Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

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Commitments and Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Letters of Credit
As of June 30, 2020 and December 31, 2019, the Company had $15.7 million and $20.1 million, respectively, of unused letters of credit outstanding, which carry fees of 2.13% - 3.25% per annum and 1.25% - 3.25% per annum, respectively.
Operating and Finance Leases
The Company leases real estate under non-cancellable-operating leases and equipment under finance leases.
The components of lease expense were as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Finance lease cost:
Amortization of right-of-use assets $ 2,279    $ 3,748    $ 4,936    $ 7,232   
Interest on lease liabilities 207    433    424    672   
Operating lease cost 3,032    3,620    6,158    6,499   
Short-term lease cost 119    621    239    1,145   
Variable lease cost 971    1,019    1,781    1,896   
Sublease income (212)   (193)   (372)   (349)  
Total lease cost $ 6,396    $ 9,248    $ 13,166    $ 17,095   
Other information related to leases was as follows (dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases 2,924    $ 2,968    $ 5,499    $ 5,535   
Operating cash flows from finance leases 195    238    416    439   
Financing cash flows from finance leases 2,591    3,440    5,545    6,445   
Right-of-use assets obtained in exchange for lease obligations:
Operating leases —    (245)   32    20,150   
Finance leases 33    9,371    213    12,937   
Weighted average remaining lease term (years):
Operating leases 4.83 5.31 4.83 5.31
Finance leases 2.48 3.13 2.48 3.13
Weighted average discount rate:
Operating leases 5.5  % 5.2  % 5.5  % 5.2  %
Finance leases 4.2  % 4.2  % 4.2  % 4.2  %
Future minimum lease commitments under non-cancellable leases as of June 30, 2020 were as follows (in thousands):
Operating Leases Sublease Income Net Operating Leases Finance Leases
2020 $ 12,702    $ 767    $ 11,935    $ 8,574   
2021 10,772    276    10,496    5,907   
2022 9,171    —    9,171    2,788   
2023 7,369    —    7,369    129   
2024 2,696    —    2,696    21   
Thereafter 6,640    —    6,640    —   
Total future lease payments 49,350    1,043    48,307    17,419   
Less: Amount representing interest 6,113    —    6,113    807   
Present value of future payments 43,237    1,043    42,194    16,612   
Less: Tenant incentives (3)   —    (3)   —   
Net present value of future payments 43,240    1,043    42,197    16,612   
Less: Current portion 10,658    —    10,658    8,065   
Long-term portion $ 32,582    $ 1,043    $ 31,539    $ 8,547   

Purchase Commitment
The Company entered into purchase commitments, which have the ability to be canceled without significant penalties, with multiple suppliers to purchase $108.5 million of photovoltaic modules, inverters and batteries by the end of 2022.
Warranty Accrual
The Company accrues warranty costs when revenue is recognized for solar energy systems sales, based on the estimated future costs of meeting its warranty obligations. Warranty costs primarily consist of replacement costs for supplies and labor costs for service personnel since warranties for equipment and materials are covered by the original manufacturer’s warranty (other than a small deductible in certain cases). As such, the warranty reserve is immaterial in all periods presented. The Company makes and revises these estimates based on the number of solar energy systems under warranty, the Company’s historical experience with warranty claims, assumptions on warranty claims to occur over a systems’ warranty period and the Company’s estimated replacement costs.
Commercial ITC and Cash Grant Indemnification
The Company is contractually committed to compensate certain investors for any losses that they may suffer in certain limited circumstances resulting from reductions in Commercial ITCs or U.S. Treasury grants. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by the Internal Revenue Service (the “IRS”). At each balance sheet date, the Company assesses and recognizes, when applicable, the potential exposure from this obligation based on all the information available at that time, including any audits undertaken by the IRS. One of the Company's investors is being audited by the IRS. Since this audit is ongoing, the Company is unable to determine the potential tax liabilities as of the filing date of this Quarterly Report on Form 10-Q. The maximum potential future payments that the Company could have to make under this obligation would depend largely on the difference between the prices at which the solar energy systems were sold or transferred to the Funds (or, in certain structures, the fair market value claimed in respect of such systems (referred to as "claimed values")) and the eligible basis determined by the IRS. The Company set the purchase prices and claimed values based on fair market values determined with the assistance of an independent third-party appraisal with respect to the systems that generate Commercial ITCs that are passed-through to, and claimed by, the Fund investors. In April 2018, the Company purchased an insurance policy providing for certain payments by the insurers in the event there is any final determination (including a judicial determination) that reduced the Commercial ITCs claimed in respect of solar energy systems sold or transferred to most Funds through April 2018, or later, in the case of Funds added to the policy after such date. In general, the policy indemnifies the Company and related parties for additional taxes (including penalties and interest) owed in respect of lost Commercial ITCs, gross-up costs and expenses incurred in defending such claim, subject to negotiated exclusions from, and limitations to, coverage.
Litigation
The Company is subject to certain legal proceedings, claims, investigations and administrative proceedings in the ordinary course of its business. The Company records a provision for a liability when it is both probable that the liability has been incurred and the amount of the liability can be reasonably estimated. These provisions, if any, are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Depending on the nature and timing of any such proceedings that may arise, an unfavorable resolution of a matter could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period.
On April 8, 2019, a putative class action captioned Loftus et al. v. Sunrun Inc., Case No. 3:19-cv-01608, was filed in the United States District Court, Northern District of California. The complaint generally alleges violations of the Telephone Consumer Protection Act (the “TCPA”) on behalf of an individual and putative classes of persons alleged to be similarly situated. Plaintiffs filed a First Amended Complaint on June 26, 2019, adding defendant MediaMix 365, LLC, also asserting individual and putative class claims under the TCPA, along with claims under the California Invasion of Privacy Act. In the amended version of their Complaint, plaintiffs seek statutory damages, equitable and injunctive relief, and attorneys’ fees and costs on behalf of themselves and the absent purported classes. On January 23, 2020, the Court held a status conference and set discovery deadlines. Most, if not all, of the claims asserted in the lawsuit relate to activities allegedly engaged in by third-party vendors, for which the Company denies any responsibility. The vendors are contractually obligated to indemnify the Company for losses related to the conduct alleged. While the Company believes that the claims against it are without merit, in view of the cost and risk of continuing to defend the action, it has reached an agreement with plaintiffs to settle the lawsuit on a class-wide basis for $5.5 million, which was accrued as of June 30, 2020, in exchange for a release of all claims that were or could have been asserted in the litigation. The settlement is subject to court-approval.