PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP Leonard Castellano, EVP, Development, Ironhaven Data Centers LLC
FROM: Cynthia Ho, Lead Associate, Real Estate, Calderwood & Harkness LLP
DATE: May 29, 2025
RE: Key Terms and Negotiation Points — Large Load Service Agreement with Vantage Power Cooperative
MATTER NO.: 1043-00002
COPIES: Grace Nakamura (Calderwood & Harkness LLP); Priya Dasgupta (CFO, Ironhaven Data Centers LLC); Diane Prescott (Kestrel Infrastructure Advisors, LLC)
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I. Executive Summary
The purpose of this memorandum is to analyze the key commercial and legal terms of the draft Large Load Service Agreement (the "LLSA") between Stonebridge Campus Holdings LLC (a to-be-formed Virginia limited liability company and single-purpose borrower entity, to be wholly owned by Ironhaven Data Centers LLC ("IHDC")) and Vantage Power Cooperative ("VPC"), a Virginia electric cooperative, and to identify the principal negotiation points and our recommended positions with respect to each. This memorandum has been prepared at the direction of counsel and is protected by the attorney-client privilege and the work product doctrine.
The LLSA was received from VPC in draft form on May 16, 2025, in connection with VPC Service Application No. LSA-2025-0091. The draft LLSA governs the delivery of primary utility power to the Stonebridge Data Center Campus (the "Campus"), a planned hyperscale data center development located at the intersection of Belmont Ridge Road and Stonebridge Boulevard, in unincorporated Loudoun County, Virginia 20148.
The contracted demand under the LLSA is 120 MVA, which is designed to support approximately 96 MW of critical IT load across four data center buildings (Buildings A through D), together with associated mechanical plant, cooling infrastructure, lighting, and site overhead systems. The initial term of the LLSA is ten (10) years, commencing upon the energization of the dedicated 230kV/34.5kV substation to be constructed on a portion of the project site.
This memorandum should be read in conjunction with, and our negotiation approach to the LLSA must be coordinated with, the following related project documents and agreements:
(a) the Construction Loan Agreement (Summit National Bank, N.A., as Administrative Agent, Reference No. CL-2025-VA-04418), pursuant to which a $390,000,000 construction loan facility will be extended to Stonebridge Campus Holdings LLC as borrower;
(b) the EPC Agreement (Titan-McAllister Construction Group, LLC, as design-build contractor), establishing a Guaranteed Maximum Price of $412,000,000 for the design, construction, and commissioning of the Campus;
(c) the Substation Easement Agreement, to be executed in connection with the Meridian Parcel land closing, granting VPC a non-exclusive easement for the dedicated substation; and
(d) the Line Extension Funding Agreement, governing IHDC's $18,500,000 contribution toward the construction of the dedicated power line extension and substation infrastructure.
Critically, the LLSA will be collaterally assigned to the construction lenders as part of the security package under the Assignment of Contracts, Permits, and Approvals. Lender's counsel — Redmond & Calloway LLP, attention Victor Redmond — will need to review and consent to the final form of the LLSA, and VPC will be required to deliver a Consent and Estoppel Certificate acknowledging the collateral assignment and providing customary lender protections. Accordingly, our negotiation strategy must account not only for IHDC's commercial interests but also for the requirements that the lending syndicate will impose as a condition to closing the construction loan facility.
The sections that follow provide a detailed analysis of the key commercial terms, termination provisions, service reliability considerations, regulatory and tariff issues, tax and accounting implications, insurance matters, and interconnections with other project agreements. Section X presents a prioritized summary table of our recommended negotiation positions, and Section XI sets forth proposed next steps and a timeline for finalizing the LLSA.
II. Overview of the Parties
A. Stonebridge Campus Holdings LLC (Customer)
Stonebridge Campus Holdings LLC (the "Customer" or "Stonebridge Holdings") is a Virginia limited liability company to be formed as a single-purpose, bankruptcy-remote borrower entity. It will be wholly owned by Ironhaven Data Centers LLC ("IHDC"), a Delaware limited liability company (EIN: 84-3291057) with its principal offices located at 44680 Prentice Drive, Suite 200, Ashburn, Virginia 20147.
IHDC is a portfolio company of Ridgeline Capital Partners Fund IV, LP ("Ridgeline Fund IV"), a Delaware limited partnership with approximately $3.8 billion in committed capital focused on digital infrastructure investments. IHDC is held through RCP Digital Holdings LLC, which owns approximately 92% of the equity interests in IHDC. The remaining approximately 8% of equity interests are held by Ironhaven Management Incentive Pool LLC, the management incentive vehicle for IHDC's executive team.
IHDC currently operates three existing data center facilities in Northern Virginia, with an aggregate critical IT load capacity of approximately 42 MW. These existing facilities are stabilized, fully leased assets that are not part of the Stonebridge project. The Stonebridge Campus will represent a significant expansion of IHDC's portfolio, adding approximately 96 MW of critical IT load capacity across four purpose-built data center buildings (Buildings A through D), each designed to support 24 MW of critical IT load.
The key IHDC contacts for the Stonebridge project are as follows:
• Marcus Thorne — Chief Executive Officer
• Priya Dasgupta — Chief Financial Officer
• Leonard Castellano — Executive Vice President, Development
The single-purpose entity structure for Stonebridge Holdings is dictated by the requirements of the construction loan facility. The organizational documents for Stonebridge Holdings will include customary SPE covenants and separateness provisions, including independent director requirements, restrictions on additional indebtedness, and prohibitions on commingling of assets. The LLSA will be one of the primary contracts held by Stonebridge Holdings, and the construction lenders will require that it be included in the collateral package. Consequently, the LLSA must be structured in a manner that is consistent with the borrower entity's SPE restrictions and the lenders' collateral assignment requirements.
B. Vantage Power Cooperative (Provider)
Vantage Power Cooperative ("VPC" or the "Provider") is a Virginia electric cooperative headquartered at 601 Sycolin Road SE, Leesburg, Virginia 20175. VPC provides electric distribution and generation service in western Loudoun County, Virginia, an area that has experienced extraordinary growth in data center development over the past decade.
As a Virginia electric cooperative, VPC operates under a distinct regulatory framework from that applicable to investor-owned utilities. VPC is subject to the regulatory oversight of the Virginia State Corporation Commission (the "SCC"), and its rate schedules and tariffs are filed with and may require approval by the SCC. Unlike deregulated suppliers that operate solely in the competitive generation market, VPC serves as both the transmission/distribution utility and the energy supplier within its certificated service territory. This means that the Stonebridge Campus does not have the option, under current Virginia law applicable to cooperative service territories, to procure energy from an alternative retail supplier while remaining connected to VPC's distribution infrastructure.
VPC has historically served a mix of residential, commercial, and agricultural customers. The rapid expansion of data center development in Loudoun County has required VPC to make substantial investments in transmission and distribution infrastructure, and VPC's large-load service offerings have evolved accordingly. The LLSA under review reflects VPC's current form agreement for large data center customers, although, as discussed throughout this memorandum, a number of the draft terms require significant revision to protect IHDC's commercial interests and to satisfy lender requirements.
It bears noting that cooperative utilities in Virginia have been the subject of increasing regulatory scrutiny in connection with data center power consumption. Several pending proceedings before the SCC and proposed legislative measures in the Virginia General Assembly may affect the regulatory landscape for large-load service agreements of this nature. We address these regulatory considerations in greater detail in Section VI below.
III. Analysis of Key Commercial Terms
A. Contracted Demand
The LLSA establishes a contracted demand of 120 MVA. This capacity is designed to support the full build-out of the Stonebridge Campus, encompassing approximately 96 MW of critical IT load across Buildings A through D, together with the associated mechanical plant (primarily cooling systems), lighting, and general site infrastructure systems that constitute the balance of the electrical load.
Negotiation Points. A significant concern with VPC's draft is the lack of clarity in the definition of "Contracted Demand" as distinct from "Measured Demand." As currently drafted, the billing provisions of the LLSA appear to calculate the monthly demand charge based on the higher of (i) the Contracted Demand of 120 MVA and (ii) the actual metered peak demand recorded during the applicable billing period. While this structure is not uncommon in large-load service agreements, it presents a material commercial issue during the phased construction and ramp-up period for the Campus.
Buildings A through D will not come online simultaneously. Under the current construction schedule, Building A is targeted for substantial completion on August 1, 2027, with Buildings B through D reaching substantial completion on November 1, 2027. Critically, the dedicated 230kV/34.5kV substation is targeted for energization on June 1, 2027 — approximately two months before Building A will be ready to accept its full IT load and approximately five months before the Campus is at full capacity. If the demand charge is assessed at the full 120 MVA contracted amount beginning on the energization date, IHDC will be paying approximately $1,010,400 per month in demand charges during a period when the Campus is drawing only a fraction of the contracted demand for construction power and early-stage commissioning activities.
We recommend negotiating a phased demand schedule that corresponds to the actual construction milestones and the progressive energization of each building. Specifically, we propose the following ramp-up structure:
(i) Phase 1 — Substation Energization through Building A Substantial Completion (June 1, 2027 through July 31, 2027): Demand charge assessed on 15 MVA (construction power and commissioning loads only).
(ii) Phase 2 — Building A Operational through Buildings B–D Substantial Completion (August 1, 2027 through October 31, 2027): Demand charge assessed on 30 MVA (Building A at full load plus construction power for Buildings B–D).
(iii) Phase 3 — Full Campus Operational (November 1, 2027 onward): Demand charge assessed on the full 120 MVA contracted demand, or actual metered demand, whichever is higher.
This phased approach is standard in data center large-load service agreements and is essential for the project pro forma to align with realistic revenue assumptions during the lease-up period. The construction lenders will also scrutinize this issue closely, as demand charges assessed during periods of limited or no revenue generation will adversely impact the borrower's liquidity during the construction and stabilization period.
B. Demand Charge Structure
VPC's draft LLSA establishes a demand charge rate of $8.42 per kilowatt per month for the first five years following the energization date. Commencing in Year 6, the demand charge rate escalates by 2.5% annually for the remainder of the initial ten-year term. Based on the full contracted demand of 120 MVA (approximately 120,000 kW), the annual demand charges under this structure are summarized as follows:
Years 1–5: 120,000 kW × $8.42/kW/month × 12 months = $12,124,800 per year (demand charges only)
Year 6: Rate escalates to $8.42 × 1.025 = $8.6305/kW/month; annual demand cost = 120,000 × $8.6305 × 12 = approximately $12,427,920
Year 7: Rate escalates to approximately $8.8463/kW/month; annual demand cost ≈ $12,738,672
Year 8: Rate escalates to approximately $9.0674/kW/month; annual demand cost ≈ $13,057,056
Year 9: Rate escalates to approximately $9.2941/kW/month; annual demand cost ≈ $13,383,504
Year 10: Rate escalates to $8.42 × (1.025)^5 ≈ $9.5285/kW/month; annual demand cost ≈ $13,721,040
Over the full ten-year initial term, the aggregate demand charges (before any energy charges, ancillary service charges, or other costs) will total approximately $131,077,000, assuming the full 120 MVA contracted demand is in effect for the entirety of the term and the phased ramp-up discussed above is not reflected in these figures. These are significant expenditures that will constitute the single largest component of the Campus's operating cost structure and will have a direct impact on the project's debt service coverage ratio and investment returns.
Negotiation Points. We recommend pursuing the following positions with respect to the demand charge structure:
(1) Escalation Cap. The 2.5% annual escalation beginning in Year 6 is uncapped and bears no relationship to actual cost increases experienced by VPC. We recommend negotiating a cap on the annual escalation such that the rate increase in any given year does not exceed the lesser of (a) 2.5% and (b) the percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, as published by the Bureau of Labor Statistics, for the twelve-month period ending on the most recent June 30 preceding the applicable adjustment date. This cap protects IHDC in a low-inflation environment while preserving VPC's ability to recover reasonable cost increases.
(2) Most-Favored-Customer Clause. VPC's draft does not include any pricing parity or most-favored-customer provisions. Given the significant volume of data center development in VPC's service territory and the likelihood that VPC will enter into additional large-load service agreements with other data center operators during the term, we recommend negotiating a most-favored-customer clause providing that if, during the term of the LLSA, VPC enters into a service agreement with a comparable data center customer (defined as a customer with a contracted demand of 50 MVA or greater) in the same service territory at a demand charge rate lower than the rate then applicable to the Stonebridge Campus, IHDC shall have the right, upon written notice to VPC, to have its demand charge rate adjusted to match the lower rate, effective as of the date the lower rate became effective for the comparable customer. We acknowledge that VPC may resist this provision, and our fallback position is discussed in Section X.
(3) Capacity Reservation Component. The VPC draft does not clearly delineate whether the demand charge includes any embedded capacity reservation or standby charge component. We need to clarify whether VPC is reserving 120 MVA of capacity exclusively for the Stonebridge Campus and, if so, whether any portion of the demand charge compensates VPC for that reservation. This distinction matters for two reasons: first, it affects the analysis of whether the phased demand schedule proposed above is commercially reasonable from VPC's perspective (if VPC must reserve the full 120 MVA from energization regardless of actual load, VPC has a stronger argument for charging the full demand amount); and second, it may affect the accounting treatment of the demand charges.
(4) Reduced Demand Charge During Ramp-Up. As discussed in Section III.A above, we recommend a reduced demand charge during the phased energization period before all four buildings are operational. This point is closely linked to the phased demand schedule and should be negotiated as part of the same package.
C. Energy Charge
Under VPC's draft LLSA, the energy charge is structured as an at-cost pass-through of wholesale energy costs. Specifically, VPC proposes to pass through the PJM Interconnection day-ahead locational marginal pricing ("LMP") applicable to the pricing node serving the Stonebridge Campus. VPC does not apply a retail markup to the wholesale energy cost, which is consistent with the cooperative utility model under which VPC operates as a not-for-profit entity providing service at cost to its member-customers.
The at-cost pass-through structure is generally favorable to IHDC, as it eliminates the retail margin that an investor-owned utility would typically embed in its energy rates. However, several important clarifications and protective provisions are needed.
Negotiation Points.
(1) PJM Pricing Node. The LLSA should identify the specific PJM pricing node applicable to the Stonebridge Campus with precision. PJM's nodal pricing system assigns different LMPs to different locations on the grid, and congestion differentials between nodes can result in meaningful cost variations. We should confirm with VPC whether the Campus will be settled at the VPC load zone aggregate price or at a specific delivery point node, and the LLSA should specify the applicable node by name and PJM identifier.
(2) Ancillary Services, Transmission, and Capacity Charges. The draft LLSA is ambiguous as to whether the energy charge pass-through is limited to the day-ahead LMP energy component, or whether it also includes ancillary services charges (regulation, spinning reserves, non-spinning reserves), transmission congestion costs, capacity charges under PJM's Reliability Pricing Model ("RPM"), and other PJM-administered charges. These additional charges can be substantial — PJM capacity charges alone have exceeded $100/MW-day in certain delivery years. The LLSA must clearly specify which categories of PJM charges are included in the pass-through and which, if any, are separately billed.
(3) Billing Transparency. We recommend including a transparency provision requiring VPC to provide, with each monthly invoice, detailed backup documentation showing the actual PJM settlement statements, the calculation of the energy charge, and the specific pricing data used to derive the invoiced amount. IHDC should have the right to audit VPC's energy cost calculations on an annual basis, at IHDC's expense, using an independent third-party auditor reasonably acceptable to VPC.
(4) Third-Party Supply Option. Under current Virginia law, customers in cooperative service territories have limited ability to procure energy from third-party retail suppliers. However, the regulatory landscape in Virginia is evolving, and there have been proposals to expand retail choice for large commercial customers. We recommend including a provision in the LLSA that preserves IHDC's right to procure energy from a third-party supplier in the event that the Virginia regulatory framework is amended to permit such procurement in VPC's service territory, with VPC continuing to provide distribution and delivery services at a separately negotiated delivery charge. We recognize that VPC is likely to resist this provision vigorously, and it may be a lower priority relative to other negotiation points, but it is worth raising as an initial position.
D. Term. The LLSA provides for an initial term of ten (10) years commencing upon the energization of the primary 230kV/34.5kV substation. Based on the current project schedule, the substation energization target date is June 1, 2027, which would result in an effective term of approximately June 1, 2027 through June 1, 2037.
Negotiation Points.
(1) Renewal Options. VPC's draft does not include any renewal options, meaning that at the expiration of the ten-year initial term, IHDC would need to negotiate a new service agreement from scratch, with no assurance of continued service at comparable rates. This is a significant commercial risk given the long-lived nature of data center assets and the substantial capital investment in the Stonebridge Campus. We strongly recommend negotiating at least two (2) five-year renewal options, exercisable at IHDC's sole election upon not less than twelve (12) months' prior written notice before the expiration of the then-current term. The renewal term pricing should be based on the escalation formula continuing from the rate in effect at the end of the preceding term (i.e., the 2.5% annual escalation, subject to the CPI-U cap discussed above, would continue during the renewal periods). As an alternative fallback, the renewal term rate could be the then-prevailing rate in VPC's applicable rate schedule for large-load customers, provided that IHDC retains the benefit of the most-favored-customer clause during the renewal periods.
(2) Definition of "Energization." The term "energization" is used as the commencement trigger for the LLSA term, but it is not precisely defined in VPC's draft. This ambiguity could lead to disputes regarding the start date of the term and, consequently, the start date for demand charges, the term expiration date, and the milestone dates for the phased demand schedule. We recommend defining "energization" as the date on which VPC delivers power through the dedicated substation at full rated capacity and the substation has passed all applicable acceptance testing protocols, as evidenced by a written certificate of energization jointly executed by VPC and IHDC. The definition should make clear that energization does not occur merely upon the delivery of first power (which may occur during testing and commissioning) or upon the completion of substation construction prior to the connection of the transmission line.
(3) Early Termination. The early termination provisions are addressed in detail in Section IV below.
E. Line Extension Contribution
Under the LLSA and the related Line Extension Funding Agreement, IHDC is obligated to pay $18,500,000 toward the construction of the dedicated power line extension and the 230kV/34.5kV substation that will serve the Stonebridge Campus. This contribution represents a significant portion of the $61,000,000 Power Infrastructure budget line in the overall $600,000,000 project budget for the Campus.
The substation will be located on a designated portion of the Meridian Parcel, a 19.4-acre parcel identified as Loudoun County Tax Map Reference /95-4A-2///. The substation site will be made available to VPC pursuant to a separate Substation Easement Agreement to be granted by Stonebridge Campus Holdings LLC in favor of VPC. Upon completion of construction, the substation will be owned by VPC. Construction of the substation and line extension will be performed by VPC's selected contractor, with IHDC funding the $18,500,000 contribution.
Negotiation Points.
(1) Payment Schedule. VPC's draft contemplates a lump-sum payment of the $18,500,000 contribution upon execution of the Line Extension Funding Agreement. We recommend negotiating a milestone-based payment schedule that ties the disbursement of the contribution to the actual progress of the line extension and substation construction. A proposed milestone schedule might include:
• 20% ($3,700,000) upon execution of the Line Extension Funding Agreement and issuance of the substation construction permit;
• 30% ($5,550,000) upon completion of substation civil works (foundations, grading, drainage);
• 30% ($5,550,000) upon delivery and installation of the primary transformer and switchgear;
• 20% ($3,700,000) upon successful completion of acceptance testing and energization.
This structure protects IHDC against the risk of paying the full contribution amount before VPC has commenced or completed construction and ensures that IHDC's funding is aligned with actual construction progress. The construction lenders will also prefer a milestone-based structure, as it reduces the borrower's cash outflow during the early construction period and provides draw request documentation that the lenders can verify.
(2) Refundability. VPC's draft characterizes the line extension contribution as non-refundable under all circumstances. We recommend requesting a partial refund mechanism under which, if VPC subsequently connects one or more additional customers to the same line extension or substation infrastructure during a specified period (we propose ten years from the energization date), VPC would refund to IHDC a pro-rata share of the line extension contribution based on the ratio of the additional customer's contracted demand to the total capacity of the shared infrastructure. This type of refund provision is becoming increasingly common in utility service agreements in Northern Virginia, where the density of data center development makes it likely that VPC will benefit from infrastructure initially funded by an anchor customer. Even if VPC resists a mandatory refund, we should at minimum negotiate a provision requiring VPC to notify IHDC if additional customers are connected to the infrastructure and to engage in good-faith negotiations regarding an equitable sharing of the line extension costs.
(3) Construction Timeline and Guaranteed Energization Date. The energization of the dedicated substation on or before June 1, 2027 is a critical-path prerequisite for the commissioning of Building A (substantial completion target: August 1, 2027) and, by extension, for the entire project construction schedule. Any delay in substation energization will cascade through the project timeline, delaying tenant commissioning, lease commencement dates, and revenue generation. We recommend that VPC commit to a guaranteed substation energization date of June 1, 2027 (the "Guaranteed Energization Date"), with the following consequences for delay:
• For each calendar day of delay beyond the Guaranteed Energization Date, VPC shall provide a credit against future demand charges in an amount equal to $15,000 per day (which is approximately 50% of the daily demand charge at the full contracted rate);
• If the delay exceeds ninety (90) calendar days (i.e., energization has not occurred by August 29, 2027), IHDC shall have the right to terminate the LLSA without penalty and to recover the line extension contribution payments made to date, less VPC's documented out-of-pocket costs incurred in connection with the line extension and substation construction;
• VPC shall provide monthly progress reports on the construction of the line extension and substation, beginning no later than six months prior to the Guaranteed Energization Date.
(4) Tax Treatment. The $18,500,000 line extension contribution may be treated as a contribution-in-aid-of-construction ("CIAC") for federal and Virginia income tax purposes. The tax treatment of CIAC contributions has been the subject of evolving IRS guidance and may have implications for IHDC's ability to depreciate or amortize the contribution and for the potential imposition of Virginia sales and use tax on the payment. We recommend coordinating with Sylvia Hartwell (C&H Tax Partner) and with Fielding & Associates, CPAs (Robert Fielding) to analyze the tax treatment of the contribution in detail. This analysis should also consider whether the line extension contribution and related power infrastructure costs may count toward the $150 million minimum capital investment threshold required for qualification under the Virginia data center sales tax exemption (Va. Code § 58.1-609.3(18)). We address tax and accounting implications in greater detail in Section VII below.
F. Substation and Infrastructure Ownership
As noted above, the dedicated 230kV/34.5kV substation will be located on a portion of the Meridian Parcel pursuant to the Substation Easement Agreement. Following completion of construction and acceptance testing, the substation and associated line extension infrastructure will be owned and operated by VPC. IHDC/Stonebridge Holdings will own the customer-side electrical infrastructure from the campus switchgear into the individual data center buildings.
Negotiation Points.
(1) Step-In Rights. Because VPC will own and be responsible for operating and maintaining the substation — which is the sole source of utility power for the Stonebridge Campus — IHDC's operations are entirely dependent on VPC's diligent performance of its maintenance and operational obligations. We recommend negotiating a provision granting IHDC step-in rights in the event that VPC fails to maintain or operate the substation at the required service levels. Specifically, if VPC fails to cure a material maintenance or operational deficiency within thirty (30) days after written notice from IHDC (or such shorter period as may be necessary in an emergency), IHDC should have the right to perform (or engage a qualified contractor to perform) the necessary maintenance or repairs and to offset the costs against future demand charge payments. This step-in right should be subject to reasonable limitations (e.g., IHDC's work must comply with applicable safety standards and utility codes), but its inclusion is essential to protect against the risk of VPC neglecting maintenance of infrastructure that is critical to IHDC's operations.
(2) Priority Restoration. In the event of a grid outage or disruption affecting VPC's service territory, the LLSA should provide that the Stonebridge Campus receives priority restoration as a critical infrastructure customer. While the Campus will be equipped with 2N diesel generator backup systems capable of supporting the full IT load during a utility outage, extended reliance on backup generation is operationally undesirable and increases the risk of equipment failure. Priority restoration provisions are standard in large-load service agreements for data center customers and should be achievable in negotiations with VPC.
(3) Future Capacity Expansion. The Stonebridge Campus is currently designed for 120 MVA of contracted demand. However, IHDC may determine in the future that additional capacity is required — either to support the densification of IT loads within the existing four buildings, or to accommodate the development of additional buildings on the Meridian Parcel or adjacent parcels. The LLSA should include a provision requiring VPC to engage in good-faith negotiations with IHDC regarding the provision of incremental capacity beyond 120 MVA, at mutually agreed pricing and terms, and to provide IHDC with a reasonable estimate of the cost and timeline for any required infrastructure upgrades (e.g., additional transformer capacity, upgraded switchgear, or reinforcement of the transmission line). VPC should also commit that any such incremental capacity will be provided at a cost per MVA that is no greater than the per-MVA cost of the initial 120 MVA installation.
IV. Termination Provisions
The termination provisions of the LLSA are among the most sensitive and consequential terms from both IHDC's commercial perspective and the construction lenders' collateral protection perspective. VPC's draft takes a relatively rigid approach to termination, affording the customer limited termination rights while preserving broad termination authority for VPC. We recommend significant revisions to achieve a more balanced framework.
A. Customer Termination Rights
As currently drafted, the LLSA permits the customer (Stonebridge Holdings) to terminate only for cause, defined as a material breach by VPC that remains unremedied after a ninety (90) calendar day cure period. The draft does not provide any right of termination for convenience, termination upon extended force majeure, or termination upon the occurrence of events outside the parties' control (such as condemnation or destruction of the Campus or substation).
Negotiation Points.
(1) Termination for Convenience. We recommend seeking a termination-for-convenience right, exercisable by IHDC upon not less than twenty-four (24) months' prior written notice to VPC. To address VPC's legitimate interest in recovering its infrastructure investment, the termination-for-convenience right should be subject to an early termination fee calculated as the present value of the remaining demand charges over the balance of the then-current term, discounted at a rate equal to the yield on the 10-year United States Treasury Note as of the date of the termination notice, and further reduced by a declining-balance factor (e.g., the termination fee declines by 10% per year for each full year of the term that has elapsed). This structure compensates VPC for the lost revenue stream while ensuring that the termination fee declines over time as VPC's infrastructure investment is amortized.
(2) Termination Upon Extended Force Majeure. The LLSA should provide that if a force majeure event (as defined in the agreement) prevents VPC from delivering power to the Campus for a period exceeding one hundred eighty (180) consecutive days, IHDC may terminate the LLSA without penalty and without the payment of any early termination fee. A 180-day threshold strikes a reasonable balance between allowing VPC adequate time to restore service after a catastrophic event and protecting IHDC against indefinite interruption of a critical utility service.
(3) Termination Upon Condemnation or Destruction. The LLSA should provide that IHDC may terminate without penalty in the event of (a) a condemnation or taking by eminent domain of all or a material portion of the Campus or the substation, or (b) the destruction of the Campus or the substation by fire, casualty, or other cause, to the extent such condemnation or destruction renders the Campus permanently unable to operate as a data center facility. This provision is standard in long-term real estate-related agreements and should not be controversial.
B. VPC Termination Rights
VPC's draft LLSA permits VPC to terminate upon (i) non-payment by the customer, subject to a thirty (30) calendar day cure period following written notice, and (ii) the insolvency or bankruptcy of the customer. The draft also includes a change of control provision that, while not framed as a termination right per se, effectively gives VPC the right to withhold consent to a change of control, the refusal of which would constitute a default under the LLSA.
Negotiation Points.
(1) Extended Payment Cure Period. The thirty (30) calendar day cure period for non-payment is inadequate. Given the magnitude of the monthly demand charges (exceeding $1 million per month at full contracted demand) and the complexity of the billing and payment processes for large-load customers, a payment default may result from administrative error, disputes regarding the accuracy of the invoice, or temporary cash flow disruptions rather than willful non-payment. We recommend extending the cure period to at least sixty (60) calendar days and adding a requirement that VPC deliver a second written notice (a "termination warning notice") no fewer than fifteen (15) days before VPC may exercise its termination right, in order to ensure that the customer has clear and unmistakable notice that termination is imminent.
(2) Limitation on Insolvency/Bankruptcy Termination. VPC's right to terminate upon the customer's insolvency or bankruptcy is a critical issue for the construction lenders. The LLSA is collateral for the $390,000,000 construction loan. If the borrower (Stonebridge Holdings) were to become insolvent or file for bankruptcy, the lenders' primary means of recovering their investment would be to foreclose on the project assets and either operate the Campus directly or sell it to a third party. The value of the Campus as collateral depends in significant part on the continued availability of utility power under the LLSA. If VPC has the right to terminate the LLSA upon the customer's bankruptcy, the collateral value of the Campus would be severely impaired.
Accordingly, we recommend either (a) deleting the bankruptcy termination right entirely, or (b) if deletion is not achievable, modifying it to provide that VPC's right to terminate upon the customer's bankruptcy is subject to and subordinated to the lenders' cure rights (discussed below) and to a non-disturbance commitment in favor of any foreclosure purchaser or assignee of the lenders. Under option (b), VPC would agree that so long as the lenders (or their assignee) cure any monetary defaults within the applicable cure period, VPC will not terminate the LLSA solely on the basis of the customer's bankruptcy or insolvency.
(3) Lender Protection Provisions. This is among the most critical negotiation points in the LLSA and is discussed further in Section IV.C below. VPC must agree to provide notice of any customer default or intended termination to the Administrative Agent (Summit National Bank, N.A.) at its designated address, concurrently with or promptly following the delivery of any default notice to the customer. The lenders must have an independent cure right, exercisable within thirty (30) calendar days following the expiration of the customer's cure period, during which the lenders may cure the default and prevent termination. These lender protection provisions must be embedded in the body of the LLSA itself (in addition to being reflected in the separate Consent and Estoppel Certificate) to ensure that they are binding on VPC as a matter of contract, not merely as a side agreement.
(4) Change of Control Provisions. VPC's draft includes a provision requiring VPC's prior written consent upon any "change of control" of the customer entity. As currently defined, "change of control" includes any transfer of a majority of the direct or indirect equity interests in the customer, any merger or consolidation of the customer with another entity, and any transfer of all or substantially all of the customer's assets. This broadly drafted provision raises several concerns:
• It conflicts with the lenders' rights under the construction loan. If the lenders foreclose on their collateral assignment and transfer the LLSA (together with the other project assets) to a foreclosure purchaser, such transfer would constitute a change of control requiring VPC's consent. VPC's refusal to consent could effectively render the lenders' collateral worthless.
• It must be harmonized with the change of control provisions in the Construction Loan Agreement, which include a mandatory prepayment trigger upon any transfer of equity interests resulting in Ridgeline Capital Partners Fund IV, LP ceasing to hold at least 51% of the equity interests in the borrower entity (directly or indirectly). While the credit agreement's change of control provision serves a different purpose (protecting the lenders' credit risk assessment), the thresholds and definitions should be aligned to avoid a situation in which a permitted transfer under the credit agreement triggers an event of default under the LLSA, or vice versa.
• It must also be coordinated with the EPC Agreement with Titan-McAllister Construction Group, LLC ("TMCG"), which includes a consent right in favor of TMCG upon a change of control of the owner entity.
We recommend narrowing VPC's change of control provision to exclude the following from the definition of "change of control": (a) transfers of direct or indirect equity interests in the customer among entities within the Ridgeline Capital Partners and IHDC organizational structure, including transfers between Ridgeline-sponsored funds (e.g., from Ridgeline Fund IV to a successor Ridgeline fund); (b) transfers of equity interests in Ironhaven Management Incentive Pool LLC; (c) any pledge, encumbrance, or collateral assignment of equity interests or assets to secured lenders (including the construction lenders) and any foreclosure or exercise of remedies by such lenders; and (d) any initial public offering of IHDC or its parent entities. VPC's consent right should be limited to transfers that result in a person or entity that is not affiliated with Ridgeline Capital Partners acquiring direct or indirect control of the customer, and even in such cases, VPC's consent should not be unreasonably withheld, conditioned, or delayed.
C. Coordination with Lender Requirements
The LLSA will be collaterally assigned to Summit National Bank, N.A., as Administrative Agent for the lending syndicate, pursuant to the Assignment of Contracts, Permits, and Approvals to be executed in connection with the closing of the $390,000,000 construction loan facility. The collateral assignment means that the lenders will have a security interest in IHDC's rights under the LLSA, and upon an event of default under the credit agreement, the lenders will have the right to exercise IHDC's rights under the LLSA (including, if necessary, assuming the customer's obligations and continuing performance).
Lender's counsel (Redmond & Calloway LLP, Victor Redmond) will require a Consent and Estoppel Certificate from VPC. The Consent and Estoppel will need to include, at a minimum: (i) VPC's acknowledgment and consent to the collateral assignment; (ii) VPC's confirmation that the LLSA is in full force and effect and that no defaults exist as of the date of the certificate; (iii) VPC's agreement to provide notice to the Administrative Agent of any customer default or intended termination; (iv) the lenders' independent cure rights; and (v) a non-disturbance commitment providing that upon any foreclosure or transfer of the LLSA to the lenders or their designee, VPC will continue to perform its obligations under the LLSA provided the lenders or their designee assume the customer's obligations.
We recommend that the LLSA itself include a provision expressly permitting the collateral assignment of the LLSA to the customer's secured lenders without the requirement of VPC's prior consent, subject only to the customer's obligation to provide written notice to VPC of such assignment. This provision eliminates the risk that VPC could refuse to consent to the collateral assignment and thereby jeopardize the construction loan closing. The Consent and Estoppel Certificate should supplement, not replace, this LLSA provision.
We anticipate that Redmond & Calloway will have additional comments on the LLSA from the lender's perspective once they review the draft. We should plan to circulate the LLSA to lender's counsel promptly after reaching agreement on the key commercial terms with VPC, so that lender's counsel can identify any additional issues before the LLSA is finalized.
V. Service Reliability and Performance Guarantees
Data center operations are uniquely sensitive to disruptions in utility power. Even brief interruptions or fluctuations in power supply can cause significant damage to IT equipment, loss of data, and service-level agreement breaches with IHDC's tenants. The LLSA must therefore include robust service reliability commitments and performance guarantees that reflect the critical nature of the electrical load being served.
A. Availability / Uptime Commitments
VPC's draft LLSA does not include any specific service level agreement ("SLA") or minimum availability commitment. This is a significant gap. The absence of an availability guarantee means that VPC has no contractual obligation to achieve or maintain any particular level of service uptime, and IHDC has no contractual remedy (other than the general breach provisions) in the event of recurring or prolonged service interruptions.
Negotiation Points.
(1) Minimum Annual Availability. We recommend requesting a minimum annual availability commitment of 99.99%, measured at the point of delivery to the campus switchgear. An availability level of 99.99% is consistent with industry-standard Tier III/IV data center design specifications and permits no more than approximately 52.56 minutes of cumulative unplanned downtime per year. This threshold is achievable for a dedicated substation with proper maintenance and is a standard expectation for large data center utility service agreements. Planned maintenance outages that have been properly scheduled and coordinated with IHDC in advance should be excluded from the availability calculation.
(2) Measurement and Reporting. The LLSA should define the methodology for measuring availability with specificity, including the metering points, the calculation period (calendar year), and the treatment of partial outages (e.g., a reduction in available capacity below the contracted demand but not a complete loss of power). VPC should be required to provide quarterly availability reports to IHDC, detailing any outage events during the quarter, their duration and cause, and the corrective actions taken by VPC to prevent recurrence.
(3) Demand Charge Credits. For periods of unplanned outage exceeding the annual availability threshold, IHDC should receive a per-hour credit against the monthly demand charge. We propose a credit equal to 150% of the pro-rata hourly demand charge (calculated as the monthly demand charge divided by the number of hours in the applicable month) for each hour of unplanned unavailability exceeding the annual threshold. This credit mechanism provides VPC with a meaningful financial incentive to maintain high service levels without exposing VPC to uncapped liability. The credits should be applied as an offset against the next monthly invoice and should not be the exclusive remedy for availability failures — IHDC should retain the right to pursue breach-of-contract claims for damages resulting from VPC's failure to meet the availability commitment.
B. Power Quality
Data center operations require not only continuous power availability but also high-quality, stable power supply. Voltage sags, swells, transients, harmonic distortion, and frequency deviations can damage sensitive IT equipment, corrupt data, and trigger protective shutdowns that are costly and disruptive. The LLSA should establish clear power quality standards that VPC is obligated to maintain.
Negotiation Points.
(1) Power Quality Specifications. The LLSA should incorporate specific power quality requirements consistent with ANSI C84.1 (American National Standard for Electric Power Systems and Equipment — Voltage Ratings (60 Hertz)), which establishes acceptable voltage ranges for electric service. Specifically, the LLSA should require that VPC deliver power at the point of delivery within the Range A service voltage limits specified in ANSI C84.1, with total harmonic distortion not exceeding 5% (per IEEE 519), and with frequency maintained within ±0.5 Hz of 60 Hz under normal operating conditions.
(2) Planned Maintenance Notification. VPC should be required to provide IHDC with a minimum of thirty (30) calendar days' advance written notice of any planned maintenance outage or work that could affect power quality or availability at the point of delivery. Planned maintenance should be scheduled during periods of reduced load demand (typically overnight or during weekend hours) and coordinated with IHDC's operations team to minimize impact on data center operations. IHDC should have the right to request that VPC reschedule a planned maintenance event if the proposed timing conflicts with critical tenant operations, provided that IHDC exercises this right promptly and does not unreasonably delay VPC's maintenance activities.
(3) Indemnification for Power Quality Events. VPC should be obligated to indemnify IHDC for direct damages to equipment caused by power quality events that are attributable to VPC's negligence or failure to maintain the substation and delivery infrastructure in accordance with the LLSA's power quality specifications. We recognize that VPC will likely seek to cap its indemnification liability, and we should be prepared to negotiate a reasonable cap (e.g., an annual aggregate cap equal to one year's demand charges) while preserving IHDC's right to recover for gross negligence or willful misconduct without limitation.
C. Redundancy and Backup
Each of the four data center buildings at the Stonebridge Campus will be equipped with a 2N diesel generator configuration as on-site backup power. The diesel generators are included within the EPC Guaranteed Maximum Price scope with Titan-McAllister Construction Group, LLC, and are designed to support the full critical IT load of each building for a minimum of 48 hours on stored fuel, with the ability to operate continuously with fuel resupply. The backup generation systems are a fundamental component of the data center's resiliency design and are required by IHDC's tenant lease obligations and industry certification standards.
The LLSA should address the coordination between the utility feeds provided by VPC and the on-site backup generation systems. Specifically:
(1) Automatic Transfer Switching. The LLSA should acknowledge that the Campus will employ automatic transfer switches ("ATS") at each building to seamlessly transition electrical loads from utility power to backup generator power upon loss of utility supply. VPC should agree to coordinate its metering and protective relay settings with IHDC's ATS systems to ensure that the transition between utility power and generator power (and back) occurs without adverse power quality events or grid interactions.
(2) Dual Utility Feed. To the extent that VPC's distribution infrastructure permits, the LLSA should provide that VPC will maintain dual utility feed capability to the campus substation — that is, the substation should be capable of receiving power from two independent transmission sources, such that a failure on one transmission path does not result in a complete loss of utility power to the Campus. If dual feed capability is available, the LLSA should require VPC to maintain both feeds in operable condition throughout the term. If dual feed capability is not currently available but may become available in the future as VPC upgrades its transmission infrastructure, the LLSA should include a commitment by VPC to offer dual feed service to IHDC when it becomes available, at a mutually agreed cost.
(3) Grid Event Notification. VPC should be required to notify IHDC's operations center promptly (and in any event within 15 minutes) of any grid event, curtailment order from PJM, or other circumstance that may affect the delivery of power to the Campus. This notification obligation is critical to allow IHDC's operations team to pre-position backup systems and implement contingency protocols in advance of an anticipated utility disruption.
VI. Regulatory and Tariff Considerations
As a Virginia electric cooperative, VPC is regulated by the Virginia State Corporation Commission ("SCC") under the Virginia Electric Utility Regulation Act and related provisions of the Virginia Code. VPC's rate schedules and tariffs are filed with the SCC, and any non-standard rate terms or service conditions may require SCC approval or a formal waiver. The LLSA must be structured to comply with VPC's approved tariff, or, to the extent it departs from the tariff, VPC must obtain appropriate SCC authorization.
Negotiation Points.
(1) Regulatory-Out Provision. The LLSA should include a regulatory-out provision addressing the risk of adverse regulatory changes during the ten-year term. Specifically, if the SCC modifies VPC's approved tariff, imposes new charges or surcharges, or otherwise changes the regulatory framework applicable to VPC's service in a manner that materially increases the costs payable by IHDC under the LLSA beyond the levels contemplated by the agreed escalation formula, IHDC should have the right to (a) renegotiate the affected commercial terms of the LLSA in good faith with VPC, and (b) if the parties are unable to reach agreement on revised terms within ninety (90) days, terminate the LLSA without penalty upon twelve (12) months' prior written notice. This provision protects IHDC against the imposition of unanticipated regulatory costs while giving VPC the opportunity to reach a mutually acceptable accommodation.
(2) Tariff Compliance Confirmation. We should request written confirmation from VPC that the terms of the LLSA are consistent with VPC's currently filed tariff or, to the extent that the LLSA includes terms that deviate from the tariff (such as the negotiated demand charge rate, the escalation formula, or the phased demand schedule), that VPC has obtained or will obtain all necessary SCC approvals or waivers. IHDC should not be exposed to the risk that VPC enters into the LLSA on terms that are subsequently challenged or invalidated by the SCC as inconsistent with VPC's approved tariff.
(3) Pending Regulatory and Legislative Activity. Loudoun County and, more broadly, the Northern Virginia region have been the focus of increasing regulatory and legislative attention regarding the energy consumption of data center facilities. Several pending proceedings before the SCC and proposed bills in the Virginia General Assembly could affect cooperative rate structures, infrastructure cost allocation, and the permitting framework for large data center loads. We recommend that IHDC, working with regulatory counsel (Ashcroft & Wynn, P.C., Thomas Ashcroft), monitor these proceedings closely and evaluate whether any pending or proposed regulatory changes could materially affect the economics or enforceability of the LLSA. As a general protective measure, the regulatory-out provision discussed above should be drafted broadly enough to capture not only SCC-initiated tariff changes but also legislative changes that increase costs or impose new obligations on the customer.
VII. Tax and Accounting Implications
The LLSA and the related Line Extension Funding Agreement present several tax and accounting issues that require careful analysis in coordination with the project's tax advisors. We summarize the key issues below and recommend that they be addressed in a separate detailed tax memorandum prepared by Sylvia Hartwell (C&H Tax Partner) in consultation with Fielding & Associates, CPAs (Robert Fielding, CPA).
Line Extension Contribution — Federal and Virginia Tax Treatment. The $18,500,000 line extension contribution may be treated as a contribution-in-aid-of-construction ("CIAC") for both federal and Virginia income tax purposes. Under Internal Revenue Code Section 118(a), contributions to the capital of a corporation (including a utility) are generally excluded from the utility's gross income, but the treatment from the contributor's perspective is more nuanced. Key questions include:
(a) Whether IHDC (or Stonebridge Holdings) can depreciate or amortize the contribution as a capital expenditure for federal income tax purposes. If the contribution is treated as giving rise to a depreciable asset interest (notwithstanding that the substation will be owned by VPC), IHDC may be able to claim depreciation deductions over the useful life of the substation. Alternatively, if the contribution is characterized as a non-depreciable intangible (such as a right to receive electric service), the tax benefit may be limited to amortization under Section 197 of the Internal Revenue Code.
(b) Whether the contribution is subject to Virginia sales and use tax. Virginia imposes sales and use tax on the sale or use of tangible personal property, and certain construction-related payments may be subject to the tax depending on their characterization. We need to determine whether the contribution constitutes a taxable purchase of tangible personal property (e.g., the substation equipment) or is properly characterized as a payment for services or a contribution to capital that is exempt from sales and use tax.
(c) Whether the contribution and related power infrastructure costs count toward the $150 million minimum capital investment threshold required for qualification under the Virginia data center sales tax exemption (Va. Code § 58.1-609.3(18)). The Virginia data center sales tax exemption provides a significant ongoing benefit — exemption from Virginia sales and use tax on qualifying computer equipment and enabling hardware purchased for use in a data center facility. Qualification requires, among other conditions, a minimum capital investment of $150 million over five consecutive years. The total project budget for the Stonebridge Campus is $600,000,000, which substantially exceeds the threshold, but the specific treatment of the line extension contribution and power infrastructure costs as qualifying capital investment must be confirmed.
Ongoing Demand Charges — Operating Expense Treatment. The demand charges under the LLSA (estimated at $12,124,800 per year at full contracted demand during Years 1–5, escalating thereafter) are operating expenses that will be incurred by Stonebridge Campus Holdings LLC. These charges will directly affect the project's operating cash flow and, critically, the debt service coverage ratio ("DSCR") covenant under the construction loan agreement. The credit agreement requires a minimum DSCR of 1.25x at stabilization, meaning that net operating income must equal at least 125% of scheduled debt service payments. The demand charges are a fixed cost component that must be included in the pro forma operating expense assumptions used to test DSCR compliance.
We recommend coordinating with Priya Dasgupta (CFO) and the lending syndicate to ensure that the demand charge structure reflected in the final LLSA is accurately modeled in the project pro forma and that the DSCR covenant can be satisfied at the negotiated demand charge levels. Any increase in the demand charge rate resulting from the negotiations (e.g., if VPC refuses to reduce the proposed $8.42/kW/month rate) will need to be absorbed in the pro forma and may affect the project's equity contribution requirements or the lending syndicate's willingness to close the construction loan at the currently contemplated terms.
VIII. Insurance Considerations
The LLSA should contain comprehensive insurance provisions addressing the respective obligations of VPC and IHDC/Stonebridge Holdings to maintain insurance coverage on the infrastructure and equipment within their respective ownership and control.
(1) VPC Insurance Obligations. VPC, as the owner of the dedicated substation and line extension infrastructure following construction, should be required to maintain property insurance on those assets in an amount not less than their full replacement cost, with IHDC named as an additional insured or loss payee to the extent of IHDC's economic interest (including the $18,500,000 line extension contribution). VPC should also maintain comprehensive general liability insurance with minimum limits appropriate for a public utility operating high-voltage infrastructure (we recommend not less than $25,000,000 combined single limit per occurrence). Evidence of VPC's insurance coverage should be provided to IHDC annually, together with a commitment from VPC's insurer to provide thirty (30) days' advance notice to IHDC of any cancellation, non-renewal, or material modification of VPC's coverage.
(2) IHDC/Stonebridge Holdings Insurance. IHDC/Stonebridge Holdings will maintain property insurance on the customer-side switchgear, electrical distribution infrastructure, and all other campus-side improvements. The target replacement cost for the fully completed Campus is approximately $600,000,000, and the property insurance program will be structured to provide first-dollar coverage for the full replacement