Commitments and Contingencies

Commitments

Operating Leases

During the three months ended March 31, 2019 and 2018, rent expense for our facilities was $2.0 million and $1.4 million, respectively.

At March 31, 2019, future minimum lease payments under operating leases were as follows (in thousands):



Remainder of 2019	$	13,491
2020	18,785
2021	16,169
2022	15,673
2023	15,335
Thereafter	57,310
	$	136,763

Equipment Leases - Beginning in December 2015, the Company is a party to master lease agreements that provide for the sale of Energy Servers to third parties and the simultaneous leaseback of the systems which we then subleases to customers. The lease agreements expire on various dates through 2025 and there was no recorded rent expense for the three months ended March 31, 2019 and 2018.

Purchase Commitments with Suppliers and Contract Manufacturers - In order to reduce manufacturing lead-times and to ensure an adequate supply of inventories, we have agreements with our component suppliers and contract manufacturers to allow long lead-time component inventory procurement based on a rolling production forecast. We are contractually obligated to purchase long lead-time component inventory procured by certain manufacturers in accordance with our forecasts. We can generally give notice of order cancellation at least 90 days prior to the delivery date. However, we may also issue purchase orders to certain of our component suppliers and third-party manufacturers that may not be cancelable. As of March 31, 2019 and 2018, we had no material open purchase orders with our component suppliers and third-party manufacturers that are not cancelable.

Power Purchase Agreement Program - Under the terms of the Bloom Electrons program (see Note 12 - Power Purchase Agreement Programs), customers agree to purchase power from our Energy Servers at negotiated rates, generally for periods of up to twenty-one years. We are responsible for all operating costs necessary to maintain, monitor and repair these Energy Servers, including the fuel necessary to operate the systems under certain PPA contracts. The risk associated with the future market price of fuel purchase obligations is mitigated with commodity contract futures.

The PPA Entities guarantee the performance of Energy Servers at certain levels of output and efficiency to its customers over the contractual term. The PPA Entities monitor the need for any accruals arising from such guaranties, which are calculated as the difference between committed and actual power output or between natural gas consumption at warranted efficiency levels and actual consumption, multiplied by the contractual rates with the customer. Amounts payable under these guaranties are accrued in periods when the guaranties are not met and are recorded in cost of service revenue in the consolidated statements of operations. We paid $3.5 million and $0.9 million for the three months ended March 31, 2019 and 2018, respectively.

In June 2015, PPA V entered into a $131.2 million credit agreement to fund the purchase and installation of Energy Servers. The lenders have commitments to an LC facility with the aggregate principal amount of $6.2 million. The LC facility is to fund the Debt Service Reserve Account. The amount reserved under the LC as of March 31, 2019 and 2018 was $5.0 million and $5.0 million, respectively.

Contingencies

Indemnification Agreements - We enter into standard indemnification agreements with our customers and certain other business partners in the ordinary course of business. Our exposure under these agreements is unknown because it involves future claims that may be made against us but have not yet been made. To date, we have not paid any claims or been required to defend any action related to its indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations.

Warranty Costs - We generally warrant our products sold to our direct customers for one year following the date of acceptance of the products under a standard one-year warranty. As part of its MSAs, we provide output and efficiency guaranties (collectively “performance guaranties”) to our customers when systems operate below contractually specified levels of efficiency and output. Such amounts have not been material to date.

The standard one-year warranty covers defects in materials and workmanship under normal use and service conditions, and against manufacturing or performance defects. We accrue this warranty expense using our best estimate of the amount necessary to settle future and existing warranty claims as of the balance sheet date.

Our obligations under its standard one-year warranty and MSA agreements are generally in the form of product replacement, repair or reimbursement for higher customer electricity costs. Further, if the Energy Servers run at a lower efficiency or power output than we committed under our performance guaranty, we will reimburse the customer for the underperformance. Our aggregate reimbursement obligation for this performance guaranty for each order is capped at a portion of the purchase price. Prior to fiscal year 2014, certain MSAs with direct customers were accounted for as separately-priced warranty contracts under ASC 605-20-25 Separately Priced Extended Warranty and Product Maintenance Contracts (formerly FTB 90-1), in which we recorded an accrual for any expected costs that exceed the contracted revenues for that one-year service renewal arrangement, and is included as a component of the accrued warranty liability. Customers may renew the MSAs leading to future expense that is not recognized under GAAP until the renewal occurs. Over time, as our service offering evolved and we began managing the Energy Servers taking into consideration individual customer arrangements as well as our Bloom Energy Server fleet management objectives, our service offering evolved to the point that our services changed, becoming a more strategic offering for both us and our customers. Additionally, virtually all of our sales arrangements included bundled sales of maintenance service agreements along with the Energy Servers. The result is that we allocate a certain portion of the contractual revenue related to the Energy Servers to the MSAs based on our BESP compared to the stated amount in the service contracts.

Delaware Economic Development Authority - In March 2012, we entered into an agreement with the Delaware Economic Development Authority to provide a grant of $16.5 million as an incentive to establish a new manufacturing facility in Delaware and to provide employment for full time workers at the facility over a certain period of time. The grant contains two types of milestones that we must complete to retain the entire amount of the grant proceeds. The first milestone was to provide employment for 900 full time workers in Delaware by the end of the first recapture period of September 30, 2017. The second milestone was to pay these full time workers a cumulative total of $108.0 million in compensation by September 30, 2017. There are two additional recapture periods at which time we must continue to employ 900 full time workers and the cumulative total compensation paid by us is required to be at least $324.0 million by September 30, 2023. As of March 31, 2019, we had 334 full time workers in Delaware and paid $99.3 million in cumulative compensation. As of December 31, 2018, we had 338 full time workers in Delaware and paid $92.0 million in cumulative compensation. We have so far received $12.0 million of the grant which is contingent upon meeting the milestones through September 30, 2023. In the event that we do not meet the milestones, we may have to repay the Delaware Economic Development Authority, including up to $5.0 million on September 30, 2021 and up to an additional $2.5 million on September 30, 2023. As of March 31, 2019 we had cumulatively paid $1.5 million for recapture provisions and recorded $10.5 million in other long-term liabilities for potential recapture.

Self-Generation Incentive Program ("SGIP") - Our PPA Entities’ customers receive payments under the SGIP which is a program specific to the State of California that provides financial incentives for the installation of qualifying new self-generation equipment that we own. The SGIP program issues 50% of the fully anticipated amount in the first year the equipment is placed into service. The remaining incentive is then paid based on the size of the equipment (i.e., nameplate kilowatt capacity) over the subsequent five years.

The SGIP program has operational criteria primarily related to fuel mixture and minimum output for the first five years after the qualified equipment is placed in service. If the operational criteria are not fulfilled, it could result in a partial refund of funds received. However, for certain PPA Entities, we make SGIP reservations on behalf of the PPA Entity and, therefore, the PPA Entity bears the risk of loss if these funds are not paid.

Investment Tax Credits ("ITCs") - Our Energy Servers are eligible for federal ITCs that accrued to qualified property under Internal Revenue Code Section 48 when placed into service. However, the ITC program has operational criteria that extend for five years. If the energy property is disposed or otherwise ceases to be qualified investment credit property before the close of the five year recapture period is fulfilled, it could result in a partial reduction of the incentives. The purchase of Energy Servers were made by the PPA Entities and, therefore, the PPA Entities bear the risk of repayment if the assets placed in service do not meet the ITC operational criteria in the future.

Legal Matters - From time to time, we are involved in disputes, claims, litigation, investigations, proceedings and/or other legal actions consisting of commercial, securities and employment matters that arise in the ordinary course of business. We review all legal matters at least quarterly and assesses whether an accrual for loss contingencies needs to be recorded. The assessment reflects the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular situation. We record an accrual for loss contingencies when management believes that it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Legal matters are subject to uncertainties and are inherently unpredictable, so the actual liability in any such matters may be materially different from our estimates. If an unfavorable resolution were to occur, there exists the possibility of a material adverse impact on the consolidated financial condition, results of operations or cash flows for the period in which the resolution occurs or on future periods.

In July 2018, two former executives of Advanced Equities, Inc., Keith Daubenspeck and Dwight Badger, filed a Statement of Claim with the American Arbitration Association in Santa Clara, CA, against us, Kleiner Perkins, Caufield & Byers, LLC (“KPCB”), New Enterprise Associates, LLC (“NEA”) and affiliated entities of both KPCB and NEA seeking to compel arbitration and alleging a breach of a confidential agreement executed between the parties on June 27, 2014 (“Confidential Agreement”). This Statement of Claim sought, among other things, to void the indemnification and confidentiality provisions under the Confidential Agreement and to recover attorneys’ fees and costs. The Statement of Claim was dismissed without prejudice on July 22, 2018. On September 19, 2018, an Amended Statement of Claim was filed by Messrs. Daubenspeck and Badger with the American Arbitration Association in Santa Clara, CA, against the parties. The Amended Statement of Claim alleges a breach of the Confidentiality Agreement and fraud in the inducement, securities fraud, racketeering and other claims. On May 7, 2019, KPCB and NEA were dismissed with prejudice. No date has yet been set for our response. We believe the Amended Statement of Claim to be without merit and as a result, we have recorded no loss contingency related to this claim.

In March of 2019, the Lincolnshire Police Pension fund filed a class action complaint in the Superior Court of the State of California, County of Santa Clara against us, certain members of our senior management, certain of our directors and the underwriters in our initial public offering alleging violations under Sections 11 and 15 of the Securities Act of 1933, as amended, for misleading statements or omissions in our Form S-1 Registration Statement in connection with our July 25, 2018 initial public offering. Two related class action cases were subsequently filed in the Santa Clara County Superior Court against the same defendants containing the same allegations; Rodriquez vs Bloom Energy et al was filed on April 22, 2019 and Evan vs Bloom Energy et al. was filed on May 7, 2019. As related cases, we expect they will be consolidated and a case management schedule set. Discovery is currently stayed.