MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
I. Executive Summary
The purpose of this memorandum is to summarize the findings of Calderwood & Harkness LLP's ("C&H") review of environmental due diligence materials in connection with the proposed formation of a 50/50 joint venture between Calloway-Briggs Renewables Inc. ("CBR") and Lumen Ridge Infrastructure Partners LLC ("Lumen Ridge"). The joint venture will be structured as Solstice Plateau Energy Holdings LLC, a Delaware limited liability company (the "JV" or "Solstice Plateau"). The transaction contemplates that CBR will contribute eight utility-scale solar photovoltaic development projects (collectively, the "Portfolio" or the "Projects") totaling approximately 1,200 megawatts direct current ("MW DC") of nameplate generation capacity to the JV entity, at an agreed portfolio valuation of $90,000,000. Lumen Ridge will contribute cash equity in a corresponding amount to fund development and construction of the Projects. The transaction is governed by, among other agreements, a Contribution Agreement between CBR and Solstice Plateau, an Amended and Restated Limited Liability Company Agreement of Solstice Plateau, and ancillary transaction documents.
The eight Projects comprising the Portfolio are located across three states in the southwestern United States: five projects in Texas (totaling approximately 780 MW DC), two projects in New Mexico (totaling approximately 260 MW DC), and one project in Arizona (approximately 160 MW DC). Collectively, the Projects encompass approximately 14,340 acres of leased land in various stages of development.
C&H's environmental review was conducted as part of the broader legal and commercial due diligence for this transaction, which commenced on October 2, 2023. Our review encompassed the Phase I Environmental Site Assessments ("Phase I ESAs") and Phase II Environmental Site Assessments ("Phase II ESAs") prepared by TerraNova Environmental Sciences Inc. ("TerraNova"), an environmental consulting firm headquartered in Austin, Texas, under the direction of Dr. Sharon Kessler, Senior Project Manager. In addition, we reviewed National Environmental Policy Act ("NEPA") categorical exclusion documentation, state-level environmental permits and permit applications, endangered species and biological resource surveys, wetlands delineations, cultural resource assessments, stormwater pollution prevention plans, Bureau of Land Management ("BLM") environmental review documentation for the two New Mexico projects sited on BLM-leased land, environmental representations and warranties contained in the draft Contribution Agreement, and related environmental compliance records and regulatory correspondence.
Overall Conclusion: Based on our review of the foregoing materials, no material recognized environmental conditions ("RECs") were identified at any of the eight project sites comprising the Portfolio. All Projects are in compliance with, or are in the process of obtaining, applicable environmental permitting requirements under federal, state, and local law. The sole material open environmental or permitting item as of the date of this memorandum is a pending state environmental permit for the Brazos Point project in Wharton County, Texas. Receipt of that permit is a condition to closing of the JV transaction under the Contribution Agreement and the LLC Agreement. We note that the Brazos Point permit was subsequently received on January 10, 2024. The environmental profile of the Portfolio is, on the whole, clean and consistent with CBR's environmental representations and warranties in the transaction documents.
II. Scope of Review
A. Documents and Materials Reviewed
In conducting our environmental due diligence review, C&H reviewed the following categories of documents and materials, which were made available through the electronic data room maintained by CBR and supplemented by direct production from TerraNova and applicable regulatory agencies:
1. Phase I Environmental Site Assessments. Phase I ESAs for all eight project sites, prepared by TerraNova in accordance with ASTM International Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process. Each Phase I ESA included a records review of applicable federal, state, and local environmental databases, a historical use review utilizing aerial photographs, topographic maps, and (where available) Trelwick fire insurance maps, a physical site reconnaissance, and interviews with current owners and/or operators of the subject properties. The Phase I ESAs were completed between approximately August and September 2023.
2. Phase II Environmental Site Assessments. Phase II ESAs for select project sites where Phase I findings or local geological and land-use conditions warranted further confirmatory investigation, also prepared by TerraNova in accordance with ASTM International Standard E1903-19, Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process. Phase II work included limited subsurface soil sampling and, where applicable, groundwater screening.
3. NEPA Documentation. NEPA categorical exclusion documentation for each of the eight Projects, including, where applicable, documentation of the basis for the categorical exclusion determination, agency correspondence, and supporting environmental analyses.
4. State Environmental Permit Applications and Approvals. State environmental permit applications and issued permits from the Texas Commission on Environmental Quality ("TCEQ"), the New Mexico Environment Department ("NMED"), and the Arizona Department of Environmental Quality ("ADEQ"), as applicable to each project site. This included stormwater discharge permits, construction general permits, and aquifer protection permits.
5. Bureau of Land Management Documentation. BLM environmental review documentation for the two New Mexico Projects (Sangre del Sol I and Sangre del Sol II), both of which are located on BLM-leased land in Doña Ana County, New Mexico. The BLM documentation included NEPA categorical exclusion determinations, biological resource surveys, and cultural resource assessments specific to the BLM-managed parcels.
6. Biological and Cultural Resource Assessments. Endangered species and biological resource surveys conducted for each project site in accordance with the federal Endangered Species Act ("ESA"), applicable state endangered species laws, and BLM lease requirements. Wetlands delineations prepared in accordance with U.S. Army Corps of Engineers ("USACE") guidance. Cultural resource assessments, including archaeological surveys and historic property evaluations, conducted in accordance with Section 106 of the National Historic Preservation Act ("NHPA") and applicable state requirements.
7. Stormwater Pollution Prevention Plans ("SWPPPs"). SWPPPs prepared for each project site in connection with construction stormwater discharge permitting.
8. Environmental Representations and Warranties. The environmental representations and warranties set forth in Article IV of the draft Contribution Agreement, dated as of October 15, 2023, between CBR and Solstice Plateau Energy Holdings LLC.
9. Regulatory Correspondence. Correspondence between CBR (and its environmental consultants) and applicable federal, state, and local regulatory agencies relating to environmental permitting, compliance, and review of the project sites.
B. Limitations and Qualifications
This memorandum is subject to the following important limitations and qualifications:
• No Independent Testing. This memorandum summarizes C&H's legal review of the environmental reports, permits, and related materials described above. C&H did not independently conduct environmental testing, field investigations, sampling, or site inspections at any of the eight project sites. Our review is based exclusively on the documentary record provided to us.
• Reliance on Environmental Consultant. We have relied upon the professional conclusions, findings, and recommendations of TerraNova Environmental Sciences Inc., and specifically Dr. Sharon Kessler, as the qualified environmental consultant retained for this engagement. TerraNova's qualifications and scope of engagement are summarized in Appendix C to this memorandum. We have not independently verified TerraNova's factual findings or technical conclusions.
• Potential Unidentified Conditions. Environmental conditions may exist at one or more of the project sites that were not identified in the Phase I or Phase II ESAs, that were not discoverable through the methodologies employed, or that post-date the site assessments. No environmental assessment can eliminate all uncertainty regarding the potential for recognized environmental conditions.
• Not a Legal Opinion. This memorandum does not constitute a legal opinion on the environmental compliance status of any of the eight project sites, nor does it constitute a legal opinion on any other matter. It is intended solely as a summary of our environmental due diligence review for the internal use of the C&H deal team in connection with this transaction.
• Date Limitation. The information contained in this memorandum is current as of the date hereof. Developments occurring after October 28, 2023 are not reflected except where specifically noted (e.g., the subsequent receipt of the Brazos Point permit on January 10, 2024).
III. Summary of Phase I Environmental Site Assessments
A. Overview of Phase I ESA Methodology
TerraNova conducted Phase I ESAs for all eight project sites comprising the Portfolio. All Phase I ESAs were prepared in accordance with ASTM International Standard E1527-21, Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, which is the current industry standard and satisfies the "All Appropriate Inquiries" requirements under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq., and the implementing regulations at 40 C.F.R. Part 312.
Each Phase I ESA included the following principal components:
• Records Review. A comprehensive review of federal, state, tribal, and local environmental databases, including the U.S. Environmental Protection Agency's ("EPA") CERCLIS, RCRIS, and NPL databases; state equivalents maintained by TCEQ, NMED, and ADEQ; and local agency records, as applicable.
• Historical Use Review. A review of historical sources to evaluate the prior uses of each project site and surrounding properties, including aerial photographs (dating back to the earliest available coverage), historical topographic maps published by the United States Geological Survey ("USGS"), Trelwick fire insurance maps (where available for the relevant geographic area), and other historical land-use records.
• Site Reconnaissance. A physical site visit and visual inspection of each project site and, to the extent accessible, adjoining properties, conducted by qualified TerraNova environmental professionals under the supervision of Dr. Sharon Kessler.
• Interviews. Interviews with current property owners, site operators, local government officials, and other knowledgeable parties regarding the environmental history and current conditions of each project site.
TerraNova completed all Phase I ESAs between approximately August 14, 2023 and September 22, 2023. The specific completion date for each individual Phase I ESA is set forth in the Summary Table in Section III.C below and in Appendix A.
B. Project-by-Project Phase I ESA Findings
Set forth below is a summary of the Phase I ESA findings for each of the eight project sites, organized by state and in descending order of nameplate capacity within each state grouping.
1. Red Mesa Solar I — Pecos County, Texas.
• Nameplate Capacity: 200 MW DC
• Site Acreage: Approximately 2,400 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: August 14, 2023
Findings: The Phase I ESA for the Red Mesa Solar I site identified no recognized environmental conditions ("RECs"), no controlled recognized environmental conditions ("CRECs"), and no historical recognized environmental conditions ("HRECs"). The site has been historically used for ranching and agricultural grazing, consistent with the predominant land use in the surrounding area of Pecos County. TerraNova's records review found no listings for the subject property on any federal, state, or local environmental databases. The historical use review confirmed continuous agricultural and pastoral use of the property for the entirety of the available photographic and cartographic record. The site reconnaissance revealed no evidence of underground storage tanks ("USTs"), above-ground storage tanks ("ASTs"), hazardous substance storage or handling areas, releases or spills, disposal areas, or other indicators of environmental contamination. No de minimis environmental conditions were noted. TerraNova did not recommend any further environmental investigation for this site.
2. Red Mesa Solar II — Pecos County, Texas.
• Nameplate Capacity: 180 MW DC
• Site Acreage: Approximately 2,100 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: August 18, 2023
Findings: The Phase I ESA for the Red Mesa Solar II site identified no RECs, CRECs, or HRECs. The site is adjacent to the Red Mesa Solar I project site and shares a similar historical land-use profile, consisting predominantly of ranching and agricultural grazing. TerraNova's records review found no listings for the subject property on any environmental databases. The site reconnaissance revealed no evidence of prior industrial activity, hazardous material storage, or contamination.
TerraNova noted one minor historical environmental condition: an abandoned water well located on the eastern portion of the site. Upon further investigation, TerraNova confirmed that the well was properly plugged and capped in accordance with applicable regulations administered by the Texas Department of Licensing and Regulation ("TDLR"). Documentation of the well plugging was obtained from TDLR records and reviewed by TerraNova. This condition does not constitute a REC under the ASTM E1527-21 standard. As a precautionary measure, TerraNova recommended limited confirmatory soil sampling in the vicinity of the abandoned well, which was subsequently conducted as part of the Phase II ESA process (discussed in Section IV below).
3. Cimarron Flats — Crockett County, Texas.
• Nameplate Capacity: 150 MW DC
• Site Acreage: Approximately 1,800 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: August 25, 2023
Findings: The Phase I ESA for the Cimarron Flats site identified no RECs, CRECs, or HRECs. The site consists of previously undeveloped rangeland in Crockett County, with no evidence of prior agricultural improvements, structures, or industrial operations. TerraNova's records review confirmed no listings on any federal, state, or local environmental databases for the subject property or immediately adjoining parcels. The historical use review indicated consistent open rangeland use throughout the available record. The site reconnaissance identified no evidence of contamination, hazardous substance releases, USTs, ASTs, or disposal areas. No de minimis environmental conditions were noted. TerraNova did not recommend any further environmental investigation for this site.
4. Lone Star Prairie — Webb County, Texas.
• Nameplate Capacity: 130 MW DC
• Site Acreage: Approximately 1,560 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: September 1, 2023
Findings: The Phase I ESA for the Lone Star Prairie site identified no RECs, CRECs, or HRECs. The site has been historically used for ranching and cattle grazing. TerraNova's records review identified no listings for the subject property on any environmental databases. Notably, TerraNova's review of the surrounding area confirmed the presence of active oil and gas exploration and production operations in the broader Webb County region, which is a significant petroleum-producing area in South Texas. However, the Phase I ESA specifically confirmed the absence of any oil and gas well pads, tank batteries, produced water disposal facilities, pipeline infrastructure, or other petroleum-related improvements on the leased parcels constituting the Lone Star Prairie project site.
TerraNova conducted a thorough evaluation of the potential for migrating contamination from offsite oil and gas operations and concluded that, based on the distance of the nearest active well pads (approximately 2.3 miles to the southeast), prevailing hydrogeological conditions, and the absence of any visual or documentary evidence of contamination on the subject property, no REC exists at this site. As a further precautionary measure given the regional oil and gas activity, TerraNova recommended limited confirmatory soil sampling, which was subsequently conducted as part of the Phase II ESA process (discussed in Section IV below).
5. Brazos Point — Wharton County, Texas.
• Nameplate Capacity: 120 MW DC
• Site Acreage: Approximately 1,440 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Permit pending (note: permit subsequently received January 10, 2024)
• Phase I ESA Date: September 8, 2023
Findings: The Phase I ESA for the Brazos Point site identified no RECs, CRECs, or HRECs. The site has been historically used for agricultural purposes, primarily rice cultivation and cattle grazing, which is typical of the Wharton County area along the lower Colorado and Brazos River floodplains. TerraNova's records review identified no listings for the subject property on any environmental databases. The historical use review confirmed consistent agricultural use of the property throughout the available record.
TerraNova noted the presence of irrigation infrastructure on the site, including irrigation canals, drainage ditches, and associated earthen levees, all of which are typical features of rice-cultivating properties in the region. TerraNova evaluated these features and determined that they are standard agricultural infrastructure that does not constitute an environmental condition of concern. Potential jurisdictional wetlands and waters of the United States considerations associated with the drainage ditches are addressed in Section VII.B below.
The site reconnaissance revealed no evidence of hazardous substance storage, disposal, or releases on the property. No USTs, ASTs, or chemical storage areas were observed. No de minimis environmental conditions were noted. TerraNova did not recommend any further environmental investigation for this site beyond the standard Phase I assessment.
This is the only project in the Portfolio for which the state environmental permit was outstanding as of the date of this memorandum. The pending permit is a TCEQ-administered permit required for construction activities at the site. Receipt of this permit, along with all other material permits, is a condition to closing of the JV transaction under both the Contribution Agreement and the LLC Agreement.
6. Sangre del Sol I — Doña Ana County, New Mexico.
• Nameplate Capacity: 150 MW DC
• Site Acreage: Approximately 1,800 acres (BLM leasehold interest)
• Land Control: Bureau of Land Management lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: September 12, 2023
Findings: The Phase I ESA for the Sangre del Sol I site identified no RECs, CRECs, or HRECs. The site consists of undeveloped desert land managed by the Bureau of Land Management in Doña Ana County, New Mexico. TerraNova's records review confirmed no listings for the subject parcel on any federal, state, or local environmental databases. The historical use review indicated that the property has remained undeveloped desert land throughout the available record, with no prior agricultural, industrial, or commercial use. The site reconnaissance confirmed the absence of any structures, improvements, or evidence of hazardous substance storage, handling, or releases.
In connection with the BLM leasing process, additional environmental review was conducted under NEPA, including a BLM-directed biological resource survey and cultural resource assessment. The results of these BLM-directed reviews are discussed in Sections V.C and VII below. No environmental conditions of concern were identified through either the Phase I ESA process or the BLM environmental review.
7. Sangre del Sol II — Doña Ana County, New Mexico.
• Nameplate Capacity: 110 MW DC
• Site Acreage: Approximately 1,320 acres (BLM leasehold interest)
• Land Control: Bureau of Land Management lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: September 15, 2023
Findings: The Phase I ESA for the Sangre del Sol II site identified no RECs, CRECs, or HRECs. The site is located adjacent to the Sangre del Sol I project site and shares substantially similar characteristics: undeveloped desert land managed by the Bureau of Land Management in Doña Ana County, with no prior agricultural, industrial, or commercial use. TerraNova's records review confirmed no listings on any environmental databases. The historical use review and site reconnaissance were consistent with the findings for the Sangre del Sol I site. No evidence of contamination, hazardous substance storage or handling, or other environmental conditions of concern was identified.
As with Sangre del Sol I, the BLM environmental review for this site, including the NEPA categorical exclusion determination, biological resource survey, and cultural resource assessment, yielded no findings of environmental concern. These reviews are discussed further in Sections V.C and VII below.
8. Sonoran Ridge — Pinal County, Arizona.
• Nameplate Capacity: 160 MW DC
• Site Acreage: Approximately 1,920 acres (leasehold interest)
• Land Control: Private land lease
• Permitting Status at Signing: Fully permitted
• Phase I ESA Date: September 22, 2023
Findings: The Phase I ESA for the Sonoran Ridge site identified no RECs, CRECs, or HRECs. The site consists of previously undeveloped desert land in Pinal County, Arizona, with minor historical agricultural use limited to seasonal cattle grazing. TerraNova's records review confirmed no listings for the subject property on any federal, state, or local environmental databases. The historical use review indicated that the property has been predominantly undeveloped desert throughout the available record, with intermittent seasonal grazing as the only documented land use. The site reconnaissance identified no structures, USTs, ASTs, hazardous material storage or handling areas, or other indicators of environmental contamination. No de minimis environmental conditions were noted. TerraNova did not recommend any further environmental investigation for this site.
C. Summary Table of Phase I ESA Results
The following table summarizes the Phase I ESA findings for all eight project sites:
Aggregate Summary: Across all eight project sites encompassing approximately 14,340 acres, zero recognized environmental conditions were identified. Precautionary further investigation was recommended for two sites (Red Mesa Solar II and Lone Star Prairie), and this investigation was completed through the Phase II ESA process discussed in Section IV below.
IV. Summary of Phase II Environmental Site Assessments
A. Overview. Phase II ESAs were conducted by TerraNova at a limited number of project sites where Phase I findings or local site conditions warranted confirmatory sampling or further investigation. Although no RECs were identified at any site, TerraNova recommended limited Phase II investigation at two project sites — Red Mesa Solar II and Lone Star Prairie — as a precautionary measure to provide additional assurance regarding specific conditions noted during the Phase I process.
The Phase II assessments were conducted in accordance with ASTM International Standard E1903-19, Standard Practice for Environmental Site Assessments: Phase II Environmental Site Assessment Process. TerraNova performed limited subsurface investigations, including soil sampling (via hand auger and/or direct push technology) and, where applicable, groundwater screening (via temporary monitoring points), at the targeted areas of interest identified during the Phase I assessment. All laboratory analyses were conducted by an accredited analytical laboratory using EPA-approved methods. Results were evaluated against applicable state screening levels.
B. Phase II ESA Findings by Project
1. Red Mesa Solar II — Pecos County, Texas. TerraNova conducted limited Phase II soil sampling in the vicinity of the abandoned water well identified on the eastern portion of the Red Mesa Solar II project site. A total of six soil samples were collected at varying depths (surface to approximately 10 feet below ground surface) from three boring locations surrounding the former well location. Samples were analyzed for volatile organic compounds ("VOCs"), semi-volatile organic compounds ("SVOCs"), and metals (full RCRA 8 suite). Additionally, one temporary groundwater monitoring point was installed to screen for potential groundwater impacts.
Results: All soil sample analytical results were below applicable Texas Risk Reduction Program ("TRRP") Tier 1 Residential and Commercial/Industrial Protective Concentration Levels ("PCLs"). The groundwater screening sample similarly showed no detectable concentrations of VOCs or SVOCs, and metals concentrations were consistent with naturally occurring background levels for the Pecos County area. TerraNova concluded that no contamination attributable to the former water well or any other source exists at this location, and that no further investigation or remediation is warranted.
2. Lone Star Prairie — Webb County, Texas. TerraNova conducted limited Phase II soil sampling at the Lone Star Prairie site as a precautionary measure given the presence of active oil and gas operations in the surrounding Webb County region. Although the Phase I ESA confirmed the absence of any on-site petroleum infrastructure or evidence of contamination, TerraNova performed confirmatory sampling at four locations along the southern and eastern perimeters of the leased property — the areas closest to the nearest identified offsite oil and gas well pads. A total of eight soil samples were collected at varying depths from the four boring locations. Samples were analyzed for total petroleum hydrocarbons ("TPH"), benzene, toluene, ethylbenzene, and xylenes ("BTEX"), and VOCs.
Results: All analytical results were below applicable TRRP Tier 1 Residential and Commercial/Industrial PCLs. No detectable concentrations of TPH or BTEX were reported in any of the samples. VOC results were uniformly non-detect at the applicable laboratory reporting limits. TerraNova concluded that there is no evidence of migrating petroleum contamination from offsite oil and gas operations affecting the Lone Star Prairie project site, and that no further investigation or remediation is warranted.
C. Conclusion on Phase II Assessments
The Phase II ESA results at both Red Mesa Solar II and Lone Star Prairie are fully consistent with the Phase I ESA findings for those sites. The confirmatory sampling conducted by TerraNova did not identify any contamination above applicable screening levels at either site. No conditions requiring remediation, institutional controls, or further investigation were identified. TerraNova has confirmed that no further Phase II investigation is recommended for any of the eight project sites in the Portfolio, and we concur with that assessment based on our review of the Phase II reports and supporting analytical data.
V. NEPA Compliance Review
A. Applicability. The National Environmental Policy Act ("NEPA"), 42 U.S.C. § 4321 et seq., requires federal agencies to evaluate the environmental effects of proposed "major Federal actions significantly affecting the quality of the human environment." The eight Projects in the Portfolio do not require full NEPA Environmental Impact Statements ("EIS") or Environmental Assessments ("EA") because they qualify for categorical exclusions under applicable federal agency regulations. Categorical exclusions are categories of actions that a federal agency has determined, through rulemaking, do not individually or cumulatively have a significant effect on the human environment and therefore do not require preparation of an EA or EIS.
The Projects are qualifying facilities under the Public Utility Regulatory Policies Act of 1978 ("PURPA"), and no Federal Energy Regulatory Commission ("FERC") approval or licensing is required for their development, construction, or operation. The primary basis for NEPA applicability in this Portfolio arises from (i) the two New Mexico projects (Sangre del Sol I and Sangre del Sol II), which are sited on BLM-leased land and therefore involve a federal land management decision constituting a major federal action, and (ii) any federal nexus arising from interconnection of the Projects to federally regulated transmission infrastructure.
B. Texas Projects (Red Mesa Solar I, Red Mesa Solar II, Cimarron Flats, Lone Star Prairie, Brazos Point)
NEPA categorical exclusions have been obtained or confirmed for each of the five Texas Projects. Because the Texas Projects are sited on privately leased land and do not involve direct federal agency action (other than potential interconnection-related federal nexus), the NEPA review was relatively straightforward. The categorical exclusion documentation for each project was reviewed and found to be in order. No federal Environmental Impact Statement or Environmental Assessment is required for any of the Texas Projects.
Texas-level environmental permitting administered by the Texas Commission on Environmental Quality ("TCEQ") constitutes the primary regulatory framework for environmental compliance at the Texas project sites. The state permitting review is discussed in Section VI.A below.
C. New Mexico Projects (Sangre del Sol I, Sangre del Sol II)
Both the Sangre del Sol I and Sangre del Sol II projects are located on BLM-leased land in Doña Ana County, New Mexico. The BLM's decision to issue right-of-way grants or solar energy leases for these sites constitutes a federal action requiring NEPA review. The BLM completed environmental reviews for both project sites under NEPA, resulting in categorical exclusion determinations for each site.
As part of its NEPA review process, the BLM conducted or directed the following supporting environmental analyses for both sites:
• Biological Resource Surveys. BLM-directed biological resource surveys were conducted at both sites to evaluate potential impacts to threatened or endangered species listed under the federal Endangered Species Act and to species of special concern under BLM management policies. The surveys confirmed that no threatened or endangered species habitat would be materially impacted by the development of either project. No critical habitat designations exist on either leased parcel. Consultation with the U.S. Fish and Wildlife Service ("USFWS") was conducted informally, and no formal Section 7 consultation was required.
• Cultural Resource Assessments. Cultural resource assessments were conducted at both sites in accordance with Section 106 of the National Historic Preservation Act and BLM cultural resource management requirements. The assessments included pedestrian archaeological surveys of the project footprints and consultation with the New Mexico State Historic Preservation Office ("SHPO"). No significant cultural resources — including archaeological sites, historic structures, or traditional cultural properties — were identified on either leased parcel. BLM issued cultural resource clearances for both sites.
New Mexico Environment Department permits have been obtained for both projects, as discussed further in Section VI.B below.
D. Arizona Project (Sonoran Ridge)
A NEPA categorical exclusion has been confirmed for the Sonoran Ridge project in Pinal County, Arizona. The project is sited on privately leased land, and the NEPA review was conducted in connection with the federal nexus arising from the project's interconnection to the regional transmission grid.
Arizona Department of Environmental Quality ("ADEQ") permits have been obtained for the Sonoran Ridge project, as discussed further in Section VI.C below. A biological resource survey was conducted for the site and confirmed no impacts to threatened or endangered species. No critical habitat designations exist on the Sonoran Ridge project site. The biological resource survey results are discussed further in Section VII.A below.
E. Conclusion on NEPA Compliance
All eight Projects in the Portfolio have received or are in the process of receiving applicable NEPA categorical exclusions. No material NEPA compliance issues have been identified. No project requires preparation of a full Environmental Impact Statement or Environmental Assessment. The NEPA categorical exclusion documentation for each project has been reviewed and found to be complete and in order.
VI. State Environmental Permitting Review
A. Texas (Five Projects)
C&H reviewed the state-level environmental permits and permit applications for all five Texas Projects: Red Mesa Solar I, Red Mesa Solar II, Cimarron Flats, Lone Star Prairie, and Brazos Point. The primary state regulatory authority for environmental permitting of these projects is the Texas Commission on Environmental Quality ("TCEQ").
Stormwater Permits. All five Texas Projects require coverage under the Texas Pollutant Discharge Elimination System ("TPDES") Construction General Permit (TXR150000), which authorizes stormwater discharges associated with construction activities disturbing one or more acres. Notices of Intent ("NOIs") have been filed, and permit coverage has been obtained or is in process for each of the five Texas project sites. Stormwater Pollution Prevention Plans ("SWPPPs") have been prepared for each site in accordance with the terms of the Construction General Permit.
Air Quality Permits. Air quality permits are not required for solar photovoltaic development projects, which do not involve stationary source emissions or other regulated air emissions during construction or operation.
Other TCEQ Permits. No other TCEQ permits (e.g., solid waste permits, hazardous waste permits, underground injection control permits) are required or applicable to the solar development activities contemplated for the Texas Projects.
Brazos Point — Pending Permit. The Brazos Point project in Wharton County was the only project in the Portfolio for which a state environmental permit remained outstanding as of the date of this memorandum. The pending permit relates to construction authorization under the TCEQ permitting framework. CBR filed the permit application in timely fashion, and CBR's environmental counsel reports that the application is proceeding through the standard TCEQ review process without any identified issues or objections. We note that this permit was subsequently issued by TCEQ on January 10, 2024. Under the terms of the Contribution Agreement and the LLC Agreement governing the JV transaction, receipt of all material permits — specifically including the Brazos Point environmental permit — is a condition precedent to closing of the transaction.
Summary. With the exception of the then-pending Brazos Point permit (since obtained), no material state environmental permit deficiencies were identified for any of the five Texas Projects.
B. New Mexico (Two Projects)
C&H reviewed the state-level environmental permits and approvals for the two New Mexico Projects: Sangre del Sol I and Sangre del Sol II. The primary state regulatory authority for environmental permitting of these projects is the New Mexico Environment Department ("NMED").
NMED approvals and permits have been obtained for both Sangre del Sol I and Sangre del Sol II. These include applicable stormwater discharge authorizations under the New Mexico Construction General Permit and any additional NMED permits required for construction and operation of solar energy generation facilities.
In addition, the BLM environmental stipulations incorporated into the lease terms for both projects have been reviewed and confirmed compliant. The lease terms include provisions requiring compliance with all applicable federal and state environmental laws and regulations, as well as specific environmental conditions imposed by the BLM as part of the NEPA review process. CBR has confirmed its understanding of and commitment to compliance with these stipulations.
No material state environmental permit deficiencies were identified for either of the two New Mexico Projects.
C. Arizona (One Project)
C&H reviewed the state-level environmental permits for the Sonoran Ridge project in Pinal County, Arizona. The primary state regulatory authority for environmental permitting of this project is the Arizona Department of Environmental Quality ("ADEQ").
Aquifer Protection Permits. ADEQ aquifer protection permits have been obtained for the Sonoran Ridge project. Arizona's aquifer protection permit program regulates discharges of pollutants that have the potential to reach an aquifer. The permits were reviewed and found to be in order and compliant with applicable requirements.
Stormwater Permits. ADEQ stormwater discharge permits for construction activities have been obtained for the Sonoran Ridge project. A Notice of Intent was timely filed, and coverage under the Arizona Construction General Permit was confirmed.
Other ADEQ Permits. No other ADEQ permits (e.g., air quality permits, solid waste permits) are required or applicable to the solar development activities contemplated for the Sonoran Ridge project.
No material state environmental permit deficiencies were identified for the Sonoran Ridge project.
D. Summary of Permitting Status
The following table summarizes the state environmental permitting status for each of the eight Projects as of the date of this memorandum:
Summary: Seven of the eight Projects are fully permitted from a state environmental permitting perspective. The Brazos Point project was the only project with an outstanding material permit as of the date of this memorandum, and that permit has since been received.
VII. Additional Environmental Considerations
A. Endangered Species and Biological Resources
TerraNova conducted or reviewed biological resource surveys for all eight project sites in the Portfolio. These surveys were performed to evaluate potential impacts to species listed as threatened or endangered under the federal Endangered Species Act, 16 U.S.C. § 1531 et seq., as well as species listed under applicable state endangered species laws (Texas Parks and Wildlife Code, New Mexico Wildlife Conservation Act, and Arizona Revised Statutes Title 17). The biological surveys included desktop habitat assessments, field surveys of the project footprints, and, where applicable, species-specific protocol surveys (e.g., for avian species, reptiles, and desert tortoise in Arizona).
Findings: No threatened or endangered species were identified as being materially impacted by any of the eight Projects. The following project-specific findings are noted:
• Texas Projects. Biological surveys for the five Texas sites identified no threatened or endangered species habitat within the project footprints. The sites consist predominantly of rangeland, agricultural land, and undeveloped grazing land that does not provide critical habitat for listed species. No formal Section 7 consultation with the USFWS was required.
• New Mexico Projects. BLM-directed biological resource surveys for the Sangre del Sol I and Sangre del Sol II sites confirmed no threatened or endangered species habitat impacts. The desert habitat at these sites was evaluated for potential presence of listed species including the northern aplomado falcon (Falco femoralis septentrionalis) and various listed plant species endemic to the Chihuahuan Desert region. No listed species or critical habitat was identified on either site.
• Arizona Project. The biological resource survey for the Sonoran Ridge site included an evaluation of potential habitat for the Sonoran desert tortoise (Gopherus morafkai), a candidate species under the ESA, as well as other listed species potentially present in the Pinal County region. The survey confirmed no critical habitat designations on the project site and no documented occurrences of listed species within the project footprint. Pre-construction clearance surveys will be recommended prior to ground disturbance, consistent with standard practice for solar development in the region.
No critical habitat designations under the ESA exist on any of the eight leased parcels comprising the Portfolio.
B. Wetlands and Waters of the United States
C&H reviewed wetlands delineations and related analyses prepared for the eight project sites to evaluate the presence of jurisdictional wetlands and waters of the United States that could trigger permitting requirements under Section 404 of the Clean Water Act, 33 U.S.C. § 1344, and Section 10 of the Rivers and Harbors Act, 33 U.S.C. § 403.
Findings: No jurisdictional wetlands were identified on any of the eight project sites. The seven sites located in Texas (five sites), New Mexico (two sites), and Arizona (one site) that consist of rangeland, undeveloped desert, or agricultural upland do not contain wetland features meeting the three-parameter delineation criteria (hydrophytic vegetation, hydric soils, and wetland hydrology) under the USACE's 1987 Wetlands Delineation Manual and applicable regional supplements.
The Brazos Point site in Wharton County, Texas contains drainage ditches and irrigation canals associated with historical rice cultivation on the property. TerraNova evaluated these features and determined that they are man-made agricultural drainage features that do not constitute jurisdictional waters of the United States under the current regulatory framework. The drainage ditches were constructed solely for the purpose of agricultural irrigation and water management and do not have a significant nexus to traditional navigable waters. Accordingly, no Section 404 permits from the USACE are required for the Brazos Point project or for any other project in the Portfolio.
C. Cultural and Archaeological Resources
Cultural resource assessments were conducted for all eight project sites, in accordance with Section 106 of the National Historic Preservation Act, 54 U.S.C. § 306108, and applicable state historic preservation requirements. The assessments included pedestrian archaeological surveys of the project footprints, reviews of state historic preservation office records, and consultation with the relevant SHPO in each state (Texas Historical Commission, New Mexico Historic Preservation Division, and Arizona State Historic Preservation Office).
Findings: No significant cultural resources — including archaeological sites eligible for listing on the National Register of Historic Places, historic structures, traditional cultural properties, or sacred sites — were identified on any of the eight project sites. The following project-specific findings are noted:
• Texas Projects. Cultural resource assessments for the five Texas sites identified no significant archaeological or historic resources. The predominantly agricultural and rangeland character of the sites is consistent with the absence of significant cultural deposits.
• New Mexico Projects. Cultural resource assessments for the Sangre del Sol I and Sangre del Sol II sites received particular attention given the archaeological sensitivity of the southern New Mexico desert region and the BLM's heightened cultural resource management obligations. Pedestrian surveys were conducted across the full project footprints, and consultation was conducted with the New Mexico Historic Preservation Division and, where applicable, federally recognized tribal nations. No significant cultural resources were identified, and BLM cultural resource clearances were obtained for both sites.
• Arizona Project. The cultural resource assessment for the Sonoran Ridge site identified no significant archaeological or historic resources. Consultation was conducted with the Arizona State Historic Preservation Office, which concurred with the finding of no adverse effect.
D. Hazardous Materials and Waste Management
C&H reviewed the environmental database search results and site reconnaissance findings included in the Phase I ESAs to evaluate the presence or potential presence of hazardous materials or wastes at the eight project sites.
Findings: No evidence of historical or current hazardous material storage, treatment, or disposal was identified at any of the eight project sites. None of the project parcels is listed on any federal or state environmental database, including but not limited to the EPA's Comprehensive Environmental Response, Compensation, and Liability Information System ("CERCLIS"), the Resource Conservation and Recovery Information System ("RCRIS"), the National Priorities List ("NPL"), or equivalent state databases maintained by TCEQ, NMED, and ADEQ. No Superfund sites, RCRA corrective action facilities, leaking underground storage tank ("LUST") sites, or other contaminated properties are located on or immediately adjacent to any of the project sites.
The Phase I site reconnaissance for each project confirmed the absence of USTs, ASTs, drums or containers of hazardous materials, stained soil, stressed vegetation, or other visual indicators of hazardous substance releases or contamination.
VIII. Consistency with Contribution Agreement Representations and Warranties
C&H reviewed the environmental representations and warranties set forth in Article IV of the draft Contribution Agreement, dated as of October 15, 2023, between CBR and Solstice Plateau Energy Holdings LLC, in light of the environmental due diligence findings summarized in this memorandum.
CBR's environmental representations and warranties in the Contribution Agreement include, among others, the following material representations:
(a) Compliance with Environmental Laws. CBR represents that the Projects and the project sites are, and have been during the period of CBR's ownership or control, in compliance in all material respects with all applicable Environmental Laws (as defined in the Contribution Agreement).
(b) Absence of Material Environmental Liabilities. CBR represents that there are no material environmental liabilities (whether known or unknown, contingent or accrued) associated with any of the Projects or the project sites.
(c) Valid Environmental Permits. CBR represents that all material Environmental Permits required for the current stage of development of each Project have been obtained and are in full force and effect (or, in the case of the Brazos Point project, that the applicable permit application has been timely filed and is pending before the applicable regulatory authority).
(d) No Pending or Threatened Environmental Claims. CBR represents that there are no pending or, to CBR's knowledge, threatened actions, suits, proceedings, investigations, or claims by any governmental authority or third party relating to any Environmental Law with respect to any of the Projects or the project sites.
(e) No Releases of Hazardous Substances. CBR represents that there have been no releases of Hazardous Substances (as defined in the Contribution Agreement) at, on, from, or under any of the project sites that would reasonably be expected to result in a material environmental liability.
Consistency Assessment. Based on our review of the TerraNova Phase I and Phase II ESAs, NEPA categorical exclusion documentation, state environmental permits and permit applications, biological resource surveys, cultural resource assessments, regulatory correspondence, and the other environmental materials described in Section II.A of this memorandum, we have concluded that the environmental due diligence findings are consistent with and support CBR's environmental representations and warranties in the Contribution Agreement. Specifically:
• No RECs were identified at any of the eight project sites, which is consistent with the representations regarding compliance with Environmental Laws and the absence of releases of Hazardous Substances.
• No material environmental liabilities were identified, which is consistent with the representation regarding the absence of material environmental liabilities.
• All material Environmental Permits have been obtained for seven of the eight Projects, and the permit application for the eighth project (Brazos Point) was pending and proceeding without identified issues, which is consistent with the representation regarding valid Environmental Permits. The Contribution Agreement expressly acknowledges the pending status of the Brazos Point permit and addresses this through the closing conditions.
• No pending or threatened environmental claims, actions, or investigations were identified in the materials reviewed, which is consistent with the representation regarding the absence of pending or threatened Environmental Claims.
Note: The Brazos Point permit is the single outstanding environmental item. Both the Contribution Agreement and the Amended and Restated Limited Liability Company Agreement of Solstice Plateau condition closing of the JV transaction on the receipt of all material permits, specifically including the Brazos Point environmental permit. As noted, this permit was subsequently received on January 10, 2024.
IX. Recommendations
Based on our review of the environmental due diligence materials described in this memorandum, C&H makes the following recommendations for the deal team's consideration:
1. Brazos Point Permit — Continued Monitoring. CBR and the C&H deal team should continue to monitor and track the pending Brazos Point (Wharton County, TX) permit application with TCEQ. Receipt of this permit should remain a condition precedent to closing of the JV transaction, as currently provided in the transaction documents. CBR should promptly notify the deal team of any material developments relating to the permit application, including any requests for additional information from TCEQ or any objections raised during the public notice process, if applicable.
2. Insurance Coverage — Environmental Liability. The C&H deal team should coordinate with Blackthorn Risk Advisors LLC (contact: Garrett Yoon) regarding the builder's risk and commercial property insurance program being placed with Ironclad Mutual Insurance Co. for the JV project portfolio. Specifically, the deal team should confirm that the insurance program includes adequate environmental liability coverage (including pollution legal liability, cleanup cost coverage, and third-party bodily injury and property damage coverage for pollution events) commensurate with the scope and scale of the Portfolio. The clean environmental profile of the project sites identified through the due diligence process is favorable from an underwriting perspective, but appropriate insurance coverage remains a prudent risk management measure.
3. Ongoing Environmental Compliance Program. Following closing of the JV transaction, the JV entity (through CBR, in its capacity as development and construction manager under the Development and Construction Management Agreement) should establish and maintain a comprehensive environmental compliance program for all eight project sites. This program should include, at a minimum: (i) monitoring of all applicable environmental permit conditions, (ii) maintenance of stormwater pollution prevention plans and implementation of best management practices during construction, (iii) compliance with BLM lease stipulations for the New Mexico projects, (iv) tracking of applicable federal, state, and local environmental regulatory developments, and (v) designation of a qualified environmental compliance officer or coordinator responsible for day-to-day environmental compliance oversight.
4. Pre-Construction Environmental Surveys. We recommend that updated biological resource surveys and cultural resource surveys be conducted immediately prior to the commencement of construction at each project site, as required by applicable environmental permits and BLM lease terms. While the surveys conducted to date have identified no significant biological or cultural resources at any of the project sites, updated pre-construction surveys are (i) required by certain permits and lease conditions, (ii) consistent with industry best practices for utility-scale solar development, and (iii) a prudent measure to address the time lag between the initial surveys and the anticipated construction commencement dates.
5. No Further Phase II Investigation Required. Based on the findings of TerraNova's Phase I and Phase II environmental assessments, no further environmental investigation is recommended at this time for any of the eight project sites comprising the Portfolio. The Phase I and Phase II results collectively confirm the absence of RECs and conditions requiring remediation at all eight sites.
X. Conclusion
Based on Calderwood & Harkness LLP's review of the environmental due diligence materials described in this memorandum — including the Phase I and Phase II Environmental Site Assessments prepared by TerraNova Environmental Sciences Inc. (Dr. Sharon Kessler, Senior Project Manager), NEPA categorical exclusion documentation, state environmental permits and applications, biological resource and cultural resource surveys, hazardous materials database searches, and related environmental compliance records — we have identified no material recognized environmental conditions at any of the eight project sites comprising the approximately 1,200 MW DC portfolio being contributed by CBR to the Solstice Plateau Energy Holdings LLC joint venture.
The sole material open environmental or permitting item as of the date of this memorandum is the pending state environmental permit for the Brazos Point project in Wharton County, Texas. This permit is expected to be resolved in the ordinary course prior to closing and is expressly conditioned in the transaction documents as a closing condition. We note for the record that the Brazos Point permit was subsequently issued by TCEQ on January 10, 2024.
Overall, the environmental profile of the eight-project Portfolio is clean. The due diligence findings are consistent with CBR's environmental representations and warranties in the Contribution Agreement and do not present environmental risks that would be material to the proposed JV transaction. We recommend the deal team adopt the five recommendations set forth in Section IX above in connection with the transaction closing process and post-closing project management.
We are available to discuss any questions regarding this memorandum or the underlying environmental due diligence materials at your convenience.