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SPECIAL PURPOSE ENTITIES | 12 Months Ended
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Dec. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
SPECIAL PURPOSE ENTITIES | SPECIAL PURPOSE ENTITESThe Company has formed various SPEs to finance the development and construction of its energy storage systems. These SPEs, which are structured as limited liability companies, obtain financing from outside investors and purchase projects from the Company under master purchase agreements by making an upfront payment to the Company for such energy storage systems. As discussed in Note 2 — Summary of Significant Accounting Policies, the Company accounts for the large upfront payment received from the SPE as a financing obligation. The legal purchase of the energy storage system does not affect the Company’s legal or constructive obligation to the host customer. Unconsolidated VIEs SPV II, SPV III, and SPV IV On January 23, 2015, June 7, 2016, and June 30, 2017 the Company entered into agreements to form three Limited Liability Companies: Stem Finance SPV II, LLC (“SPV II”), Stem Finance SPV III, LLC (“SPV III”), and Generate-Stem LCR, LLC (“SPV IV”), respectively. These agreements are accounted for as unconsolidated VIEs because the Company lacks the power to direct the activities that most significantly impact the economics of these entities. Although the Company is not the primary beneficiary of these entities, due to its significant continuing involvement in the generation of cash flows of the energy storage systems and legal responsibilities under the host customer contract, the Company is required to include the assets, liabilities, revenues, and expenses of these entities in its consolidated financial statements. The significant activities involve deciding which energy storage systems to be purchased by the SPE and setting of the annual operating budgets which govern the ongoing operation and maintenance of the energy storage systems. Both of these activities significantly impact the revenue, expenses, and resulting residual returns or losses that will accrue to the investors of the SPE and require approval by both Stem and the other third-party investor. Stem, the non-managing member of the SPE, shares power through its rights to (i) agree on SPE purchases of energy storage systems in the master purchase agreement, and (ii) approve the annual operating budgets in the operating and maintenance agreement. The other investor shares power through its rights as the managing member in the SPE. As a result, power is shared with the other investors in the SPE who are not considered related parties (including de facto agency relationships) of the Company. Investments in such SPEs are accounted for under the equity method of accounting and are recorded within other noncurrent assets on the consolidated balance sheets. The Company’s maximum loss exposure from these entities is limited to the aggregate carrying amount of its equity method investments. As of December 31, 2022, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement or otherwise, to its SPEs, including circumstances in which it could be exposed to further losses (e.g., cash shortfalls). The Company’s cumulative share of the earnings/(losses) in SPV II, SPV III and SPV IV was immaterial for the year ended December 31, 2022, and $0.1 million for both of the years ended December 31, 2021 and 2020. Copec During March 2020, the Company entered into the JV Agreement with Compania de Petroleos de Chile Copec S.A. (“Copec”), a leading wholesaler and distributor of petroleum products, that supplies fuel, lubricants, and other retail services such as carwash and foods through its series of service stations. The Company operates more than 650 service stations in Chile and more than 2,500 through different subsidiaries companies around South America, Central America, and the United States. The purpose of the JV Agreement is to form an entity with equity contributions from both Stem and Copec to explore and develop business opportunities within the commercial and industrial space, including utilities and grid operators, in Latin America with the focus of providing intelligent energy storage solutions that leverage advanced software analytics and controls (principally through the Athena Platform developed by Stem). Stem’s technology and expertise will be combined with the strength of Copec’s scale, distribution network, energy knowledge and other expertise areas to develop business in certain territories as defined in the JV Agreement. The JV entity is a VIE and the Company holds a variable interest in the JV Entity. However, the Company does not have the power to direct activities that most significantly impact the economics of the JV Entity and, as such, is not the primary beneficiary. Accordingly, the Company does not consolidate the JV Entity. The Company has concluded that it has the ability to exercise significant influence over the JV Entity, and accounts for the investment using the equity method. The following table summarizes additional information about the Company’s equity method investments, SPV II, SPV III, SPV IV and Copec:
| SPV II |  | SPV III |  | SPV IV |  | COPEC
Date formed | January 23, 2015 |  | June 7, 2016 |  | June 30, 2017 |  | March 24, 2020
Initial ownership % | 49 | % |  | 50 | % |  | 50 | % |  | 49 | %
Stem’s interest | 100% of Class A shares |  | 100% of Class B shares |  | 100% of Class B shares |  | 100% of Class A shares
Initial distributions: |  |  |  |  |  |  |
Class A | 10% (Stem) |  | 80% (Stem — 50%) |  | 97.5 | % |  | To be determined
Class B | 90 | % |  | 20% (Stem — 100%) |  | 2.5% (Stem) |  | N/A
As of December 31, 2022 and 2021, the Company’s investment in its unconsolidated SPEs, recorded within other noncurrent assets on the consolidated balance sheets, was as follows (in thousands):
| December 31,
| 2022 |  | 2021
Investment in SPV II | $ | — |  |  | $ | — |
Investment in SPV III | 439 |  |  | 421 |
Investment in SPV IV | 308 |  |  | 291 |
Copec | 1,174 |  |  | 1,212 |
Other equity method investments | $ | 50 |  |  | $ | — |
Total equity method investments | $ | 1,971 |  |  | $ | 1,924 |
As discussed in Note 2 — Summary of Significant Accounting Policies, the Company accounts for the legal sales of the energy storage systems to the SPEs as a financing obligation. This is because the Company has significant continuing involvement in the generation of cash flows of the energy storage systems and continue to be legally responsible under the host customer contract. Accordingly, in addition to the equity method investment, the Company has the following financing obligations associated with energy storage systems legally sold to the unconsolidated SPEs (in thousands):
| December 31,
| 2022 |  | 2021
Financing obligation, current portion | $ | 15,720 |  |  | $ | 15,277 |
Financing obligation, noncurrent | $ | 63,867 |  |  | $ | 73,204 |
Interest expense related to the financing obligations was $6.3 million, $8.5 million, and $6.9 million for the years ended December 31, 2022, 2021, and 2020, respectively. As a result of being the accounting owner of energy storage systems sold to the SPEs and retaining the obligation to provide energy optimization services to host customers, the Company records the carrying value of energy storage system assets and obligations under the customer host contracts on its consolidated balance sheet. These balances were as follows as of December 31, 2022 and 2021 (in thousands):
| December 31,
| 2022 |  | 2021
Energy storage systems, net | $ | 76,617 |  |  | $ | 92,426 |
Deferred revenue, current | $ | 4,943 |  |  | $ | 4,417 |
Deferred revenue, noncurrent | $ | 10,682 |  |  | $ | 10,835 |
Other liabilities | $ | 3,763 |  |  | $ | 3,586 |
Because the Company is the legal party responsible for providing services to the host customer and significantly involved in generating the revenue under the host customer arrangements, the Company records the revenue associated with services, and separately records payments to the VIE as debt and interest payments. Revenues recognized by the Company associated with energy storage systems legally sold to the unconsolidated SPEs were $17.8 million, $16.9 million, and $12.8 million for the years ended December 31, 2022, 2021, and 2020, respectively. Such revenues are inclusive of incentive fees, consistent with the Company’s revenue policy. Depreciation expense recognized within cost of service revenue by the Company for the energy storage systems legally sold to the unconsolidated SPEs was $6.8 million, $12.8 million and $11.8 million for the years ended December 31, 2022, 2021, and 2020, respectively.

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- Definition The entire disclosure for a variable interest entity (VIE), including but not limited to, judgments and assumptions in determining whether to consolidate and in identifying the primary beneficiary, gain (loss) recognized on the initial consolidation of the VIE, terms of arrangements, amounts and classification of the VIE's assets and liabilities, and the entity's maximum exposure to loss. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI https://asc.fasb.org/topic&trid=2197479 + Details
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