In some cases, similar to direct purchases and leases, the standard one-year warranty and performance guaranties are included in the price of the product. The Operating Company also enters into a master services agreement with us following the first year of service to extend the warranty services and guaranties over the term of the PPA. In other cases, the master services agreements including performance warranties and guaranties are billed on a quarterly basis starting in the first quarter following the placed-in-service date of the Energy Server(s) and continuing over the term of the PPA. The first of such arrangements was considered a sales-type lease and the product revenue from that agreement was recognized upfront in the same manner as direct purchase and lease transactions. Substantially all of our subsequent PPAs have been accounted for as operating leases with the related revenue under those agreements recognized ratably over the PPA term as electricity revenue. We recognize the cost of revenue, primarily product costs and maintenance service costs, over the shorter of the estimated useful life of the Energy Server or the term of the PPA.

We and our third-party equity investors (together, the “Equity Investors”) contribute funds into a limited liability investment entity (the “Investment Company”) that owns and is parent to the Operating Company (together, the “PPA Entities”). These PPA Entities constitute VIEs under U.S. GAAP. We have considered the provisions within the contractual agreements which grant us power to manage and make decisions affecting the operations of these VIEs. We consider that the rights granted to the Equity Investors under the contractual agreements are more protective in nature rather than participating. Therefore, we have determined under the power and benefits criterion of ASC 810, Consolidations that we are the primary beneficiary of these VIEs. As the primary beneficiary of these VIEs, we consolidate in our consolidated financial statements the financial position, results of operations and cash flows of the PPA Entities, and all intercompany balances and transactions between us and the PPA Entities are eliminated in the consolidated financial statements.

In accordance with our Portfolio Financings, the Operating Company acquires Energy Servers from us for cash payments that are made on a similar schedule as if the Operating Company were a customer purchasing an Energy Server from us outright. In the consolidated financial statements, the sale of Energy Servers by us to the Operating Company are treated as intercompany transactions and as a result eliminated in consolidation. The acquisition of Energy Servers by the Operating Company is accounted for as a non-cash reclassification from inventory to Energy Servers within property, plant and equipment, net on our consolidated balance sheets. In arrangements qualifying for sales-type leases, we reduce these recorded assets by amounts received from U.S. Treasury Department cash grants and from similar state incentive rebates.

The Operating Company sells the electricity to end customers under PPAs. Cash generated by the electricity sales, as well as receipts from any applicable government incentive program, is used to pay operating expenses (including the management and services we provide to maintain the Energy Servers over the term of the PPA) and to service the non-recourse debt with the remaining cash flows distributed to the Equity Investors. In transactions accounted for as sales-type leases, we recognize subsequent customer billings as electricity revenue over the term of the PPA and amortize any applicable government incentive program grants as a reduction to depreciation expense of the Energy Server over the term of the PPA. In transactions accounted for as operating leases, we recognize subsequent customer payments and any applicable government incentive program grants as electricity revenue and service revenue over the term of the PPA.

We have established six different PPA Entities to date. The contributed funds are restricted for use by the Operating Company to the purchase of our Energy Servers manufactured by us in our normal course of operations. All six PPA Entities utilized their entire available financing capacity and have completed the purchase of their Energy Servers. Any debt incurred by the Operating Companies is non-recourse to us. Under these structures, each Investment Company is treated as a partnership for U.S. federal income tax purposes. Equity Investors receive investment tax credits and accelerated tax depreciation benefits.

Following the PPA IIIa Buyout and prior to June 14, 2022, we repaid all outstanding debt of the Project Company of $30.6 million, and recognized loss on extinguishment of debt in an amount of $4.2 million, which includes the write-off of the debt discount related to warrants of $1.8 million and a make-whole payment of $2.4 million associated with the debt extinguishment. Refer to Note 7 - Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.

On June 14, 2022, we sold our 100% interest in the Project Company to the financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the old 9.8 megawatts of Energy Servers (the “old Energy Servers”) by replacing them with a newer generation of Energy Servers (“new Energy Servers”) and providing related installation services, which was financed by the financier (the “EPC Agreement”). The plan is to remove the old Energy Servers prior to installing the new Energy Servers and return the old Energy Servers to Bloom. We also amended and restated our operations and maintenance agreement with the Project Company to cover all new Energy Servers and old Energy Servers prior to their upgrade (“the O&M Agreement”). The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.

Certain power purchase agreements within the PPA IIIa portfolio were classified as sales-type leases under ASC 840 Leases, while some were classified as operating leases. The Company elected the practical expedient package with the adoption of ASC 842, which allowed the Company to carry forward the lease classification upon adoption of ASC 842 on January 1, 2020. The leases were modified prior to the sale of the PPA IIIa to the financier. Such modified leases were reassessed and determined to not be leases under ASC 842 because customers have no control over the identified assets. Accordingly, on the date of modification, the customer financing receivables were derecognized and recognized as property, plant, and equipment (“PPA IIIa PP&E”).

Due to our repurchase option on the old Energy Servers, the Company concluded there was no transfer of control of the old Energy Servers upon sale of the membership interest to the financier. Accordingly, the Company continued to recognize the old Energy Servers, despite the legal ownership of such assets under the MIPA. Upon reclassification of the lease assets to PP&E, the Company assessed the recorded assets for impairment. The carrying amount of the PPA IIIa PP&E was determined to be not recoverable as the net undiscounted cash flows are less than the carrying amounts for PPA IIIa PP&E. Therefore, we recognized the asset impairment charge as electricity cost, consistent with depreciation expense classification for property, plant and equipment under leases.

The PPA IIIa Upgrade was substantially complete as of December 31, 2022 and resulted in the following summarized impacts on our consolidated balance sheet as of December 31, 2022: (i) cash and cash equivalents increased by $29.3 million mainly due to $66.3 million cash receipts from the sale of new Energy Servers to the Project Company, offset by $30.6 million for the repayment of outstanding debt and related accrued interest, (ii) both customer financing receivables, current and non-current, and property plant and equipment, net decreased by $5.9 million, $36.9 million and $2.2 million, respectively, due to the impairment of $44.8 million and accelerated depreciation of $0.2 million of the existing old Energy Servers (we revised the expected useful life of the old Energy Servers from 15 years to approximately 0.5 years which resulted in recognized accelerated depreciation of $0.2 million in electricity cost of revenue (see Note 6 - Balance Sheet Components)), (iii) inventories and deferred cost of revenue decreased by $25.0 million, (iv) deferred revenue and customer deposits increased by $3.4 million, (v) accounts receivable decreased by $1.8 million and (vi) other liabilities increased by $3.8 million.

Impacts on our consolidated statements of operations for the year ended December 31, 2022 are summarized as follows: (i) product, installation and service revenue recognized of $49.8 million, $4.6 million, and $0.7 million, respectively, as a result of the sale of new Energy Servers; (ii) cost of electricity revenue of $45.0 million, including the write-off of old Energy Servers of $44.8 million and accelerated depreciation of $0.2 million prior to the completion of installation; (iii) cost of product and installation revenue of $21.8 million and $3.2 million, respectively, due to the sale of new Energy Servers; and (iv) $4.2 million of loss on extinguishment of debt.

Following the PPA IV Buyout and prior to November 22, 2022, we repaid all outstanding debt of the Project Company of $70.9 million, and recognized a loss on extinguishment of debt in an amount of $4.7 million, which includes the write-off of the debt discount of $0.6 million and a make-whole payment of $4.1 million associated with the debt extinguishment. Refer to Note 7 - Outstanding Loans and Security Agreements, Non-recourse Debt Facilities section.

On November 22, 2022, we sold our 100% interest in the Project Company to the financier through the MIPA. Simultaneously, we entered into an agreement with the Project Company to upgrade the 19.3 megawatts of old Energy Servers by replacing them with new Energy Servers and providing related installation services, which was financed by the financier under the EPC Agreement. The old Energy Servers will be removed prior to installing the new Energy Servers, whereby upon completion of installation the old Energy Servers will be returned to Bloom. We also amended and restated our O&M Agreement with the Project Company to cover all new Energy Servers and old Energy Servers prior to their upgrade. The operations and maintenance fees under the O&M Agreement are paid on a fixed dollar per kilowatt basis.

The power purchase agreements within the PPA IV portfolio were classified as operating leases under ASC 840 Leases. The Company elected the practical expedient package with the adoption of ASC 842, which allowed the Company to carry forward the lease classification upon adoption of ASC 842 on January 1, 2020. The leases were modified prior to the sale of the PPA IV to the financier. Such modified leases were reassessed and determined to not be leases under ASC 842 because customers have no control over the identified assets. Accordingly, on the date of modification, the operating leases were recognized as property, plant, and equipment (“PPA IV PP&E”).

Due to our repurchase option on the old Energy Servers, the Company concluded there was no transfer of control of the old Energy Servers upon sale of the membership interest to the financier. Accordingly, the Company continued to recognize the old Energy Servers, despite the legal ownership of such assets under the MIPA. The Company assessed the recorded assets for impairment. The carrying amount of the PPA IV PP&E was determined to be not recoverable as the net undiscounted cash flows are less than the carrying amounts for PPA IV PP&E. Therefore, we recognized the asset impairment charge as electricity cost, consistent with depreciation expense classification for property, plant and equipment under leases.

The PPA IV Upgrade was in progress as of December 31, 2022 and resulted in the following summarized impacts on our consolidated balance sheet as of December 31, 2022: (i) cash and cash equivalents increased by $16.4 million mainly due to $91.4 million cash receipts from the sale of new Energy Servers to the Project Company, offset by $70.9 million for the repayment of outstanding debt and related accrued interest, (ii) property plant and equipment, net decreased by $64.3 million, due to the impairment of $64.0 million and accelerated depreciation of $0.3 million of the existing old Energy Servers (we revised the expected useful life of the old Energy Servers from 15 years to approximately 0.5 years which resulted in recognized accelerated depreciation of $0.3 million in electricity cost of revenue (see Note 6 - Balance Sheet Components)), (iii) contract assets increased by $17.9 million, (iv) inventories and deferred cost of revenue decreased by $37.4 million, (v) accrued expenses and other current liabilities increased by $6.2 million and (vi) prepaid expenses and other current assets decreased by $4.7 million.

Impacts on our consolidated statements of operations for the year ended December 31, 2022 are summarized as follows: (i) product and electricity revenue recognized of $102.3 million and $1.4 million, respectively, as a result of the sale of new Energy Servers; (ii) cost of electricity revenue of $64.3 million, including the write-off of old Energy Servers of $64.0 million and accelerated depreciation of $0.3 million prior to the completion of installation; (iii) cost of product revenue of $37.4 million, due to the sale of new Energy Servers; (iv) general and administrative expenses of $4.7 million due to the write-off of prepaid insurance, and; (v) $4.7 million of loss on extinguishment of debt.

The change in our ownership interest in PPA V was accounted for as an equity transaction in accordance with ASC 810 Consolidation. The carrying amount of the noncontrolling interest was adjusted to reflect the change in its ownership interest in PPA V, and the difference between the fair value of the consideration paid and the amount by which the noncontrolling interest is adjusted was recognized as additional paid-in capital in our Consolidated Statements of Stockholders’ Equity (Deficit).

The table below shows the details of the three Investment Company VIEs that were active during the year ended December 31, 2022 and their cumulative activities from inception to the years indicated (dollars in thousands):


	PPA IIIa		PPA IV		PPA V
Overview:
Maximum size of installation (in megawatts)	10		21		40
Installed size (in megawatts)	10		19		37
Term of power purchase agreements (in years)	15		15		15
First system installed	Feb-13		Sep-14		Jun-15
Last system installed	Jun-14		Mar-16		Dec-16
Initial income (loss) and tax benefits allocation to Equity Investor	99%		90%		99%
Initial cash allocation to Equity Investor	99%		90%		90%
Income (loss), tax and cash allocations to Equity Investor after the flip date	5%		No flip		No flip
Equity Investor(s) 1	US Bank		Constellation4		Constellation4 and Intel
Put option date 2	1st anniversary of flip point		N/A		N/A
Company cash contributions	$	32,223	$	11,669	$	27,932
Company non-cash contributions 3	8,655		—		—
Equity Investor cash contributions	36,967		84,782		227,344
Debt financing	44,968		99,000		131,237
Activity as of December 31, 2022:
Distributions to Equity Investor	4,897		15,017		30,786
Debt repayment—principal	44,968		99,000		139,795
Activity as of December 31, 2021:
Distributions to Equity Investor	4,897		12,848		26,601
Debt repayment—principal	13,899		25,045		132,587
Activity as of December 31, 2020:
Distributions to Equity Investor	4,847		8,852		24,809
Debt repayment—principal	10,513		21,163		16,475

1 Investor name represents ultimate parent of subsidiary financing the project. Bloom purchased the equity interest in each of the PPAs from each respective Equity Investor during fiscal year 2022. Refer to the sections entitled PPA IIIa Repowering of Energy Servers, PPA IV Repowering of Energy Servers and PPA V Interest Buyout for further details.
2 Investor right on the certain date, upon giving us advance written notice, to sell the membership interests to us or resign or withdraw from the investment partnership.
3 Non-cash contributions consisted of warrants that were issued by us to respective lenders to each PPA Entity, as required by such entity’s credit agreements. The corresponding values are amortized using the effective interest method over the debt term.
4 Formerly known as Exelon Corporation.

Generally, the assets of an operating company owned by an investment company can be used to settle only the operating company obligations, and the operating company creditors do not have recourse to us. The following are the aggregate carrying values of our VIEs’ assets and liabilities in our consolidated balance sheets, after eliminations of intercompany transactions and balances, including as of December 31, 2022 for each of the PPA Entities in the PPA V transaction, and as of December 31, 2021 for each of the PPA Entities in the PPA IIIa transaction, the PPA IV transaction and the PPA V transaction (in thousands):


	December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	5,008	$	1,541
Restricted cash	550		3,078
Accounts receivable	2,072		5,112
Customer financing receivable	—		5,784
Prepaid expenses and other current assets	1,927		3,071
Total current assets	9,557		18,586
Property and equipment, net	133,285		228,546
Customer financing receivable	—		39,484
Restricted cash	8,000		23,239
Other long-term assets	1,869		2,362
Total assets	$	152,711	$	312,217
Liabilities
Current liabilities:
Accrued expenses and other current liabilities	$	1,037	$	194
Deferred revenue and customer deposits	662		662
Non-recourse debt	13,307		17,483
Total current liabilities	15,006		18,339
Deferred revenue and customer deposits	4,748		5,410
Non-recourse debt	112,480		217,417
Total liabilities	$	132,234	$	241,166