Note 21. Commitments and Contingencies

Letters of Credit

As of December 31, 2015 and 2014, the Company had $3.5 million and $5.8 million, respectively, of unused letters of credit outstanding, with carry fees ranging from 2.00% - 3.25% per annum.

Non-cancellable Operating Leases

The Company leases facilities and equipment under non-cancellable operating leases. Total operating lease expenses were $19.7 million, $13.8 million and $2.0 million for the years ended December 31, 2015, 2014 and 2013, respectively. Certain operating leases contain rent escalation clauses, which are recorded on a straight-line basis over the initial term of the lease with the difference between the rent paid and the straight-line rent recorded as a deferred rent liability. Lease incentives received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction to rent expense. Deferred rent liabilities were $1.9 million and $2.0 million as of December 31, 2015 and 2014, respectively.

Future minimum lease payments expected to be made under non-cancelable operating lease agreements as of December 31, 2015 for each of the years ending December 31, are as follows (in thousands):

2016	$	7,019
2017		6,669
2018		5,906
2019		2,521
2020		879
Thereafter		53
Total	$	23,047

Capital Lease Obligations

As of December 31, 2015 and 2014, capital lease obligations were $24.0 million and $7.4, respectively. The capital lease obligations bear interest at rates up to 10% per annum.

The following is a schedule of future lease payments as of December 31, 2015 (in thousands):

2016	$	9,727
2017		7,444
2018		5,321
2019		2,799
2020		219
Thereafter		200
Total future lease payments		25,710
Less: amount representing estimated executory costs included in future lease payments		537
Net minimum future lease payments		25,173
Amount representing interest		1,180
Present value of future payments		23,993
Less: current portion		8,951
Long term portion	$	15,042

Purchase Commitments

In January 2015, the Company entered into a purchase commitment with one of its suppliers to purchase $70.0 million of photovoltaic modules over the next 12 months with the first modules delivered in January 2015. In October 2015, the Company amended its commitment to purchase additional photovoltaic modules to be delivered until December 2016, for a total commitment of $146.0 million. As of December 31, 2015, the Company had $78.0 million of purchase commitments remaining.

In June 2015, the Company entered into a purchase commitment with one of its suppliers to purchase $32.0 million of photovoltaic modules through December 2016. As of December 31, 2015, the Company had $8.0 million of purchase commitments remaining.

Guarantees

The Company guarantees one of its investors in one of its Funds an internal rate of return, calculated on an after-tax basis, in the event that it purchases the investor’s interest or the investor sells its interest to the Company. The Company does not expect the internal rate of return to fall below the guaranteed amount; however, due to uncertainties associated with estimating the timing and amount of distributions to the investor and the possibility for and timing of the liquidation of the Fund, the Company is unable to determine the potential maximum future payments that it would have to make under this guarantee.

ITC 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 ITCs. Generally, such obligations would arise as a result of reductions to the value of the underlying solar energy systems as assessed by 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. The Company believes that any payments to the investors in excess of the amount already recognized by the Company for this obligation are not probable based on the facts known at the reporting date. The maximum potential future payments that the Company could have to make under this obligation would depend on the difference between the fair values of the solar energy systems sold or transferred to the Funds as determined by the Company and the values the IRS would determine as the fair value for the systems for purposes of claiming ITCs. ITCs are claimed based on the statutory regulations from the IRS. The Company uses fair values determined with the assistance of an independent third-party appraisal as the basis for determining the ITCs that are passed-through to and claimed by the Fund investors. Since the Company cannot determine how the IRS will evaluate system values used in claiming ITCs, the Company is unable to reliably estimate the maximum potential future payments that it could have to make under this obligation as of each balance sheet date.

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.

In July 2012, the Department of Treasury and the Department of Justice (together, the “Government”) opened a civil investigation into the participation by residential solar developers in the Section 1603 grant program. The Government served subpoenas on several developers, including Sunrun, along with their investors and valuation firms. The focus of the investigation is the claimed fair market value of the solar systems the developers submitted to the Government in their grant applications. We have cooperated fully with the Government and plan to continue to do so. No claims have been brought against us. The Company is not able to estimate the ultimate outcome or a range of possible loss at this point.