITC recapture risk. The risk factor should specifically note that the five-year recapture period for the Solaris West project runs through Q3 2025 and that, while the IPO itself does not trigger recapture, certain post-IPO events (including a change of control of CBR or a forced disposition of project assets) could result in recapture of all or a portion of the approximately $112 million ITC claimed by Veltara Basin Financial on the Solaris West project. The risk factor should also note that recapture, if triggered, would result in a loss to Veltara Basin Financial and could give rise to indemnification obligations of CBR under the tax indemnification provisions of the Solaris West Partnership Agreement.
V. ITC and PTC Eligibility Across the Portfolio
A. Investment Tax Credit (ITC) — Solar Projects
The Investment Tax Credit under Section 48 of the Internal Revenue Code is available for solar energy property placed in service before the applicable statutory deadline. The ITC rate has been subject to a phase-down schedule, with the following rates applicable to CBR's solar projects:
Solaris West and Painted Rock Solar. Each of these projects claimed the 26% ITC, which is the rate applicable to solar energy property that began construction before January 1, 2020, and was placed in service within four calendar years after the calendar year in which construction began (i.e., before January 1, 2024, for projects that began construction in 2019). Both projects satisfy the "begun construction" test under IRS Notice 2018-59 (which consolidated and superseded prior notices). Specifically, both projects satisfy both the Physical Work Test (significant physical work of a nature that is relevant to the construction of the project was performed before January 1, 2020) and the Five Percent Safe Harbor (at least 5% of the total cost of the project was incurred before January 1, 2020). Documentation supporting begun-construction compliance for each project — including equipment purchase orders, construction contracts, invoices, proof of payment, and contemporaneous records — has been reviewed and is summarized in the Safe Harbor Documentation Checklist (Appendix E).
For the Solaris West project, as discussed in Section IV, the ITC was claimed by the tax-equity partnership and allocated to Veltara Basin Financial LLC. For the Painted Rock Solar project, no tax-equity structure is in place, and the ITC was claimed directly by CBR's consolidated group. The aggregate ITC claimed on the Painted Rock Solar project was approximately $83.2 million.
Cimarron Solar (Under Construction). The Cimarron Solar project began construction in 2021 and is expected to achieve COD in Q1 2023. Under the phase-down schedule applicable to solar energy property prior to the enactment of the Inflation Reduction Act of 2022, projects that began construction in 2020, 2021, or 2022 are eligible for a 26% ITC, with the rate declining to 22% for projects beginning construction in 2023 and to 10% (the permanent rate for commercial solar property) for projects beginning construction in 2024 or later. The Cimarron project's 2021 begin-construction date qualifies it for the 26% ITC.
It should be noted that the Inflation Reduction Act of 2022 ("IRA"), signed into law on August 16, 2022, may extend, modify, or increase the ITC rates applicable to solar and other clean energy projects. As of the date of this memorandum (April 25, 2022), the IRA had not yet been enacted, and our analysis is based on pre-IRA law. If the offering is reactivated following the enactment of the IRA (the offering has been dormant since June 17, 2022; see Section X), the ITC analysis for Cimarron Solar and the development-pipeline projects should be updated to reflect the new statutory framework.
CBR's management has not yet determined whether to pursue a tax-equity partnership structure for the Cimarron Solar project. If a tax-equity structure is implemented, the ITC would be allocated to the tax-equity investor rather than claimed by CBR's consolidated group, and the HLBV accounting methodology (discussed in Section VI) would need to be applied to the new partnership. This determination is expected to be made prior to the Cimarron project's COD.
B. Production Tax Credit (PTC) — Wind Projects
The Production Tax Credit under Section 45 of the Internal Revenue Code is available for electricity produced from wind energy facilities during a 10-year period beginning on the date the facility is placed in service. The PTC rate has been subject to a phase-down for wind projects, with the following rates applicable to CBR's wind projects:
Red Mesa Wind. The Red Mesa Wind project began construction in 2017 and achieved COD in Q1 2019. Projects that began construction in 2016 or 2017 qualify for 100% of the full PTC rate (i.e., no phase-down). The PTC rate for wind energy is adjusted annually for inflation; for 2021, the inflation-adjusted PTC rate was $0.026 per kWh. Red Mesa Wind's 10-year PTC eligibility period runs from Q1 2019 through Q1 2029. Based on Red Mesa's actual generation of approximately 1,300,000 MWh per year (estimated capacity factor of approximately 39%), the project generates approximately $33.8 million per year in PTC.
Pronghorn Wind. The Pronghorn Wind project began construction in 2019 and achieved COD in Q2 2021. Under the phase-down schedule, projects that began construction in 2019 qualify for 60% of the full PTC rate. The PTC rate applicable to Pronghorn (60% of the inflation-adjusted rate) was approximately $0.0156 per kWh for 2021. Pronghorn Wind's 10-year PTC eligibility period runs from Q2 2021 through Q2 2031.
Mesquite Wind (Under Construction). The Mesquite Wind project began construction in 2020 and is expected to achieve COD in Q3 2022. Projects that began construction in 2020 qualify for 60% of the full PTC rate (the same percentage as projects beginning construction in 2019). Mesquite Wind's expected 10-year PTC eligibility period would run from Q3 2022 through Q3 2032.
No Tax-Equity Structure for Wind Projects. No tax-equity partnership structure exists for any of CBR's wind projects. The PTC for each wind project is claimed directly by CBR's consolidated group on its federal income tax return. CBR's management has indicated that it did not pursue tax-equity financing for the wind projects because the PTC (which is a per-kWh credit claimed over 10 years) is less efficient to monetize through a partnership-flip structure than the ITC (which is a one-time credit based on the cost basis of the property), and because CBR had sufficient tax capacity to utilize the PTC directly at the time the wind projects were placed in service.
C. Battery Energy Storage
Brazos Energy Storage. The Brazos Storage project (200 MW / 800 MWh battery energy storage system, Fort Bend County, Texas; COD Q4 2021) is a standalone battery energy storage facility. As of the date of this memorandum, standalone battery storage is not eligible for the Investment Tax Credit under Section 48 of the Internal Revenue Code. The ITC under Section 48 applies to "energy property," which is defined to include solar energy property, fuel cell property, microturbine property, combined heat and power system property, small wind energy property, and certain other specified types of property — but does not include standalone energy storage property under pre-IRA law. Accordingly, CBR did not claim the ITC on the Brazos Storage project.
We note, however, that the Inflation Reduction Act of 2022, if enacted as proposed at the time of this memorandum, would extend ITC eligibility to standalone energy storage facilities with a capacity of 5 kWh or more. If the IRA is enacted and the offering is reactivated, the S-1 disclosure should be updated to address the potential ITC eligibility of the Brazos Storage project (which, having been placed in service in Q4 2021, may or may not qualify for the new ITC depending on t

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