CALDERWOOD & HARKNESS LLP 599 Lexington Avenue New York, New York 10022
PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
DUE DILIGENCE MEMORANDUM — REGULATORY AND PERMITTING
This memorandum has been prepared by Calderwood & Harkness LLP in its capacity as issuer's counsel to Calloway-Briggs Renewables Inc. in connection with the proposed initial public offering described herein. This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the individuals identified in the distribution list set forth at the end of this memorandum and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Calloway-Briggs Renewables Inc. The analyses, conclusions, and recommendations contained herein are based on facts and circumstances as of the date of this memorandum and are subject to change based on the receipt of additional information, changes in applicable law, or developments in the transaction.
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I. Executive Summary
The purpose of this memorandum is to summarize the results of our regulatory and permitting due diligence investigation of Calloway-Briggs Renewables Inc. ("CBR" or the "Company") in connection with the proposed initial public offering (the "IPO") of approximately $600,000,000 of shares of common stock of CBR on the New York Stock Exchange (proposed ticker symbol: CBRI). This memorandum has been prepared as part of the broader due diligence process undertaken by Calderwood & Harkness LLP ("C&H") during the period of March 21, 2022 through April 29, 2022, encompassing the initial due diligence review and S-1 registration statement drafting period.
CBR is a corporation organized under the laws of the State of Delaware, with its principal executive offices located in Austin, Texas. The Company is a developer, owner, and operator of utility-scale solar photovoltaic facilities, onshore wind energy generation facilities, and battery energy storage systems ("BESS") across the southwestern and south-central United States. As of the date of this memorandum, CBR's operating portfolio comprises approximately 3.8 gigawatts ("GW") of nameplate capacity across 22 projects located in Texas, New Mexico, Arizona, California, and Oklahoma. An additional approximately 1.4 GW of nameplate capacity is currently under active construction, and the Company maintains a development pipeline of approximately 6.2 GW across multiple states and technology types.
The scope of this memorandum encompasses the following areas of regulatory and permitting due diligence:
• Federal regulatory compliance, with particular emphasis on the Federal Energy Regulatory Commission ("FERC") and the North American Electric Reliability Corporation ("NERC");
• State public utility commission filings, registrations, and authorizations across all jurisdictions in which CBR and its subsidiaries operate or are developing projects;
• Environmental regulatory compliance at the federal and state levels, including compliance with the National Environmental Policy Act ("NEPA"), the Endangered Species Act ("ESA"), the Clean Water Act ("CWA"), the Clean Air Act ("CAA"), the National Historic Preservation Act ("NHPA"), and applicable state environmental statutes;
• Interconnection approvals, large generator interconnection agreements, and the status of development-stage interconnection queue positions;
• Construction and operating permits for all operating, under-construction, and development-stage projects; and
• Identification and analysis of pending regulatory proceedings, government investigations, or material regulatory risks that should be addressed in the S-1 registration statement disclosure.
Our investigation has been based on the following principal sources of information: (a) the Company's responses to the Calderwood & Harkness Due Diligence Request List — Regulatory / Environmental / Permitting, delivered in stages between March 28 and April 18, 2022; (b) interviews conducted with Sandra Haverford, General Counsel and Corporate Secretary of CBR, Dale Renfroe, Chief Operating Officer, Tomás Quintero, Senior Vice President, Project Development, and Priya Anand, Senior Vice President, Finance and Treasurer, conducted during the weeks of April 4 and April 11, 2022; (c) review of environmental site assessment reports prepared by Greenridge Environmental Sciences LLC ("Greenridge"), under the direction of Dr. Nadine Torres, Principal Scientist; and (d) review of regulatory filings, permits, interconnection agreements, and compliance records maintained by CBR and its project-level subsidiaries and made available to us through the Company's electronic data room.
Overall Conclusion. Based on our review, and subject to the qualifications and limitations noted throughout this memorandum, we have concluded that CBR and its subsidiaries are materially in compliance with all applicable federal, state, and local regulatory and permitting requirements. We have identified certain matters that warrant risk factor disclosure in the S-1 registration statement, as detailed in Section XI below, and certain regulatory filings, notices, and consents that must be completed in connection with or promptly following the closing of the IPO, as detailed in Section X below. Importantly, no gating regulatory issues have been identified that would prevent the IPO from proceeding on the anticipated timeline. The regulatory and permitting profile of the Company is generally consistent with that of a well-managed independent power producer of its scale and geographic footprint, and the identified matters are routine for an IPO of a renewable energy company operating in the markets served by CBR.
II. Corporate and Subsidiary Structure — Regulatory Relevance
A. Overview of Structure
CBR operates through a tiered subsidiary structure that is typical of independent power producers and project-finance-oriented energy companies. The structure is organized as follows:
• Calloway-Briggs Renewables Inc. (Delaware corporation) — the IPO issuer and ultimate parent entity;
• CBR Holdings LLC (Delaware limited liability company) — a wholly-owned intermediate holding company subsidiary of CBR;
• Calloway-Briggs Operating Company LLC (Texas limited liability company) — a wholly-owned subsidiary of CBR Holdings LLC that serves as the operating-company-level entity through which the Company's project portfolio is held; and
• Project-Level Special Purpose Vehicles ("SPVs") — each individual project is held in a separate special-purpose vehicle organized for regulatory, project-financing, and liability-isolation purposes.
This structure serves several important regulatory and commercial functions. The use of separate project-level SPVs permits each project entity to hold its own permits, interconnection agreements, power purchase agreements, and regulatory authorizations independent of other projects in the portfolio. This approach facilitates project-level financing (including construction loans, term loans, and tax-equity partnerships), isolates regulatory liabilities and operational risks at the project level, and simplifies the regulatory compliance framework by permitting each entity to maintain its own regulatory registrations and filings with the relevant federal, state, and local authorities.
B. Material Project SPVs
The following table sets forth the material project-level SPVs, their jurisdictions, and key project details:
The pipeline development entity, CBR Development Co. LLC, holds the development-stage interests in Silverleaf Wind (600 MW onshore wind, Irion County, TX), Copper Basin Solar + Storage (750 MW solar PV plus 300 MW / 1,200 MWh BESS, Riverside County, CA), and certain other early-stage development projects. Upon reaching an appropriate development milestone, these projects are expected to be transferred to dedicated project-level SPVs.
C. Regulatory Implications of the SPV Structure
The use of separate project-level SPVs has important implications for the regulatory analysis of the IPO. Because each SPV is the holder of its own permits, interconnection agreements, and regulatory authorizations, the IPO — which involves the sale of newly issued shares of common stock at the CBR parent-company level — does not constitute a direct transfer or assignment of any project-level permits or licenses. The project-level SPVs will remain as they are, with no change in the legal entities that hold the underlying regulatory authorizations.
However, as discussed in greater detail in Sections VII.B and X below, certain interconnection agreements and other project-level contracts contain change-of-control provisions that define "change of control" broadly enough to encompass changes in the ultimate ownership of the parent entity. Where such provisions exist, the IPO may trigger notice or consent requirements at the project level, even though the SPV entities themselves are not parties to the IPO transaction.
D. Tax-Equity Partnership — Solaris West
We note for completeness that the Solaris West project (450 MW solar PV, Pecos County, TX) is subject to a $280,000,000 tax-equity partnership with Veltara Basin Financial LLC, structured as a partnership-flip transaction. Under the terms of the partnership agreement, the tax-equity investor (Veltara Basin Financial LLC) currently holds the Class A membership interests in Solaris West Solar LLC, which entitle it to the majority of the investment tax credits and taxable losses generated by the project. Following the "flip" date (currently projected to occur in 2028, based on the tax-equity investor's achievement of its target after-tax return), the Class A interests will be subject to a purchase option held by Calloway-Briggs Operating Company LLC at a predetermined price.
We have reviewed the regulatory implications of the partnership-flip structure, including the question of whether the anticipated flip would constitute a change of control under the Solaris West interconnection agreement or any of the project's permits. Based on our review, no adverse regulatory consequences have been identified from the partnership flip itself, and the flip does not require any additional FERC, state regulatory, or environmental approvals. The tax aspects of this structure are addressed separately in the Tax Structure Memorandum prepared by Leonard Cross (C&H — Tax).
III. Federal Energy Regulatory Commission (FERC)
A. Exempt Wholesale Generator (EWG) Status
The Public Utility Holding Company Act of 2005 ("PUHCA 2005"), as enacted as part of the Energy Policy Act of 2005 and codified at 42 U.S.C. §§ 16451–16463, provides for the regulation of public utility holding companies. However, entities that qualify as "exempt wholesale generators" ("EWGs") under Section 1263 of the Energy Policy Act of 1992 (as amended) are exempt from most of the requirements of PUHCA 2005, including regulation as public utility holding companies.
Each of CBR's operating project SPVs has applied for and received a determination from FERC confirming its status as an EWG. These determinations were obtained in connection with, or shortly following, the achievement of commercial operation for each respective project. EWG status is a foundational element of CBR's regulatory posture, as it permits the Company's project entities to engage in the business of owning and/or operating eligible facilities used exclusively for the generation of electric energy for sale at wholesale without being subject to the full panoply of PUHCA 2005 requirements.
In addition, CBR Holdings LLC has obtained a blanket determination from FERC confirming that CBR's upstream holding-company structure — including CBR Holdings LLC, Calloway-Briggs Operating Company LLC, and CBR itself — does not result in regulation as a public utility holding company under PUHCA 2005, on the basis that the holding company's sole public-utility subsidiary interests are in entities that are EWGs.
With respect to the projects currently under construction, Mesquite Wind Holdings LLC and Cimarron Solar Development LLC have each filed applications with FERC for EWG determinations. Based on our review of the applications and the processing timelines for similar applications, we expect both determinations to be granted in the ordinary course prior to their respective commercial operation dates of Q3 2022 and Q1 2023. We note that EWG status is not a prerequisite to construction; it is required for the commencement of wholesale market operations.
Importantly for purposes of the IPO, EWG status runs with the legal entity, not with its ownership. The issuance of new shares of CBR common stock in the IPO, and the resulting change in CBR's ownership base from a private sponsor-backed company to a publicly traded company, does not affect the EWG status of any of CBR's project-level subsidiaries. No EWG-related filings with FERC are required in connection with the IPO itself.
B. Market-Based Rate (MBR) Authority
Each of CBR's operating project SPVs holds market-based rate ("MBR") authorization from FERC, which permits the sale of electric energy, capacity, and ancillary services at market-determined rates, rather than cost-based rates. MBR authorization is a prerequisite for participation in the competitive wholesale electricity markets in which CBR's projects operate, and it is the standard form of rate authorization for independent power producers of CBR's type.
FERC grants MBR authority based on a demonstration that the applicant and its affiliates lack, or have adequately mitigated, horizontal and vertical market power in the relevant geographic markets. MBR authorizations are subject to ongoing compliance requirements, including triennial review filings (in which the seller must update its market power analyses) and annual informational filings regarding the status of the seller's generation assets and affiliates.
All currently operating SPVs have current and effective MBR authorizations. We have reviewed the most recent triennial review filings for each operating SPV and confirm that such filings were timely submitted in accordance with FERC regulations. We have not identified any deficiencies in the filings or any FERC inquiries or deficiency notices related thereto.
Mesquite Wind Holdings LLC and Cimarron Solar Development LLC have each filed applications for MBR authorization, concurrent with their respective EWG applications. These applications are pending before FERC and are expected to be approved in the ordinary course prior to the commencement of commercial operations.
Change-in-Status Reporting. The IPO will trigger a change-in-status reporting obligation under 18 C.F.R. § 35.42. This regulation requires sellers with MBR authority to report to FERC any change in status that would reflect a departure from the characteristics the Commission relied upon in granting MBR authorization, including changes in the seller's ownership or affiliation. Specifically, the IPO will result in a change in CBR's ownership structure — from a privately held company whose ultimate controlling shareholder is Pinnacle Vista Capital Partners III, LP to a publicly traded company with a dispersed shareholder base (though Pinnacle Vista will retain an approximately 49% post-IPO stake on a base-offering basis). This change must be reported to FERC within 30 days after the change becomes effective (i.e., within 30 days after the closing of the IPO).
Calderwood & Harkness will prepare and file the change-in-status notifications on behalf of each MBR-authorized project SPV promptly following the closing of the IPO. These filings are informational in nature and do not require FERC approval prior to the IPO closing.
Market Power Analysis. Based on our review of the horizontal and vertical market power screens applicable to CBR's project entities, we do not believe that the IPO or the post-IPO ownership structure will cause any of CBR's project SPVs to fail the indicative market power screens in their respective relevant balancing authority areas. CBR's market share in each of the Electric Reliability Council of Texas ("ERCOT") (for Texas projects), the Southwest Power Pool ("SPP") (for the Oklahoma project), the California Independent System Operator ("CAISO") (for any future California project), and the relevant Western Electricity Coordinating Council ("WECC") subregions (for Arizona and New Mexico projects) remains well below the thresholds that would trigger a presumption of market power. The post-IPO affiliation with Pinnacle Vista and any entities it controls has been considered in this analysis, and no adverse market-power implications have been identified.
C. FERC Section 203 Approval
Section 203 of the Federal Power Act (16 U.S.C. § 824b) requires prior FERC authorization for, among other things, certain dispositions of jurisdictional facilities and mergers or acquisitions involving public utilities or public utility holding companies. The question presented is whether the IPO — the issuance and sale of new shares of CBR common stock to the investing public — requires a separate Section 203 filing with FERC.
Our analysis proceeds as follows. The IPO constitutes the sale of securities of CBR, which, through its subsidiary chain, is a holding company for public utilities (i.e., the project-level SPVs that hold MBR authority and are engaged in wholesale power sales). In certain circumstances, a transaction involving the securities of a public utility holding company could trigger the Section 203 filing requirement. However, because CBR's project entities are EWGs, the blanket authorization under 18 C.F.R. § 33.1(c)(8) — which provides that a transaction by which any person acquires, directly or indirectly, an EWG is deemed to be authorized by FERC and is exempt from the requirement of prior Section 203 approval — applies.
Conclusion. No separate FERC Section 203 filing is required for the IPO, provided that no single purchaser acquires more than the threshold percentage of voting securities that would negate the blanket authorization. Given the structure of the IPO as a public offering of common stock to a widely dispersed group of public investors, with no single purchaser expected to acquire a controlling interest, this condition is satisfied. The underwriting agreement and any applicable lock-up arrangements do not alter this analysis.
We note that Pinnacle Vista Capital Partners III, LP ("Pinnacle Vista") will continue to hold a significant equity stake in CBR following the IPO — approximately 49% of post-IPO voting power on a base-offering basis (before exercise of the underwriters' overallotment option). Pinnacle Vista's continued ownership interest does not trigger additional Section 203 requirements because Pinnacle Vista's existing ownership predates the IPO and is not a new acquisition. Moreover, the existing blanket authorizations applicable to Pinnacle Vista's indirect ownership of EWGs remain in effect. To the extent that Pinnacle Vista disposes of its CBR shares in secondary market transactions following the IPO, such sales would similarly not require Section 203 filings under the applicable blanket authorization provisions, provided that the purchaser does not thereby acquire a controlling interest in a manner that would fall outside the scope of the blanket authorization.
D. FERC Interconnection and Transmission
All of CBR's operating projects have executed Large Generator Interconnection Agreements ("LGIAs") with the applicable transmission providers or transmission service providers in their respective jurisdictions. These agreements establish the terms and conditions under which the projects are interconnected to the electric transmission grid and are permitted to inject power into the grid at their respective points of interconnection.
ERCOT Projects. The Texas-based projects — Solaris West Solar (450 MW, Pecos County), Pronghorn Wind (510 MW, Nolan County), Brazos Storage (200 MW / 800 MWh, Fort Bend County), and Mesquite Wind (420 MW, Oldham County, under construction) — have executed interconnection agreements with the relevant Transmission Service Providers ("TSPs") under ERCOT protocols. It is important to note that ERCOT operates as an independent, non-FERC-jurisdictional wholesale market. Because the ERCOT grid is not synchronously interconnected with the Eastern or Western Interconnections (except through limited direct-current ties), ERCOT is not subject to FERC jurisdiction for purposes of interconnection or transmission access. However, FERC retains jurisdiction over certain reliability-related matters within the ERCOT footprint, and the ERCOT market is subject to the oversight of the Public Utility Commission of Texas.
SPP Project. The Red Mesa Wind project (380 MW, Custer County, OK) has executed an LGIA with the applicable transmission owner under the SPP Open Access Transmission Tariff. The SPP is a FERC-approved Regional Transmission Organization ("RTO"), and the LGIA for Red Mesa Wind is subject to FERC jurisdiction.
WECC Projects. The Painted Rock Solar project (320 MW, Maricopa County, AZ) and the Cimarron Solar project (350 MW, Doña Ana County, NM, under construction) have executed LGIAs under the applicable WECC member transmission provider tariffs. These agreements are subject to FERC jurisdiction.
Development-Stage Projects. The Silverleaf Wind project (600 MW, Irion County, TX) and the Copper Basin Solar + Storage project (750 MW + 300 MW / 1,200 MWh, Riverside County, CA) are in the development stage. Interconnection applications have been filed for both projects — in the ERCOT interconnection queue for Silverleaf Wind and in the CAISO cluster study process for Copper Basin Solar + Storage. Positions in the respective interconnection queues have been confirmed through our review of documentation provided by the Company. No material interconnection-related risks have been identified at this stage for either project, beyond the normal uncertainties inherent in the queue-progression process, including the possibility of interconnection study delays, assignment of network upgrade costs, and changes to interconnection study methodologies.
We recommend that the S-1 registration statement include risk factor disclosure regarding general interconnection delay risks, transmission congestion risks, and the potential for curtailment, as these are material risks for any renewable energy developer and are expected by investors in the sector.
IV. North American Electric Reliability Corporation (NERC) Compliance
CBR's project entities are registered as Generator Owners ("GO") and Generator Operators ("GOP") with the applicable NERC Regional Entities. NERC is the Electric Reliability Organization certified by FERC under Section 215 of the Federal Power Act, and it is responsible for establishing and enforcing mandatory reliability standards applicable to the Bulk-Power System. Violations of NERC reliability standards can result in significant financial penalties (up to $1,000,000 per violation per day under the Federal Power Act), as well as other sanctions.
The NERC registrations for CBR's project entities are allocated among the applicable Regional Entities as follows:
• Texas projects (Solaris West Solar, Pronghorn Wind, Brazos Storage, Mesquite Wind): registered with the Texas Reliability Entity ("Texas RE"), the Regional Entity responsible for reliability standards compliance within the ERCOT region;
• Oklahoma project (Red Mesa Wind): registered with the Midwest Reliability Organization ("MRO") or the SPP Regional Entity ("SPP RE"), as applicable to the project's location within the SPP footprint;
• Arizona and New Mexico projects (Painted Rock Solar, Cimarron Solar): registered with WECC in its capacity as the Regional Entity for the Western Interconnection.
Our review of NERC compliance encompassed the following principal reliability standard areas: (a) Facilities Design, Connections, and Maintenance ("FAC") standards, which address the design, connection, and maintenance of generation facilities connected to the Bulk-Power System; (b) Generation Operations ("GOP") standards, which address the real-time operational requirements for generators; (c) Protection and Control ("PRC") standards, which address the design, installation, and maintenance of protection systems; and (d) Critical Infrastructure Protection ("CIP") cyber-security standards, which establish requirements for the security of cyber assets associated with the Bulk Electric System.
Findings. Based on our review of compliance records, internal audit reports, and compliance program documentation provided by the Company, as well as our discussions with Dale Renfroe (COO) and Sandra Haverford (General Counsel), we have not identified any outstanding NERC violations or pending enforcement actions involving any of CBR's project entities. All project entities maintain current compliance programs, designated compliance officers, and internal audit functions appropriate to their NERC registration categories and applicable reliability standards.
Self-Reported CIP Matters. We identified two minor self-reported matters related to CIP compliance at the Pronghorn Wind facility (510 MW, Nolan County, TX). These matters involved documentation gaps in the maintenance of certain CIP-related records and were self-reported by the Pronghorn Wind compliance officer to the Texas RE in 2021. Both matters were resolved without the imposition of any financial penalties through the NERC Find, Fix, Track and Report ("FFT") process, which is the streamlined disposition method used by NERC for lower-risk compliance issues that are promptly identified, corrected, and documented by the registered entity. The underlying documentation gaps have been remediated, and the Pronghorn Wind facility's CIP compliance program has been updated to prevent recurrence.
We recommend that the S-1 registration statement include risk factor disclosure regarding NERC compliance obligations, the potential for penalties in the event of non-compliance with mandatory reliability standards, and the evolving nature of NERC reliability standards, particularly in the areas of CIP cyber-security and inverter-based resource performance.
V. State Public Utility Commission and Regulatory Filings
A. Texas (ERCOT Market; Solaris West, Pronghorn Wind, Brazos Storage, Mesquite Wind)
Texas operates a deregulated wholesale electricity market, administered by ERCOT, in which competitive generators such as CBR's Texas project entities sell electric energy at market-determined prices. The Public Utility Commission of Texas ("PUCT") exercises regulatory oversight over the ERCOT market and the entities participating therein, but does not regulate the rates charged by competitive generators.
CBR's Texas project entities are registered as Power Generation Companies ("PGCs") with the PUCT. PGC registration is required under the Texas Utilities Code for entities that own or operate generation facilities in the ERCOT market. We have reviewed the PGC registrations for all operating Texas SPVs — Solaris West Solar LLC, Pronghorn Wind LLC, and Brazos Energy Storage LLC — and confirm that each registration is current and in good standing. Mesquite Wind Holdings LLC has filed its PGC registration application with the PUCT, and we expect the registration to be granted in the ordinary course prior to the project's expected COD of Q3 2022.
The PUCT does not require prior approval for the IPO of an upstream holding company of a PGC. However, PGC registration information — including information regarding the ultimate ownership and control of the registrant — will need to be updated following the completion of the IPO to reflect the changed ownership structure of CBR. This update is a routine informational filing and does not require PUCT review or approval.
We have confirmed with the Company that there are no pending PUCT enforcement actions, complaints, or proceedings involving CBR or any of its Texas subsidiary entities. We have also reviewed the PUCT's public docket to confirm the absence of any pending matters involving these entities.
B. Oklahoma (SPP Market; Red Mesa Wind)
The Oklahoma Corporation Commission ("OCC") exercises regulatory authority over certain aspects of electricity generation in the State of Oklahoma. Red Mesa Wind Energy LLC (380 MW onshore wind, Custer County, OK) operates under applicable OCC permits and registrations. The project sells its output under a long-term power purchase agreement ("PPA"), and all regulatory filings with the OCC are current and in good standing.
We have confirmed that there are no pending OCC proceedings, enforcement actions, or complaints involving Red Mesa Wind Energy LLC.
With respect to the IPO, the OCC does not require prior approval for the initial public offering of an upstream holding company of an Oklahoma generation entity. However, as a matter of good regulatory practice, we recommend that an informational filing be made with the OCC following the completion of the IPO, advising the Commission of the change in CBR's ownership structure. This filing is advisory in nature and is not expected to generate any substantive regulatory proceedings.
C. Arizona (WECC; Painted Rock Solar)
The Arizona Corporation Commission ("ACC") is the principal regulatory body governing electric utilities in the State of Arizona. However, Painted Rock Solar LLC (320 MW solar PV, Maricopa County, AZ) operates as an independent power producer selling electric energy exclusively at wholesale. Under Arizona law, wholesale-only generators are not classified as regulated "public service corporations" and are therefore not subject to the ACC's rate-setting jurisdiction or the requirement to obtain a Certificate of Convenience and Necessity ("CC&N").
We have confirmed that all applicable ACC informational filings for Painted Rock Solar LLC are current. There are no pending ACC proceedings, enforcement actions, or complaints involving this entity.
The IPO does not require any prior ACC approval, and no post-IPO ACC filings are required.
D. New Mexico (WECC; Cimarron Solar)
The New Mexico Public Regulation Commission ("NMPRC") regulates electric utilities in the State of New Mexico. Cimarron Solar Development LLC (350 MW solar PV, Doña Ana County, NM) operates as a wholesale generator and is not classified as a "public utility" under New Mexico law for purposes of NMPRC rate regulation. Wholesale generators that do not serve retail customers are generally exempt from the NMPRC's certification and rate-regulation requirements.
All applicable facility permits and construction authorizations for the Cimarron Solar project have been obtained from Doña Ana County and the relevant New Mexico state agencies. We have confirmed that there are no pending NMPRC proceedings, enforcement actions, or complaints involving Cimarron Solar Development LLC.
The IPO does not require any prior NMPRC approval.
E. California (WECC/CAISO; Copper Basin Solar + Storage — Development Stage)
California presents a more complex regulatory environment than the other states in which CBR currently operates, reflecting the layered jurisdictional authority of the California Public Utilities Commission ("CPUC") and the California Energy Commission ("CEC"), as well as the stringent environmental review requirements under the California Environmental Quality Act ("CEQA").
The Copper Basin Solar + Storage project (750 MW solar PV + 300 MW / 1,200 MWh BESS, Riverside County, CA) is currently in the development stage, with an expected commercial operation date of Q2 2025. As a thermal power plant equivalent exceeding 50 MW, the project may fall within the CEC's exclusive siting jurisdiction, which would require either a Small Power Plant Exemption ("SPPE") or a full Application for Certification ("AFC") with the CEC, depending on the final design and configuration of the facility. The Company's permitting strategy for this project is currently under review by the project development team and external permitting consultants, and a final determination regarding the applicable CEC permitting pathway has not yet been made.
The CPUC will have jurisdiction over the Copper Basin project to the extent the project enters into PPAs with California investor-owned utilities ("IOUs"), as such PPAs are subject to CPUC review and approval. There are no pending CPUC proceedings involving the Copper Basin project at this time.
We recommend that the S-1 registration statement include risk factor disclosure specifically addressing the more complex permitting environment in California, including the potential for extended timelines associated with CEC permitting, CEQA environmental review, and the possibility of third-party litigation challenges to project approvals. These risks are common to all large-scale energy projects in California and are well-understood by investors in the renewable energy sector, but they warrant clear disclosure in the registration statement.
VI. Environmental Regulatory Compliance
A. Federal Environmental Statutes
1. National Environmental Policy Act (NEPA)
The National Environmental Policy Act ("NEPA"), 42 U.S.C. §§ 4321–4370h, requires federal agencies to assess the environmental impacts of proposed "major federal actions significantly affecting the quality of the human environment." NEPA review is triggered for renewable energy projects when the project is located on federal land, requires a federal permit or approval, or receives federal funding.
Red Mesa Wind (Custer County, OK). Portions of the Red Mesa Wind project site are located on or adjacent to land managed by the Bureau of Land Management ("BLM"), requiring BLM involvement in the project's land-use authorizations. Due to this federal nexus, a NEPA Environmental Assessment ("EA") was prepared for the Red Mesa Wind project. The EA evaluated the potential environmental impacts of the project, including impacts on wildlife, water resources, cultural resources, visual resources, and land use. Based on the findings of the EA, the BLM issued a Finding of No Significant Impact ("FONSI") in Q4 2018, prior to the commencement of construction. The FONSI concluded that the project, with the incorporation of identified mitigation measures, would not have a significant impact on the environment and that preparation of an Environmental Impact Statement ("EIS") was not required. We have reviewed the EA and FONSI and confirmed that the project is in compliance with the conditions and mitigation measures set forth therein.
Cimarron Solar (Doña Ana County, NM). The Cimarron Solar project required a BLM right-of-way grant for a portion of its transmission interconnection facilities. This federal action triggered NEPA review, and a NEPA EA was prepared by the BLM's New Mexico State Office. The BLM issued a FONSI for the Cimarron Solar project in Q2 2021, concluding that the project, with the incorporation of identified mitigation measures, would not result in significant environmental impacts. We have reviewed the EA and FONSI and confirmed compliance with the stated conditions.
Other Projects. The remaining operating and under-construction projects (Solaris West, Painted Rock Solar, Pronghorn Wind, Brazos Storage, and Mesquite Wind) did not involve a federal nexus sufficient to trigger full NEPA review. These projects were subject to state and local environmental review processes, as described in Section VI.B below.
2. Endangered Species Act (ESA)
The Endangered Species Act ("ESA"), 16 U.S.C. §§ 1531–1544, prohibits the "take" (including harassment, harm, or killing) of species listed as endangered or threatened under the Act, and requires federal agencies to ensure that their actions are not likely to jeopardize the continued existence of listed species or result in the destruction or adverse modification of designated critical habitat.
Section 7 Consultations. Formal Section 7 consultations were completed with the U.S. Fish and Wildlife Service ("USFWS") for the following projects:
• Red Mesa Wind (Custer County, OK): The Section 7 consultation addressed concerns relating to migratory birds and bat species, which are of particular relevance to onshore wind energy facilities due to the risk of avian and bat mortality from turbine blade strikes. The consultation resulted in a biological opinion from USFWS addressing the potential effects of the project on listed and candidate species.
• Painted Rock Solar (Maricopa County, AZ): The Section 7 consultation addressed concerns relating to the Sonoran desert tortoise (Gopherus morafkai), which is present in the project area and is a candidate species for listing under the ESA. The consultation resulted in a biological opinion that concluded the project would not jeopardize the continued existence of the species, subject to implementation of certain operational restrictions during the tortoise's active season (generally March through October).
Incidental Take Permits (ITPs). Red Mesa Wind Energy LLC operates under a Habitat Conservation Plan ("HCP") with an associated Incidental Take Permit ("ITP") issued by USFWS in 2018 for certain bat species, including the Indiana bat (Myotis sodalis) and the northern long-eared bat (Myotis septentrionalis). The ITP authorizes incidental take of these species in connection with the operation of the wind facility, subject to compliance with the terms and conditions of the HCP, including curtailment measures during high-risk periods and financial contributions to habitat conservation funds. The ITP was issued for a 30-year term. Based on our review of the Company's compliance records, we have confirmed that Red Mesa Wind is in current compliance with the terms and conditions of the HCP and ITP.
Painted Rock Solar LLC obtained a biological opinion from USFWS, but an ITP was not required. The project is subject to operational restrictions during the desert tortoise's active season, including daily biological surveys of the project site during certain construction and maintenance activities and relocation protocols for any tortoises found within the project fence line. Compliance with these restrictions is current.
Avian and Bat Mortality Monitoring. Avian and bat mortality monitoring programs are in place at Red Mesa Wind, Pronghorn Wind, and Mesquite Wind (under construction). These monitoring programs are consistent with the USFWS Land-Based Wind Energy Guidelines and involve systematic fatality searches, carcass removal trials, and searcher efficiency trials. Annual monitoring reports are filed with USFWS. We have reviewed the most recent annual reports and have not identified any findings that would indicate a material ESA compliance issue or trigger the need for additional take authorization.
We recommend that the S-1 registration statement include risk factor disclosure regarding ESA compliance costs, the potential for operational restrictions (including curtailment) associated with listed species protections, and the risk that future species listings or critical habitat designations could affect CBR's existing or planned projects.
3. Clean Water Act (CWA)
The Clean Water Act ("CWA"), 33 U.S.C. §§ 1251–1387, regulates discharges of pollutants into the waters of the United States and establishes a permitting framework for activities affecting wetlands and other jurisdictional waters.
Section 404 Permits. Section 404 of the CWA requires permits from the U.S. Army Corps of Engineers ("USACE") for the discharge of dredged or fill material into waters of the United States, including wetlands. Nationwide permits ("NWPs") were obtained from USACE for minor wetland and waters impacts at the Red Mesa Wind and Cimarron Solar project sites, where construction activities required minor fill or grading within or adjacent to jurisdictional waters. These NWPs are standard authorizations for utility-line activities, road crossings, and similar minor impacts, and they were obtained prior to the commencement of construction at each site. Compliance with the terms and conditions of the NWPs is current.
Section 402 NPDES Stormwater Permits. Section 402 of the CWA establishes the National Pollutant Discharge Elimination System ("NPDES") permitting program, which includes stormwater discharge permits for construction and industrial activities. All of CBR's operating and under-construction project sites have obtained Construction General Permits ("CGPs") and, where applicable, Multi-Sector General Permits ("MSGPs") for stormwater discharges associated with construction and operational activities. Stormwater Pollution Prevention Plans ("SWPPPs") have been prepared and are maintained at each project site. We have confirmed that all NPDES stormwater permits are current, and the Company has represented that all required stormwater monitoring, inspection, and reporting requirements are being satisfied.
We have not identified any pending CWA enforcement actions involving CBR or any of its project subsidiaries.
4. Clean Air Act (CAA)
The Clean Air Act ("CAA"), 42 U.S.C. §§ 7401–7671q, regulates emissions of air pollutants from stationary and mobile sources. Utility-scale solar photovoltaic and wind energy generation facilities do not produce air emissions during normal operations and are therefore generally not subject to CAA permitting requirements, including Title V operating permits.
Brazos Storage (200 MW / 800 MWh BESS, Fort Bend County, TX), as a battery energy storage system, likewise does not produce air emissions during normal charging and discharging operations and is not subject to CAA permitting.
Certain of CBR's project facilities include emergency backup diesel generators for use during grid outages or other emergency conditions. These generators are subject to minor source air quality permits under applicable state and local regulations, but do not trigger Title V permitting thresholds. We have confirmed that all required air quality permits for emergency backup generators are current.
5. National Historic Preservation Act (NHPA) / Section 106
Section 106 of the National Historic Preservation Act ("NHPA"), 54 U.S.C. § 306108, requires federal agencies to take into account the effects of their undertakings on historic properties and to afford the Advisory Council on Historic Preservation a reasonable opportunity to comment. Section 106 consultations are triggered for renewable energy projects that involve a federal undertaking (e.g., BLM land-use authorizations, NEPA reviews).
Section 106 consultations were completed for all CBR projects for which a federal nexus existed. Cultural resource surveys, including Phase I archaeological surveys and architectural history surveys, were conducted prior to construction at all project sites to identify any cultural resources that might be affected by project development.
Mesquite Wind (420 MW, Oldham County, TX). During the Section 106 consultation process for the Mesquite Wind project, one historic property eligible for listing on the National Register of Historic Places was identified adjacent to (but not within) the project boundary. The property is a late-19th-century ranch homestead and associated outbuildings. A Memorandum of Agreement ("MOA") was executed between the lead federal agency, the Texas State Historic Preservation Office ("SHPO"), and CBR, establishing avoidance measures to ensure that the eligible historic property is not adversely affected by project construction or operations. The avoidance measures include setback distances for turbine placement, visual screening, and construction traffic routing. Compliance with the MOA is current, and the Company has incorporated the avoidance measures into its construction management plan for the Mesquite Wind project.
No material cultural resource issues were identified at any of the other project sites.
B. State Environmental Requirements
1. Texas. The Texas Commission on Environmental Quality ("TCEQ") is the primary state environmental regulatory agency in Texas. CBR's Texas projects have obtained applicable TCEQ permits, including stormwater permits under the Texas Pollutant Discharge Elimination System ("TPDES") and water-use authorizations for construction and operational water needs. Renewable energy facilities such as solar, wind, and battery storage facilities do not require material TCEQ air quality permits, as they do not emit regulated air pollutants during normal operations.
We have confirmed that there are no pending TCEQ enforcement actions, complaints, or notices of violation involving CBR or any of its Texas SPVs.
2. Oklahoma. The Oklahoma Department of Environmental Quality ("ODEQ") regulates environmental matters in Oklahoma. The Red Mesa Wind project obtained construction stormwater permits from ODEQ prior to the commencement of construction. Post-construction, the project operates in compliance with applicable stormwater management requirements.
We have confirmed that there are no pending ODEQ proceedings, enforcement actions, or complaints involving Red Mesa Wind Energy LLC.
3. Arizona. The Arizona Department of Environmental Quality ("ADEQ") regulates environmental matters in Arizona. Painted Rock Solar LLC obtained stormwater discharge permits from ADEQ for construction and operational stormwater discharges. In addition, dust control plans were filed with the Maricopa County Air Quality Department, as required for large-scale construction activities in the Maricopa County dust control area. Compliance with all ADEQ and county-level environmental permits and requirements is current.
We have confirmed that there are no pending ADEQ or county-level enforcement actions involving Painted Rock Solar LLC.
4. New Mexico
The New Mexico Environment Department ("NMED") is the principal state environmental regulatory agency in New Mexico. Cimarron Solar Development LLC obtained stormwater and construction permits from NMED for the Cimarron Solar project. Compliance with all NMED permits is current, and all required monitoring and reporting obligations are being satisfied.
We have confirmed that there are no pending NMED enforcement actions or proceedings involving Cimarron Solar Development LLC.
5. California (Development Stage)
The Copper Basin Solar + Storage project (750 MW solar PV + 300 MW / 1,200 MWh BESS, Riverside County, CA) is in the development stage and will be subject to the California Environmental Quality Act ("CEQA") environmental review process. CEQA requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible. For a project of the scale and nature of Copper Basin Solar + Storage, CEQA review is anticipated to require preparation of an Environmental Impact Report ("EIR"), which is the most comprehensive level of CEQA documentation. The EIR process involves public scoping, preparation of a draft EIR, a public comment period, preparation of a final EIR, certification of the EIR by the lead agency, and the filing of a Notice of Determination.
The timeline for CEQA review will depend on the CEC permitting pathway selected for the project (SPPE vs. AFC) and the nature and scope of environmental issues raised during the review process. Based on comparable projects in the region, the CEQA process could take 18 to 36 months from initiation to certification, though this timeline is subject to significant variability.
We strongly recommend that the S-1 registration statement include risk factor disclosure addressing CEQA review timelines, the potential for third-party litigation challenges to CEQA certifications (which are common for large-scale energy projects in California), and the possibility that CEQA-mandated mitigation measures could affect the project's design, cost, or schedule.
C. Phase I / Phase II Environmental Site Assessments
Greenridge Environmental Sciences LLC ("Greenridge"), under the direction of Dr. Nadine Torres, Principal Scientist, conducted Phase I Environmental Site Assessments ("Phase I ESAs") for all operating and under-construction project sites in CBR's portfolio. The Phase I ESAs were conducted in accordance with ASTM International Standard Practice E1527-21 and included historical research, regulatory records review, site reconnaissance, and interviews with current and former site owners and operators. The purpose of the Phase I ESAs was to identify recognized environmental conditions ("RECs") — the presence or likely presence of any hazardous substances or petroleum products in, on, or at a property that are indicative of an existing release, a past release, or a material threat of a release.
Phase II ESAs, involving subsurface investigations (soil and/or groundwater sampling), were conducted at select project sites where the Phase I findings identified RECs warranting further investigation.
Summary of Findings:
• No material environmental contamination was identified at any of CBR's project sites.
• Red Mesa Wind (Custer County, OK): The Phase I ESA identified a minor REC associated with historical agricultural chemical use on an adjacent property. Phase II soil and groundwater sampling was conducted on the portions of CBR's leased parcels nearest to the adjacent property. The Phase II investigation confirmed that no contamination from the adjacent property had migrated onto CBR's leased parcels, and no further investigation or remediation was recommended by Greenridge.
• Mesquite Wind (Oldham County, TX): The Phase I ESA identified a historical REC associated with former oil and gas operations on a small portion of the leased acreage. Specifically, a plugged and abandoned oil well and associated surface disturbance were identified during the site reconnaissance. Phase II soil sampling was conducted in the vicinity of the former wellsite. The Phase II investigation confirmed that no residual contamination requiring remediation was present, and Greenridge concluded that the historical oil and gas operations did not pose a material environmental risk to the project.
• All Other Sites: Phase I ESAs for the remaining project sites (Solaris West, Painted Rock Solar, Pronghorn Wind, Brazos Storage, and Cimarron Solar) did not identify any RECs requiring Phase II investigation.
Greenridge Environmental Sciences LLC has been requested to provide its written consent for reference to its Phase I and Phase II ESA reports in the S-1 registration statement, to the extent that such reference is determined to be appropriate. We are coordinating with Greenridge on the form of the consent letter.
VII. Interconnection Approvals and Transmission
A. Executed Interconnection Agreements
The following table summarizes the executed LGIAs for all of CBR's operating and under-construction projects:
All executed LGIAs contain standard interconnection service provisions, including specifications for the point of interconnection, interconnection facilities, network upgrade requirements (where applicable), metering requirements, operational and maintenance responsibilities, and milestones for the completion of interconnection facilities. We have reviewed each LGIA and confirmed that the project entities are in compliance with their respective interconnection obligations.
B. Change-of-Control Provisions in Interconnection Agreements
We have reviewed all executed LGIAs for provisions relating to assignment, transfer, and change of control. The results of our review are summarized below.
General Provisions. Most of the LGIAs contain standard assignment restrictions that require the consent of the transmission provider (or, in the case of ERCOT agreements, the applicable TSP) for any assignment or transfer of the interconnection agreement. These provisions are typical of utility-grade interconnection agreements and are designed to ensure that the transmission provider retains the ability to assess the financial and technical qualifications of the entity holding the interconnection agreement.
Analysis of IPO Impact. The IPO involves the issuance and sale of new shares of CBR common stock at the parent-company level. It does not involve a direct assignment or transfer of any project-level interconnection agreement. The SPV entities that are parties to the LGIAs will remain unchanged following the IPO, and the SPVs' membership interests will continue to be held by Calloway-Briggs Operating Company LLC, which in turn will continue to be held by CBR Holdings LLC and CBR. Accordingly, the IPO does not constitute an "assignment" of any LGIA under the standard meaning of that term.
However, certain LGIAs contain "change-of-control" definitions that are broader than a simple assignment provision and that may encompass changes in the ultimate ownership structure of the entity that holds the interconnection agreement. Our review identified the following agreements with change-of-control provisions that are potentially implicated by the IPO:
• Painted Rock Solar LGIA (Arizona Public Service Company): This agreement contains a change-of-control provision that requires the interconnection customer to provide written notice to the transmission owner of any change of control at the ultimate parent level, defined to include any transaction that results in a change in the entity that controls, directly or indirectly, more than 50% of the voting securities of the interconnection customer or any entity in the interconnection customer's ownership chain. The provision requires notice but does not require the transmission owner's prior consent. The IPO will result in a reduction of Pinnacle Vista's ownership stake from 100% to approximately 49% (on a base-offering basis), which constitutes a change in the entity controlling more than 50% of CBR's voting securities. Accordingly, we believe that notice under this provision is required.
• Cimarron Solar LGIA (Hollowell Group): This agreement contains a more restrictive change-of-control provision that requires the prior written consent of the transmission owner for any change of control, which is broadly defined to include any direct or indirect change in ownership of 50% or more of the voting securities of the interconnection customer or any entity in the interconnection customer's ownership chain. The IPO triggers this provision for the same reasons described above with respect to the Painted Rock Solar LGIA. Unlike the Painted Rock Solar provision, however, the Cimarron Solar provision requires affirmative consent rather than mere notice.
Recommended Actions. We recommend the following actions:
1. Painted Rock Solar: Prepare and send a written notice to Arizona Public Service Company advising of the anticipated change of control associated with the IPO. This notice should be sent sufficiently in advance of the IPO closing to satisfy any contractual notice-period requirements, and in any event no later than 10 business days prior to the anticipated pricing date.
2. Cimarron Solar: Prepare and send a consent request to Hollowell Group seeking prior written consent to the change of control associated with the IPO. Given the consent requirement, this request should be sent promptly and should be accompanied by sufficient information regarding CBR's post-IPO ownership structure and financial condition to facilitate the transmission owner's review. We note that the Cimarron Solar consent request should be coordinated with the required lender notice to Prairie Commercial Bank, N.A. (contact: Brent Hollowell, Senior Vice President) under the $143,000,000 construction-to-term credit facility for the Cimarron Solar project, as the credit agreement may also contain change-of-control provisions that are triggered by the IPO.
We recommend that the S-1 registration statement include risk factor disclosure regarding assignment and change-of-control restrictions in interconnection agreements, including the risk that failure to obtain required consents could, in theory, result in a default under or termination of an interconnection agreement.
C. Development-Stage Interconnection Queue Positions
Silverleaf Wind (600 MW, Irion County, TX). An interconnection application for the Silverleaf Wind project has been filed with ERCOT. The project is currently in the ERCOT Generation Interconnection Study ("GIS") process, which involves a screening study, a full interconnection study, and the negotiation and execution of an interconnection agreement. Based on information provided by the Company, no material interconnection cost issues have been identified to date in the screening study phase. However, the ERCOT interconnection queue has experienced significant congestion in recent years due to the large volume of renewable energy and battery storage projects seeking interconnection, and there is a risk that interconnection study timelines could be extended and that the project could be assigned significant network upgrade costs.
Copper Basin Solar + Storage (750 MW + 300 MW / 1,200 MWh, Riverside County, CA). An interconnection application for the Copper Basin Solar + Storage project has been filed with the CAISO. The project is currently in the CAISO Cluster Study process, which involves a Phase I interconnection study, a Phase II interconnection study, and the negotiation and execution of a generator interconnection agreement. The CAISO cluster study process is subject to typical timelines of 3–5 years from application to executed interconnection agreement, and the project is subject to potential network upgrade cost allocations that will not be known until completion of the cluster studies.
We recommend that the S-1 registration statement include risk factor disclosure regarding the general risks associated with interconnection queue backlogs, the potential for delays in the interconnection process, and the potential for significant network upgrade costs that could affect the economic viability of development-stage projects.
VIII. Construction Permits and Approvals
A. Mesquite Wind (420 MW, Oldham County, TX — Under Construction, Expected COD Q3 2022)
The Mesquite Wind project is a 420 MW onshore wind generation facility currently under active construction in Oldham County, Texas, with an expected commercial operation date of Q3 2022. The following construction permits and approvals have been obtained for the project:
• County Building Permits: Building permits for the wind turbine foundations, access roads, collector system, substation, operations and maintenance building, and associated infrastructure have been issued by Oldham County. All permits are current and in good standing.
• FAA Determinations of No Hazard: The Federal Aviation Administration ("FAA") has issued Determinations of No Hazard to Air Navigation for all proposed turbine locations at the Mesquite Wind project, as required under 14 C.F.R. Part 77 for structures exceeding 200 feet above ground level. The Determinations confirm that the proposed wind turbines do not pose a hazard to air navigation and are not subject to any marking or lighting requirements beyond those specified in FAA Advisory Circular 70/7460-1M. All FAA Determinations are current and valid.
• Texas Parks and Wildlife Department ("TPWD") Consultation: A consultation was conducted with TPWD regarding potential impacts of the project on state-listed wildlife species and wildlife habitats. The consultation concluded that no significant wildlife impacts are anticipated, and no operational restrictions were imposed by TPWD.
• TCEQ Stormwater Permit: A construction general stormwater permit has been obtained from TCEQ, and a Stormwater Pollution Prevention Plan is in place and being implemented at the project sit