UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
Or
¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number 1-15759
CLECO CORPORATE HOLDINGS LLC
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-1445282
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 
Commission file number 1-05663
CLECO POWER LLC
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-0244480
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 
Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes ¨ No x
 
Indicate by check mark whether the Registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files). Yes x  No ¨
 
Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filer ¨      Accelerated filer ¨      Non-accelerated filer x      Smaller reporting company ¨      Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one): Large accelerated filer ¨      Accelerated filer ¨      Non-accelerated filer x      Smaller reporting company ¨      Emerging growth company ¨
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act)  Yes ¨     No x
Securities registered pursuant to Section 12(b) of the Act:
Cleco Corporate Holdings LLC: None
Cleco Power LLC: None

Cleco Corporate Holdings LLC has no common stock outstanding. All of the outstanding equity of Cleco Corporate Holdings LLC is held by Cleco Group LLC, a wholly owned subsidiary of Cleco Partners L.P.

Cleco Power LLC, a wholly owned subsidiary of Cleco Corporate Holdings LLC, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 



CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

This Combined Quarterly Report on Form 10-Q (this “Quarterly Report on Form 10-Q”) is separately filed by Cleco Corporate Holdings LLC and Cleco Power LLC. Information in this filing relating to Cleco Power LLC is filed by Cleco Corporate Holdings LLC and separately by Cleco Power LLC on its own behalf. Cleco Power LLC makes no representation as to information relating to Cleco Corporate Holdings LLC (except as it may relate to Cleco Power LLC) or any other affiliate or subsidiary of Cleco Corporate Holdings LLC.
This Quarterly Report on Form 10-Q should be read in its entirety as it pertains to each respective Registrant. The Notes to the Unaudited Condensed Consolidated Financial Statements for the Registrants and certain other sections of this Quarterly Report on Form 10-Q are combined.


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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

GLOSSARY OF TERMS
Abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below.
ABBREVIATION OR ACRONYM
DEFINITION
2016 Merger
Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016
2016 Merger Commitments
Cleco Partners’, Cleco Group’s, Cleco Holdings’, and Cleco Power’s 77 commitments to the LPSC as defined in Docket No. U-33434 of which a performance report must be filed annually by October 31 for the 12 months ending June 30
401(k) Plan
Cleco Power 401(k) Savings and Investment Plan
ABR
Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or LIBOR plus 1.0%
Acadia
Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1
Cleco Power’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2
Entergy Louisiana’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power 
ADIT
Accumulated Deferred Income Tax
AFUDC
Allowance for Funds Used During Construction
ALJ
Administrative Law Judge
Amended Lignite Mining Agreement
Amended and restated lignite mining agreement effective December 29, 2009
AMI
Advanced Metering Infrastructure
AOCI
Accumulated Other Comprehensive Income (Loss)
ARO
Asset Retirement Obligation
Attala
Attala Transmission LLC, a wholly owned subsidiary of Cleco Holdings
BCI
British Columbia Investment Management Corporation
CCR
Coal combustion by-products or residual
CEO
Chief Executive Officer
CFO
Chief Financial Officer
Cleco
Cleco Holdings and its subsidiaries
Cleco Cajun
Cleco Cajun LLC, formerly Cleco Energy LLC, a wholly owned subsidiary of Cleco Holdings
Cleco Cajun Transaction
The transaction between Cleco Cajun and NRG Energy in which Cleco Cajun acquired all the membership interest in NRG South Central, which closed on February 4, 2019, pursuant to the Purchase and Sale Agreement, which includes the Cottonwood Sale Leaseback.
Cleco Corporation
Pre-2016 Merger entity that was converted to a limited liability company and changed its name to Cleco Corporate Holdings LLC on April 13, 2016
Cleco Group
Cleco Group LLC, a wholly owned subsidiary of Cleco Partners
Cleco Holdings
Cleco Corporate Holdings LLC, a wholly owned subsidiary of Cleco Group
Cleco Katrina/Rita
Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Cleco Partners
Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by MIRA, BCI, John Hancock Financial, and other infrastructure investors
Cleco Power
Cleco Power LLC and its subsidiaries, a wholly owned subsidiary of Cleco Holdings
Consent Decree
The Consent Decree, entered March 5, 2013, in Civil Action No. 09-100-JJB-DLD, US District Court for the Middle District of Louisiana, by and among the EPA, the Louisiana Department of Environmental Quality and Louisiana Generating relating to Big Cajun II, Unit 1, New Roads, Louisiana
Cottonwood Energy
Cottonwood Energy Company LP, a wholly owned subsidiary of Cleco Cajun. Prior to the closing of the Cleco Cajun Transaction on February 4, 2019, Cottonwood Energy was an indirect subsidiary of NRG South Central.
Cottonwood Plant
Cleco Cajun’s 1,263-MW, natural-gas-fired generating station located in Deweyville, Texas
Cottonwood Sale Leaseback
A lease agreement executed and delivered between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy pursuant to which NRG Energy will lease back the Cottonwood Plant and will operate it no later than May 2025.
Coughlin
Cleco Power’s 775-MW, combined-cycle power plant located in St. Landry, Louisiana
DHLC
Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands
Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings
Dolet Hills
A facility consisting of Dolet Hills Power Station, the Dolet Hills mine, and the Oxbow mine
Dolet Hills Power Station
A 650-MW generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of Dolet Hills.
EAC
Environmental Adjustment Clause
EBITDA
Earnings before interest, taxes, depreciation, and amortization
Entergy Gulf States
Entergy Gulf States Louisiana, LLC
Entergy Louisiana
Entergy Louisiana, LLC
EPA
U.S. Environmental Protection Agency
ERO
Electric Reliability Organization
Evangeline
Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC
Fuel Adjustment Clause

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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

ABBREVIATION OR ACRONYM
DEFINITION
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
Fitch
Fitch Ratings, a credit rating agency
FTR
Financial Transmission Right
FRP
Formula Rate Plan
GAAP
Generally Accepted Accounting Principles in the U.S.
IRS
Internal Revenue Service
kWh
Kilowatt-hour(s)
LIBOR
London Interbank Offered Rate
LMP
Locational Marginal Price
Louisiana Generating
Louisiana Generating, LLC, a wholly owned subsidiary of Cleco Cajun. Prior to the closing of the Cleco Cajun Transaction on February 4, 2019, Louisiana Generating was an indirect subsidiary of NRG South Central.
LPSC
Louisiana Public Service Commission
LTSA
Long-Term Parts and Service Agreement between Cottonwood Energy and a third party, dated January 19, 2001, that Cleco Cajun assumed as a result of the Cleco Cajun Transaction to provide maintenance services related to the Cottonwood Plant
Madison Unit 3
A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana
MATS
Mercury and Air Toxics Standards
Merger Agreement
Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation relating to the 2016 Merger
Merger Sub
Cleco MergerSub Inc., previously an indirect wholly owned subsidiary of Cleco Partners that was merged with and into Cleco Corporation, with Cleco Corporation surviving the 2016 Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings
Midstream
Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Holdings
MIRA
Macquarie Infrastructure and Real Assets Inc.
MISO
Midcontinent Independent System Operator, Inc.
Moody’s
Moody’s Investors Service, a credit rating agency
MW
Megawatt(s)
MWh
Megawatt-hour(s)
NERC
North American Electric Reliability Corporation
NRG Energy
NRG Energy, Inc.
NRG South Central
NRG South Central Generating LLC
Other Benefits
Includes medical, dental, vision, and life insurance for Cleco’s retirees
Oxbow
Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO
Perryville
Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings
Purchase and Sale Agreement
Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, NRG South Central, and Cleco Cajun
Registrant(s)
Cleco Holdings and/or Cleco Power
ROE
Return on Equity
ROU
Right of Use
RTO
Regional Transmission Organization
S&P
Standard & Poor’s Ratings Services, a credit rating agency
SEC
U.S. Securities and Exchange Commission
SERP
Supplemental Executive Retirement Plan
SPP RE
Southwest Power Pool Regional Entity
SSR
System Support Resource
START
Strategic Alignment and Real-Time Transformation
Support Group
Cleco Support Group LLC, a wholly owned subsidiary of Cleco Holdings
SWEPCO
Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc.
TCJA
Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017
Teche Unit 3
A 359-MW generating unit at Cleco Power’s plant site in Baldwin, Louisiana
VaR
Value-at-Risk



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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” about future events, circumstances, and results. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q are forward-looking statements, including, without limitation, future capital expenditures; business strategies; goals, beliefs, plans and objectives; competitive strengths; market developments; development and operation of facilities; growth in sales volume; meeting capacity requirements; expansion of service to existing customers and service to new customers; future environmental regulations and remediation liabilities; electric customer credits; and the anticipated outcome of various regulatory and legal proceedings. Although the Registrants believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from the Registrants’ expectations. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements, the following list identifies some of the factors that could cause the Registrants’ actual results to differ materially from those contemplated in any of the Registrants’ forward-looking statements:
 
the effects of the Cleco Cajun Transaction and the 2016 Merger on Cleco’s business relationships, operating results, and business generally,
regulatory factors, such as changes in rate-setting practices or policies; political actions of governmental regulatory bodies; adverse regulatory ratemaking actions; recovery of investments made under traditional regulation; recovery of storm restoration costs; the frequency, timing, and amount of rate increases or decreases; the impact that rate cases or requests for FRP extensions may have on operating decisions of Cleco Power; the results of periodic NERC, LPSC, and FERC audits; participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to additional suppliers; and compliance with the ERO reliability standards for bulk power systems by Cleco Power,
Cleco Power’s ability to recover fuel costs through the FAC,
the ability to successfully integrate the assets acquired in the Cleco Cajun Transaction into Cleco’s operations,
factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other storms or severe drought conditions; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs or fuel supply costs, shortages, transportation problems, or other developments; fuel mix of Cleco’s generating facilities; decreased customer load; environmental incidents and compliance costs; and power transmission system constraints,
reliance on third parties for determination of Cleco’s commitments and obligations to markets for generation resources and reliance on third-party transmission services,
 
global and domestic economic conditions, including the ability of customers to continue paying their utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates, 
political uncertainty in the U.S., including the ongoing debates related to the U.S. federal government budget and debt ceiling, and volatility and disruption in global capital and credit markets,
the ability of the lignite reserves at Dolet Hills to provide sufficient fuel to the Dolet Hills Power Station for seasonal operations until at least 2036,
Cleco’s ability to maintain its right to sell wholesale power at market-based rates within its control area, 
Cleco’s dependence on energy from sources other than its facilities and future sources of such additional energy,
reliability of Cleco’s generating facilities,
the imposition of energy efficiency requirements or increased conservation efforts of customers,
the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of Cleco’s generating units, increase costs, or reduce customer demand for electricity,
the ability to recover costs of compliance with environmental laws and regulations, including those through the EAC,
financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight, 
changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,
legal, environmental, and regulatory delays and other obstacles associated with acquisitions, reorganizations, investments in joint ventures, or other capital projects,
costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,
the availability and use of alternative sources of energy and technologies, such as wind, solar, battery storage, and distributed generation,
changes in federal, state, or local laws (including the TCJA and other tax laws), changes in tax rates, disallowances of tax positions, or changes in other regulating policies that may result in a change to tax benefits or expenses,
the restriction on the ability of Cleco Power to make distributions to Cleco Holdings in certain instances, as a result of the 2016 Merger Commitments,

5


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco’s ability to remain in compliance with the commitments made to the LPSC in connection with the Cleco Cajun Transaction,
Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations,
acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters,
credit ratings of Cleco Holdings and Cleco Power,
Cleco Holdings’ and Cleco Power’s ability to remain in compliance with their respective debt covenants,
the availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and
workforce factors, including aging workforce, changes in management, and unavailability of skilled employees.

 
For more discussion of these factors and other factors that could cause actual results to differ materially from those
contemplated in the Registrants’ forward-looking statements, see Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, and in Part I, Item 1A, “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
All subsequent written and oral forward-looking statements attributable to the Registrants, or persons acting on their behalf, are expressly qualified in their entirety by the factors identified above.
Any forward-looking statement is considered only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, the Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.


6


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

PART I — FINANCIAL INFORMATION
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco
These unaudited condensed consolidated financial statements should be read in conjunction with Cleco’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 . For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”

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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating revenue
 
 
 
Electric operations
$
312,949

 
$
262,211

Other operations
39,397

 
22,196

Gross operating revenue
352,346


284,407

Electric customer credits
(8,160
)
 
(7,647
)
Operating revenue, net
344,186

 
276,760

Operating expenses
 
 
 
Fuel used for electric generation
104,054

 
67,016

Power purchased for utility customers
60,099

 
53,159

Other operations and maintenance
60,733

 
55,139

Depreciation and amortization
49,856

 
42,507

Taxes other than income taxes
13,870

 
12,258

Merger transaction and commitment costs
4,990

 
1,947

Gain on sale of asset
(2
)
 

Total operating expenses
293,600

 
232,026

Operating income
50,586

 
44,734

Interest income
1,491

 
783

Allowance for equity funds used during construction
5,688

 
2,363

Other income
5,108

 
554

Other expense
(2,331
)
 
(3,554
)
Interest charges
 
 
 
Interest charges, net
36,115

 
32,030

Allowance for borrowed funds used during construction
(2,116
)
 
(873
)
Total interest charges
33,999

 
31,157

Income before income taxes
26,543

 
13,723

Federal and state income tax expense
5,986

 
2,862

Net income
$
20,557

 
$
10,861

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 

8


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Net income
$
20,557

 
$
10,861

Other comprehensive (loss) income, net of tax
 

 
 
Postretirement benefits (loss) gain (net of tax benefit of $47 in 2019 and tax expense of $15 in 2018)
(135
)
 
43

Total other comprehensive (loss) income, net of tax
(135
)
 
43

Comprehensive income, net of tax
$
20,422

 
$
10,904

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 

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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
101,641

 
$
110,175

Restricted cash and cash equivalents
5,456

 
11,241

Customer accounts receivable (less allowance for doubtful accounts of $710 in 2019 and $814 in 2018)
94,292

 
50,043

Other accounts receivable
35,831

 
27,196

Unbilled revenue
30,205

 
35,314

Fuel inventory, at average cost
106,283

 
82,836

Materials and supplies, at average cost
118,574

 
92,671

Energy risk management assets
9,171

 
23,355

Accumulated deferred fuel
17,179

 
20,112

Cash surrender value of company-/trust-owned life insurance policies
82,197

 
80,391

Prepayments
7,526

 
7,911

Regulatory assets
22,107

 
22,461

Other current assets
10,604

 
1,256

Total current assets
641,066

 
564,962

Property, plant, and equipment
 
 
 
Property, plant, and equipment
4,450,790

 
3,728,477

Accumulated depreciation
(327,192
)
 
(303,727
)
Net property, plant, and equipment
4,123,598

 
3,424,750

Construction work in progress
421,515

 
354,045

Total property, plant, and equipment, net
4,545,113

 
3,778,795

Equity investment in investee
18,172

 
18,172

Goodwill
1,490,797

 
1,490,797

Prepayments
40,056

 
2,251

Restricted cash and cash equivalents
19,056

 
18,670

Note receivable
15,677

 
15,829

Regulatory assets
417,314

 
425,330

Intangible assets
176,683

 
84,307

Right of use assets
15,327

 

Other deferred charges
39,908

 
37,701

Total assets
$
7,419,169

 
$
6,436,814

The accompanying notes are an integral part of the condensed consolidated financial statements.
 

 
 

 
 
 
 
(Continued on next page)
 
 
 

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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Liabilities and member’s equity
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Long-term debt and finance leases due within one year
$
92,596

 
$
21,128

Accounts payable
151,302

 
156,589

Accounts payable - affiliate
3,102

 

Customer deposits
61,624

 
61,736

Provision for rate refund
44,002

 
35,842

Taxes payable, net
50,734

 
43,674

Interest accrued
44,490

 
15,828

Energy risk management liabilities
1,361

 
468

Regulatory liabilities - other
6,315

 
2,496

Deferred compensation
10,950

 
10,753

Other current liabilities
47,869

 
30,536

Total current liabilities
514,345

 
379,050

Long-term liabilities and deferred credits
 

 
 

Accumulated deferred federal and state income taxes, net
621,038

 
608,030

Postretirement benefit obligations
249,638

 
249,264

Regulatory liabilities - other
2,130

 
2,496

Regulatory liabilities - deferred taxes, net
154,651

 
155,537

Restricted storm reserve
15,696

 
15,485

Deferred lease revenue
60,460

 

Intangible liabilities
31,108

 

Asset retirement obligations
17,899

 
6,881

Operating lease liability
11,634

 

Other deferred credits
23,252

 
20,846

Total long-term liabilities and deferred credits
1,187,506

 
1,058,539

Long-term debt and finance leases, net
3,187,256

 
2,874,485

Total liabilities
4,889,107

 
4,312,074

Commitments and contingencies (Note 14)


 


Member’s equity
2,530,062

 
2,124,740

Total liabilities and member’s equity
$
7,419,169

 
$
6,436,814

The accompanying notes are an integral part of the condensed consolidated financial statements.
 

 
 


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CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating activities
 
 
 
Net income
$
20,557

 
$
10,861

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
56,776

 
46,754

Unearned compensation expense
948

 
1,116

Allowance for equity funds used during construction
(5,688
)
 
(2,363
)
Deferred lease revenue
(1,440
)
 

Deferred income taxes
5,425

 
1,733

Deferred fuel costs
13,869

 
(11,353
)
Cash surrender value of company-/trust-owned life insurance
(1,806
)
 
346

Changes in assets and liabilities
 
 
 
Accounts receivable
(6,929
)
 
10,563

Unbilled revenue
5,109

 
6,387

Fuel inventory and materials and supplies
(1,939
)
 
11,573

Prepayments
14

 
2,199

Accounts payable
(19,999
)
 
(40,239
)
Accounts payable - affiliate
3,102

 

Customer deposits
2,598

 
3,500

Provision for merger commitments
(732
)
 
(1,187
)
Postretirement benefit obligations
192

 
1,007

Regulatory assets and liabilities, net
5,173

 
3,960

Other deferred accounts
(540
)
 
5,871

Taxes accrued
5,403

 
11,108

Interest accrued
28,662

 
26,220

Other operating
(626
)
 
(93
)
Net cash provided by operating activities
108,129

 
87,963

Investing activities
 
 
 
Additions to property, plant, and equipment
(83,679
)
 
(64,133
)
Allowance for equity funds used during construction
5,688

 
2,363

Reimbursement for property loss
29

 
1,172

Return of equity investment in investees

 
2,775

Payment to acquire business, net of cash acquired
(814,969
)
 

Other investing
270

 
75

Net cash used in investing activities
(892,661
)
 
(57,748
)
Financing activities
 
 
 
Draws on credit facilities
108,000

 

Payments on credit facilities
(108,000
)
 

Issuances of long-term debt
400,000

 
50,000

Repayment of long-term debt
(10,382
)
 
(9,700
)
Payment of financing costs
(3,785
)
 
(655
)
Contributions from member
384,900

 

Distributions to member

 
(19,500
)
Other financing
(134
)
 

Net cash provided by financing activities
770,599


20,145

Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents
(13,933
)

50,360

Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
140,086

(1)  
152,202

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
126,153

(2)  
$
202,562

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
5,752

 
$
4,236

Income taxes paid, net
$

 
$
270

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
50,670

 
$
35,067

(1)  Includes cash and cash equivalents of $110,175, current restricted cash and cash equivalents of $11,241, and non-current restricted cash and cash equivalents of $18,670.
(2)  Includes cash and cash equivalents of $101,641, current restricted cash and cash equivalents of $5,456, and non-current restricted cash and cash equivalents of $19,056.

The accompanying notes are an integral part of the condensed consolidated financial statements.

12


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)
MEMBERSHIP INTEREST

 
RETAINED EARNINGS

 
AOCI

 
TOTAL
MEMBER’S
EQUITY

Balances, Dec. 31, 2017
$
2,069,376

 
$
29,902

 
$
(2,921
)
 
$
2,096,357

Distributions to member

 
(19,500
)
 

 
(19,500
)
Net income

 
10,861

 

 
10,861

Other comprehensive income, net of tax

 

 
43

 
43

Balances, Mar. 31, 2018
$
2,069,376

 
$
21,263


$
(2,878
)

$
2,087,761

 
 
 
 
 
 
 
 
Balances, Dec. 31, 2018
$
2,069,376

 
$
53,578

 
$
1,786

 
$
2,124,740

Contribution from member

 
384,900

 

 
384,900

Net income

 
20,557

 

 
20,557

Other comprehensive loss, net of tax

 

 
(135
)
 
(135
)
Balances, Mar. 31, 2019
$
2,069,376

 
$
459,035

 
$
1,651

 
$
2,530,062

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 

 
 

 
 


13


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

ITEM 1.   CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Power
These unaudited condensed consolidated financial statements should be read in conjunction with Cleco Power’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 . For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”


14


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating revenue
 
 
 
Electric operations
$
257,175

 
$
264,631

Other operations
19,430

 
22,195

Affiliate revenue
300

 
208

Gross operating revenue
276,905

 
287,034

Electric customer credits
(8,160
)
 
(7,647
)
Operating revenue, net
268,745

 
279,387

Operating expenses
 
 
 
Fuel used for electric generation
94,131

 
67,016

Power purchased for utility customers
29,654

 
53,159

Other operations and maintenance
47,700

 
56,385

Depreciation and amortization
42,377

 
40,388

Taxes other than income taxes
9,978

 
11,918

Total operating expenses
223,840

 
228,866

Operating income
44,905

 
50,521

Interest income
994

 
641

Allowance for equity funds used during construction
5,688

 
2,363

Other income
4,596

 
740

Other expense
(4,328
)
 
(2,608
)
Interest charges
 
 
 
Interest charges, net
19,261

 
18,529

Allowance for borrowed funds used during construction
(2,116
)
 
(873
)
Total interest charges
17,145

 
17,656

Income before income taxes
34,710

 
34,001

Federal and state income tax expense
7,998

 
7,997

Net income
$
26,712

 
$
26,004

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 


15


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Net income
$
26,712

 
$
26,004

Other comprehensive income, net of tax
 

 
 

Postretirement benefits gain (net of tax expense of $55 in 2019 and $83 in 2018)
156

 
233

Amortization of interest rate derivatives to earnings (net of tax expense of $22 in 2019 and $22 in 2018)
64

 
64

Total other comprehensive income, net of tax
220

 
297

Comprehensive income, net of tax
$
26,932

 
$
26,301

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 

 
 
 
 
 
 
 
 

16


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Assets
 
 
 
Utility plant and equipment
 
 
 
Property, plant, and equipment
$
5,003,196

 
$
5,015,004

Accumulated depreciation
(1,813,732
)
 
(1,804,563
)
Net property, plant, and equipment
3,189,464

 
3,210,441

Construction work in progress
416,886

 
351,828

Total utility plant and equipment, net
3,606,350

 
3,562,269

Current assets
 
 
 
Cash and cash equivalents
22,487

 
31,987

Restricted cash and cash equivalents
5,456

 
11,241

Customer accounts receivable (less allowance for doubtful accounts of $710 in 2019 and $814 in 2018)
47,932

 
50,043

Accounts receivable - affiliate
2,046

 
3,318

Other accounts receivable
32,240

 
24,523

Unbilled revenue
30,205

 
35,314

Fuel inventory, at average cost
88,602

 
82,836

Materials and supplies, at average cost
92,743

 
92,671

Energy risk management assets
5,684

 
23,355

Accumulated deferred fuel
17,179

 
20,112

Cash surrender value of company-owned life insurance policies
17,453

 
20,497

Prepayments
4,751

 
6,143

Regulatory assets
10,210

 
13,603

Other current assets
588

 
1,162

Total current assets
377,576

 
416,805

Equity investment in investee
18,172

 
18,172

Prepayments
2,512

 
2,251

Restricted cash and cash equivalents
18,326

 
18,649

Note receivable
15,677

 
15,829

Regulatory assets
259,389

 
261,569

Intangible asset
16,223

 
21,093

Right of use assets
15,007

 

Other deferred charges
37,194

 
32,419

Total assets
$
4,366,426

 
$
4,349,056

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 
 
 
 
 
(Continued on next page)
 
 
 

17


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Liabilities and member’s equity
 
 
 
Member’s equity
$
1,621,465

 
$
1,594,533

Long-term debt and finance leases, net
1,376,819

 
1,387,774

Total capitalization
2,998,284

 
2,982,307

Current liabilities
 
 
 
Long-term debt and finance leases due within one year
21,815

 
21,128

Accounts payable
114,412

 
146,314

Accounts payable - affiliate
18,274

 
7,843

Customer deposits
61,624

 
61,736

Provision for rate refund
44,002

 
35,842

Taxes payable, net
26,217

 
48,177

Interest accrued
25,120

 
8,252

Energy risk management liabilities
872

 
468

Regulatory liabilities - other
6,315

 
2,496

Other current liabilities
24,737

 
22,263

Total current liabilities
343,388

 
354,519

Commitments and contingencies (Note 14)


 


Long-term liabilities and deferred credits
 
 
 
Accumulated deferred federal and state income taxes, net
629,342

 
630,765

Postretirement benefit obligations
183,318

 
182,721

Regulatory liabilities - other
2,130

 
2,496

Regulatory liabilities - deferred taxes, net
154,651

 
155,537

Restricted storm reserve
15,696

 
15,485

Asset retirement obligations
6,989

 
6,881

Operating lease liability
11,489

 

Other deferred credits
21,139

 
18,345

Total long-term liabilities and deferred credits
1,024,754

 
1,012,230

Total liabilities and member’s equity
$
4,366,426

 
$
4,349,056

The accompanying notes are an integral part of the condensed consolidated financial statements.
 
 
 

18


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating activities
 
 
 
Net income
$
26,712

 
$
26,004

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
43,739

 
42,022

Allowance for equity funds used during construction
(5,688
)
 
(2,363
)
Deferred income taxes
(2,386
)
 
4,692

Deferred fuel costs
13,869

 
(11,353
)
Cash surrender value of company-owned life insurance
3,044

 
(63
)
Changes in assets and liabilities
 
 
 
Accounts receivable
(8,045
)
 
10,710

Accounts receivable - affiliate
1,687

 
524

Unbilled revenue
5,109

 
6,387

Fuel inventory and materials and supplies
(6,147
)
 
11,573

Prepayments
965

 
2,075

Accounts payable
(10,704
)
 
(35,030
)
Accounts payable - affiliate
8,422

 
672

Customer deposits
2,598

 
3,500

Provision for merger commitments
(732
)
 
(1,187
)
Postretirement benefit obligations
394

 
1,061

Regulatory assets and liabilities, net
4,676

 
3,463

Other deferred accounts
(840
)
 
6,116

Taxes accrued
(22,895
)
 
13,127

Interest accrued
16,868

 
15,555

Other operating
(677
)
 
1,861

Net cash provided by operating activities
69,969

 
99,346

Investing activities
 
 
 
Additions to property, plant, and equipment
(81,040
)
 
(63,343
)
Allowance for equity funds used during construction
5,688

 
2,363

Reimbursement of property loss
29

 
1,172

Other investing
270

 
75

Net cash used in investing activities
(75,053
)
 
(59,733
)
Financing activities
 
 
 
Draws on credit facility
33,000

 

Payments on credit facility
(33,000
)
 

Issuances of long-term debt

 
50,000

Repayment of long-term debt
(10,382
)
 
(9,700
)
Distributions to parent

 
(28,000
)
Other financing
(142
)
 
(655
)
Net cash (used in) provided by financing activities
(10,524
)
 
11,645

Net (decrease) increase in cash, cash equivalents, restricted cash, and restricted cash equivalents
(15,608
)
 
51,258

Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
61,877

(1)  
102,957

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
46,269

(2)  
$
154,215

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
1,348

 
$
1,789

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
49,477

 
$
35,038

(1)  Includes cash and cash equivalents of $31,987, current restricted cash and cash equivalents of $11,241, and non-current restricted cash and cash equivalents of $18,649.
(2)  Includes cash and cash equivalents of $22,487, current restricted cash and cash equivalents of $5,456, and non-current restricted cash and cash equivalents of $18,326.

The accompanying notes are an integral part of the condensed consolidated financial statements.

19


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

CLECO POWER
 
 
 
Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)
MEMBER’S EQUITY

 
AOCI

 
TOTAL
MEMBER’S
EQUITY

Balances, Dec. 31, 2017
$
1,564,362

 
$
(13,683
)
 
$
1,550,679

Distributions to parent
(28,000
)
 

 
(28,000
)
Net income
26,004

 

 
26,004

Other comprehensive income, net of tax

 
297

 
297

Balances, Mar. 31, 2018
$
1,562,366

 
$
(13,386
)
 
$
1,548,980

 
Balances, Dec. 31, 2018
$
1,607,715

 
$
(13,182
)
 
$
1,594,533

Net income
26,712

 

 
26,712

Other comprehensive income, net of tax

 
220

 
220

Balances, Mar. 31, 2019
$
1,634,427

 
$
(12,962
)
 
$
1,621,465

The accompanying notes are an integral part of the condensed consolidated financial statements.
 

 
 

 
 


20


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Index to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements of Registrants
 
 
 
Note 1
Summary of Significant Accounting Policies
Cleco and Cleco Power
Note 2
Business Combination
Cleco
Note 3
Recent Authoritative Guidance
Cleco and Cleco Power
Note 4
Leases
Cleco and Cleco Power
Note 5
Revenue Recognition
Cleco and Cleco Power
Note 6
Regulatory Assets and Liabilities
Cleco and Cleco Power
Note 7
Fair Value Accounting
Cleco and Cleco Power
Note 8
Debt
Cleco and Cleco Power
Note 9
Pension Plan and Employee Benefits
Cleco and Cleco Power
Note 10
Income Taxes
Cleco and Cleco Power
Note 11
Disclosures about Segments
Cleco
Note 12
Regulation and Rates
Cleco and Cleco Power
Note 13
Variable Interest Entities
Cleco and Cleco Power
Note 14
Litigation, Other Commitments and Contingencies, and   Disclosures about Guarantees
Cleco and Cleco Power
Note 15
Affiliate Transactions
Cleco and Cleco Power
Note 16
Intangible Assets and Liabilities
Cleco and Cleco Power
Note 17
Accumulated Other Comprehensive Loss
Cleco and Cleco Power

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying condensed consolidated financial statements of Cleco include the accounts of Cleco Holdings and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.
Cleco’s condensed consolidated financial statements include the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019. For more information about the Cleco Cajun Transaction, see Note 2 — “Business Combination.”

Basis of Presentation
The condensed consolidated financial statements of Cleco and Cleco Power have been prepared in accordance with GAAP for interim financial information and with the instructions to the Form 10-Q and Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements. Because the interim condensed consolidated financial statements and the accompanying notes do not include all of the information and notes required by GAAP for annual financial statements, the condensed consolidated financial statements and other information included in this quarterly report should be read in conjunction with the consolidated financial statements and accompanying notes in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments that are necessary to fairly state the financial position and results of operations of Cleco and Cleco Power. Amounts reported in Cleco and Cleco Power’s interim financial statements are not necessarily indicative of amounts expected for the annual periods due to the effects of seasonal
 
temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, discrete income tax items, and other factors.
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. For information on recent authoritative guidance and its effect on financial results, see Note 3 — “Recent Authoritative Guidance.”

Restricted Cash and Cash Equivalents
Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes.
Cleco and Cleco Power’s restricted cash and cash equivalents consisted of:
Cleco
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
3,724


$
9,505

Cleco Power’s charitable contributions
1,200

 
1,200

Cleco Power’s rate credit escrow
532

 
536

Total current
5,456

 
11,241

Non-current
 
 
 
Diversified Lands’ mitigation escrow
21

 
21

Cleco Cajun’s defense fund
709

 

Cleco Power’s future storm restoration costs
15,665

 
15,391

Cleco Power’s charitable contributions
2,421

 
2,753

Cleco Power’s rate credit escrow
240

 
505

Total non-current
19,056

 
18,670

Total restricted cash and cash equivalents
$
24,512

 
$
29,911


21


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco Power
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
3,724

 
$
9,505

Charitable contributions
1,200

 
1,200

Rate credit escrow
532

 
536

Total current
5,456

 
11,241

Non-current
 
 
 
Future storm restoration costs
15,665

 
15,391

Charitable contributions
2,421

 
2,753

Rate credit escrow
240

 
505

Total non-current
18,326

 
18,649

Total restricted cash and cash equivalents
$
23,782

 
$
29,890


Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of administration fees, interest, and principal on storm recovery bonds. The change from December 31, 2018 , to March 31, 2019 , was due to Cleco Katrina/Rita using $10.4 million for scheduled storm recovery bond principal payments and $0.9 million for related interest payments, partially offset by collections of $5.5 million net of administration fees.
As part of the Cleco Cajun Transaction, Cleco acquired restricted cash of $ 0.7 million to be used by Cleco Cajun’s cooperative customers for defense funds in the event of potential takeovers. There is no further obligation of Cleco with respect to such expenses, including the replenishment of the fund.

Leases
Cleco accounts for leases in accordance with accounting guidance effective January 1, 2019. For more information on this guidance, see Note 3 — “Recent Authoritative Guidance.”
Cleco determines if a contract is a lease at its inception. If a contract is determined to be a lease, Cleco recognizes an ROU asset and lease liability at the commencement date based on the present value of lease payments over the lease term. The present value of the lease payments is determined by using the implicit interest rate if readily determinable. Cleco’s incremental borrowing rate for a term similar to the duration of the lease based on information available at the commencement date is used if the implicit interest rate is not readily determinable.
Cleco recognizes ROU assets and lease liabilities for leasing arrangements with terms greater than one year. Except for the marine transportation asset class, Cleco accounts for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Cleco’s marine transportation contracts, which include barges and towboats, contain non-lease components, such as maintenance and labor. Cleco allocates the consideration in these contracts between lease and non-lease components based on estimates of fair value from third parties that typically execute leases for this class of assets.
Expense for a lessee operating lease is recognized as a single lease cost on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the leased asset’s function. Income for a lessor operating lease is recognized as a single lease income item on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the lease asset’s function.
 
Fair Value Measurements and Disclosures
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes. For more information about fair value levels, see Note 7 — “Fair Value Accounting.”

Risk Management
Market price risk is inherent in Cleco Power and Cleco Cajun’s fuel supply, generation, and customer supply activities. This includes changes in interest rates and commodity market prices, inclusive of solid and natural gas fuel costs, electricity, transmission, and transportation. Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power, FTRs, and natural gas. Cleco evaluates derivatives and hedging activities to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market.
Cleco Power may also enter into risk mitigating positions that would not meet the requirements of a normal-purchase, normal-sale transaction in order to attempt to mitigate the volatility in customer fuel costs. These positions would be marked-to-market with the resulting gain or loss recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets as a component of energy risk management assets or liabilities. Such gain or loss would be deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. When these positions close, actual gains or losses would be included in the FAC and reflected on customers’ bills as a component of the fuel charge. For Cleco Cajun, FTRs are marked-to-market with the resulting unrealized gain or loss recorded on the income statement as a component of power purchase expense and on the balance sheet as a component of energy risk management assets or liabilities. When these positions close, realized gains or losses are included in power purchase expense or electric operations income, and the expense is reflected in customers’ bills. For more information on FTRs, see Note 7 — “Fair Value Accounting — Commodity Contracts.” There were no open natural gas positions at March 31, 2019 , or December 31, 2018 .
Cleco and Cleco Power purchase FTRs in auctions facilitated by MISO. The majority of these FTRs are purchased in annual auctions during the second quarter, but additional FTRs may be purchased in monthly auctions. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving customer load. FTRs are not designated as hedging instruments for accounting purposes.
FTRs are recorded at their estimated fair value when purchased. Each accounting period, Cleco adjusts the carrying value of FTRs to their estimated fair value based on the most recent MISO FTR auction prices.
Cleco monitors credit risk exposure through review of counterparty credit quality and counterparty credit exposure. Cleco manages counterparty credit risk exposure by establishing appropriate credit limits with counterparties and

22


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

requiring contractual guarantees, cash deposits, or letters of credit from counterparties, as deemed necessary. Cleco Power and Cleco Cajun have agreements in place with various counterparties that may authorize transaction netting and contract payments to mitigate credit risk of transactions.
Cleco and Cleco Power may enter into contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks. For each reporting period presented, the Registrants did not enter into any contracts to mitigate the volatility in interest rate risk.
Note 2 — Business Combination
On February 4, 2019, Cleco Cajun acquired from NRG Energy all of the outstanding membership interests in NRG South Central. This acquisition will enable Cleco to significantly increase the scale of its operations in Louisiana. As a result, Cleco Cajun indirectly owns:

a 176 -MW natural-gas-fired generating station located in Sterlington, Louisiana,
a 220 -MW natural-gas-fired facility and a 210 -MW natural-gas-fired peaking facility, both located in Jarreau, Louisiana,
a 580 -MW coal-fired generating facility, a 540 -MW natural-gas-fired generating station, and 58% of a 588 -MW coal-fired generating station all located in New Roads, Louisiana,
225 MW of a 300 -MW natural-gas-fired peaking facility located in Jennings, Louisiana,
a 1,263 -MW natural-gas-fired generating station located in Deweyville, Texas (the Cottonwood Plant),
wholesale contracts to provide electricity and capacity to nine Louisiana cooperatives, five municipalities across Arkansas, Louisiana, and Texas, and one investor-owned utility,
transmission assets, which consist of equipment and land required to connect the generation stations and the wholesale customers to the transmission grid, and
current assets consisting of cash, inventory, receivables and other miscellaneous assets.

Cleco Cajun, NRG Energy, and NRG South Central have each made customary representations, warranties and covenants in the Cleco Cajun Transaction, which includes customary indemnification provisions. Cleco Holdings has agreed to guarantee the obligations of Cleco Cajun, subject to certain limitations. In addition, upon closing, a lease agreement was executed and delivered between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy pursuant to which NRG Energy will lease back the Cottonwood Plant and will operate it no later than May 2025. Upon closing, Cottonwood Energy became a subsidiary of Cleco Cajun.

Regulatory Matters
In January 2019, the LPSC approved the Cleco Cajun Transaction. Approval of the transaction was conditioned upon certain commitments, including holding Cleco Power ratepayers harmless for any adverse impacts, increased costs of debt or equity, and credit rating downgrades attributable to the Cleco Cajun Transaction; the repayment of $400.0 million of Cleco Holdings debt by 2024, of which $66.7 million is required in 2019; and a $4.0 million annual reduction to Cleco Power’s retail customer rates. For more information about the
 
debt and rate reduction commitments, see Note 8 — “Debt” and Note 6 — “Regulatory Assets and Liabilities,” respectively.

Louisiana Generating
In 2017, Louisiana Generating received insurance settlement proceeds for costs incurred to resolve a lawsuit which was brought by the EPA and Louisiana Department of Environmental Quality against Louisiana Generating related to Big Cajun II-Unit 3. Entergy, as co-owner of Big Cajun II-Unit 3, is expected to be allocated a portion of the insurance settlement proceeds. Any amount allocated to Entergy will be determined by ongoing litigation and negotiations. NRG South Central estimated this amount to be $10.0 million . As part of the Cleco Cajun Transaction, Cleco Cajun assumed the contingent liability and NRG Energy indemnified Cleco for losses associated with this litigation matter. As a result, Cleco also recorded a $10.0 million indemnification asset.
Prior to the Cleco Cajun Transaction, NRG South Central was involved in various litigation matters, including environmental and contract proceedings, before various courts regarding matters arising out of the ordinary course of business. Management is unable to estimate any potential losses that Cleco Cajun may ultimately be responsible for with respect to any one of these matters in the event of a negative outcome. As part of the Cleco Cajun Transaction, NRG Energy indemnified Cleco for losses associated with matters that existed as of the closing date, including pending litigation.

Accounting for the Cleco Cajun Transaction
As consideration for all of the outstanding membership interest in NRG South Central, Cleco paid cash of approximately $962.2 million , which represents the $1.0 billion acquisition price net of working capital and other adjustments of $37.8 million .
In connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings borrowed $300.0 million under a new bridge loan agreement and $100.0 million under a new term loan agreement. Both loan agreements are variable rate debt and have a three -year term. Both loan agreements contain certain financial covenants, including requiring Cleco Holdings to maintain (i) a debt to capital ratio (as defined in the applicable agreement) below 65% and (ii) a rating applicable to the Company’s senior debt rating (as defined in the applicable agreement). Cleco Holdings anticipates that some or all of the variable rate debt may be replaced or repaid with long-term financing, markets permitting, within 12 months of the closing of the Cleco Cajun Transaction. Also in connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million , for a total credit facility of $175.0 million . All other terms remained the same. Also in connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings made a $75.0 million draw on its credit facility, which was repaid on February 5, 2019.
The remaining cash required to finance the transaction consisted of an equity contribution from Cleco Group of $384.9 million and $102.3 million from cash on hand at Cleco Holdings.
In connection with the Cleco Cajun Transaction, Cleco Holdings, on behalf of Cleco Cajun, issued three letters of credit totaling $1.1 million to a capacity agreement customer and a gas transport company. These letters of credit automatically renew each year and have no impact on the Cleco Holdings’ credit facility.

23


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco Cajun accounted for the Cleco Cajun Transaction as a business combination, and accordingly, the assets acquired and liabilities assumed were recorded on Cleco’s Condensed Consolidated Balance Sheet as of February 4, 2019, at their estimated fair values as follows:
Preliminary Purchase Price Allocation
 
(THOUSANDS)
AT FEB. 4, 2019

Current assets
 
Cash and cash equivalents
$
146,494

Customer and other accounts receivable
48,401

Fuel inventory
22,060

Materials and supplies
25,659

Energy risk management assets
4,193

Other current assets
10,000

Non-current assets
 
Property, plant, and equipment, net
727,906

Prepayments
36,222

Restricted cash and cash equivalents
707

Intangible assets
102,500

Other deferred charges
132

Total assets acquired
1,124,274

Current liabilities
 
Accounts payable
35,456

Taxes payable
723

Energy risk management liabilities
242

Other current liabilities
14,243

Non-current liabilities
 
Accumulated deferred federal and state income taxes, net
6,744

Deferred lease revenue
61,900

Intangible liabilities
31,900

Asset retirement obligations
10,789

Operating lease liability
107

Total liabilities assumed
162,104

Total purchase price consideration
$
962,170


The fair values of Cleco Cajun’s acquired assets and assumed liabilities were determined based on significant estimates and assumptions, including projected future cash flows and discount rates reflecting risk inherent in those future cash flows. There were also estimates made to determine the expected useful lives of each class of assets acquired.
On the date of the acquisition, preliminary fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the difference between the contract and market price of acquired long-term wholesale power agreements. The preliminary fair value of intangible assets of $102.5 million and intangible liabilities of $7.8 million was reflected in the preliminary purchase price allocation. The valuation of the acquired intangible assets and liabilities was estimated by applying the differential cash flows approach, which is based upon discounted projected future cash flows associated with the underlying contracts. The power supply agreement intangible assets and liabilities are being amortized to Electric operations over the remaining term of the applicable agreements.
As part of the Cleco Cajun Transaction, Cleco assumed an LTSA for maintenance services related to the Cottonwood Plant. The preliminary fair value of the LTSA was estimated by applying the differential cash flows approach. An intangible liability of $24.1 million was reflected in the preliminary purchase price allocation and is being amortized using the straight-line method over the estimated remaining life of the
 
LTSA of seven years . The amortization is included as a reduction to the acquired LTSA prepayments.
On the date of the acquisition, the preliminary fair value of the lease between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy was estimated by applying the differential cash flows approach. Deferred lease revenue of $61.9 million was reflected in the preliminary purchase price allocation and is being amortized over the term of the lease agreement. The amortization is included in Other operations revenue.
The net increase in Accumulated deferred federal and state income taxes, net represents the differences between the preliminary assigned fair values of assets acquired and their related preliminary income tax basis.
The valuations performed in the first quarter of 2019 to assess the fair value of certain assets acquired and liabilities assumed are considered preliminary as a result of the short time period between the closing of the acquisition and the end of the first quarter of 2019. Accounting guidance provides that the allocation of the purchase price may be modified up to one year from the date of the acquisition as more information becomes available. The significant assets and liabilities for which preliminary valuation amounts are recognized at March 31, 2019, include the fair value of property, plant, and equipment, intangible assets and liabilities, deferred lease revenue, and asset retirement obligations. The preliminary amounts recognized are subject to revision until valuations are completed and to the extent that additional information becomes available about the facts and circumstances that existed as of the acquisition date. Cleco expects these final valuations and assessments will be completed by the end of 2019, which may affect the purchase price allocation.
 
Pro forma Impact of the Cleco Cajun Transaction
The following table includes the unaudited pro forma financial information reflecting the consolidated results of operations of Cleco as if the Cleco Cajun Transaction had taken place on January 1, 2018. The pro forma net income was adjusted to exclude nonrecurring transaction related expenses of $3.9 million and $1.6 million for the three months ended March 31, 2019 , and 2018, respectively.
The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of the consolidated results of operations that would have been achieved had the transaction taken place on the dates indicated, or the future consolidated results of operations of the combined companies.
Unaudited Pro Forma Financial Information
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating revenue, net
$
381,796

 
$
393,181

Net income
$
32,986

 
$
32,637

Note 3 — Recent Authoritative Guidance
In February 2016, FASB amended the guidance to account for leases. Effective January 1, 2019, Cleco adopted the amended guidance using the optional transition method that allows an entity to recognize a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption, apply the new disclosure requirements beginning in the period of adoption, and continue to present comparative period information as required under previous guidance.

24


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

In addition, Cleco elected the transition practical expedient that permits an entity to not reassess prior conclusions about lease identification, lease classification, and initial direct costs under the new standard, as well as the practical expedient that permits entities to not assess existing land easements under the new standard.
Adoption of this standard resulted in the recognition of ROU assets and lease liabilities for Cleco and Cleco Power’s operating leases of $16.1 million and $15.9 million , respectively. There was no impact to retained earnings as a result of adopting this standard. Adoption of this standard did not materially impact the Registrants’ results of operations or liquidity, and their accounting for finance leases is substantially unchanged. For more information on Cleco’s lease obligations, see Note 4 — “Leases.”
In June 2016, FASB amended the guidance for the measurement of credit losses on receivables and certain other assets. The guidance requires use of a current expected loss model, which may result in earlier recognition of credit losses. The adoption of this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Management is evaluating the impact that the adoption of this guidance will have on the results of operations, financial condition, or cash flows of the registrants.
Note 4 — Leases
Cleco maintains operating and finance leases in its ordinary course of business activities.
Effective January 1, 2019, Cleco adopted new guidance which requires organizations to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. A lease is deemed to exist when the right to control the use of identified property, plant, or equipment is conveyed through a contract for a certain period of time and consideration is paid. For more information on the new guidance, see Note 3 — “Recent Authoritative Guidance.” For more information on how leases are identified, see Note 1 — “Summary of Significant Accounting Policies — Leases.”

Operating Leases
Cleco Power leases utility systems from two municipalities and one non-municipal public body. The first municipal lease has a term of 10 years and expires on August 11, 2021. The second municipal lease has a term of 10 years and expires on May 13, 2028. The non-municipal lease has a term of 27 years and expires on July 31, 2039. Each utility system lease contains fixed and variable components, as well as provisions for extensions.
Cleco Power has leases for 200 railcars for coal transportation. One lease for 115 railcars expires on March 31, 2021, and the other lease for 85 railcars expires on March 31, 2020. Cleco Cajun has a lease for 135 railcars for coal transportation, which commenced in February 2019 and is a short-term lease with an initial term of 12 months. This short-term lease renews for additional one -month terms unless Cleco Cajun chooses to terminate. Cleco reassesses its need for the railcars upon the expiration of each term. Cleco pays a monthly rental fee per car. The railcar leases do not contain contingent rent payments.
Cleco Power has leases for three towboats in order to transport petroleum coke to Madison Unit 3. Each of the towboat leases has a term of 10 years and expires on March 31, 2028. Under these agreements, the rates are adjusted annually per the Producer Price Index. Each lease contains provisions for a five -year extension.
Cleco and Cleco Power’s remaining operating leases provide for office and operating facilities, office equipment, and tower rentals.
The following is a schedule by year of future minimum lease payments due under Cleco and Cleco Power’s long-term operating leases together with the present value of the net minimum lease payments as of March 31, 2019:
(THOUSANDS)
CLECO POWER

 
CLECO

Nine months ending Dec. 31, 2019
$
4,598

 
$
4,773

Years ending Dec. 31,
 
 
 
2020
5,918

 
5,952

2021
4,593

 
4,626

2022
3,225

 
3,256

2023
3,201

 
3,229

Thereafter
25,150

 
25,172

Total minimum lease payments
$
46,685

 
$
47,008

Less: amount representing interest
31,678

 
31,689

Present value of net minimum operating lease payments
$
15,007

 
$
15,319

Current liabilities
$
3,518

 
$
3,685

Non-current liabilities
11,489

 
11,634

 

The following table is a summary of expected operating lease payments for Cleco and Cleco Power at December 31, 2018:
(THOUSANDS)
CLECO HOLDINGS

 
CLECO
POWER

 
TOTAL

Year ending Dec. 31,
 
 
 
 
 
2019
$
120

 
$
4,030

 
$
4,150

2020

 
3,890

 
3,890

2021

 
2,789

 
2,789

2022

 
1,239

 
1,239

2023

 
1,214

 
1,214

Thereafter

 
7,235

 
7,235

Total operating lease payments
$
120

 
$
20,397

 
$
20,517


Finance Lease
In April 2018, Cleco Power entered into an agreement with Savage Inland Marine for 42 barges used to transport petroleum coke through March 2033. The agreement meets the accounting definition of a finance lease.
The barge lease rate contains both a fixed and variable component, of which the latter is adjusted every third anniversary of the agreement for estimated executory costs. If the barges are idle, the lessor is required to attempt to sublease the barges to third parties with the revenue reducing Cleco Power’s lease payment. This agreement contains a provision for early termination upon the occurrence of any one of four cancellation events.
For the three months ended March 31, 2019, Cleco Power paid $0.7 million in lease payments and received $0.3 million of revenue from subleases.
The following is an analysis of the leased property under the finance lease:
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Barges
$
16,800

 
$
16,800

Less: accumulated amortization
1,120

 
840

Net finance lease
$
15,680

 
$
15,960


The following is a schedule by year of future minimum lease payments due under the finance lease together with the present value of the net minimum lease payments as of March 31, 2019:
(THOUSANDS)
 
Nine months ending Dec. 31, 2019
$
1,653

Years ending Dec. 31,
 
2020
2,203

2021
2,203

2022
2,203

2023
2,203

2024
2,203

Thereafter
17,674

Total minimum lease payments
30,342

Less: amount representing interest
14,058

Present value of net minimum lease payments
$
16,284

Current liabilities
$
572

Non-current liabilities
$
15,712



25


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

The following is a schedule by year of future minimum lease payments due under the finance lease together with the present value of the net minimum lease payments as of December 31, 2018:
 
(THOUSANDS)

Years ending Dec. 31,
 
2019
$
2,611

2020
2,611

2021
2,611

2022
2,611

2023
2,611

Thereafter
23,655

Total minimum lease payments
36,710

Less: executory costs
5,817

Net minimum lease payments
30,893

Less: amount representing interest
14,475

Present value of net minimum lease payments
$
16,418

Current liabilities
$
557

Non-current liabilities
$
15,861


Additional Lessee Disclosures
Cleco and Cleco Power’s total lease cost includes amounts on the income statement, as well as amounts capitalized as part of property, plant, or equipment or inventory. The following table reflects total lease costs for Cleco and Cleco Power:
 
FOR THE THREE MONTHS
ENDED MAR. 31, 2019
 
(THOUSANDS)
CLECO POWER

 
CLECO

Finance lease cost
 
 
 
Amortization of ROU assets
$
280

 
$
280

Interest on lease liabilities
417

 
417

Operating lease cost
1,081

 
1,136

Variable lease cost
162

 
162

Total lease cost
$
1,940

 
$
1,995


 
The following table presents additional information related to Cleco and Cleco Power’s operating and finance leases as of and for the three months ended March 31, 2019 :
(THOUSANDS)
BALANCE SHEET LINE ITEM
CLECO POWER

 
CLECO

Supplemental balance sheet information
 
 
ROU assets
 
 
 


Operating
Right of use assets
$
15,007

 
$
15,327

Finance
Property, plant, and equipment
15,680

 
15,680

Total ROU assets
$
30,687

 
$
31,007

Current lease liabilities
 
 


Operating
Other current liabilities
$
3,518

 
$
3,685

Finance
Long-term debt and finance leases due within one year
572

 
572

Non-current lease liabilities
 
 


Operating
Operating lease liability
11,489

 
11,634

Finance
Long-term debt and finance leases, net
15,712

 
15,712

Total lease liabilities
$
31,291

 
$
31,603

 
 
 
 
 
(THOUSANDS)
 
CLECO POWER

 
CLECO

Supplemental cash flow information
 
 
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
1,014

 
$
1,065

Operating cash flows from finance leases
$
417

 
$
417

Financing cash flows from finance leases
$
134

 
$
134

ROU assets obtained in exchange for new lease liabilities
$

 
$
132

 
 
 
 
 
Other supplemental information
 
 
Operating leases
 
 
 
Weighted-average remaining lease term
7.4 years

 
7.4 years

Weighted-average discount rate
4.38
%
 
4.37
%
Finance leases
 
 
 
Weighted-average remaining lease term
14 years

 
14 years

Weighted-average discount rate
10.18
%
 
10.18
%

Lessor Agreements
Upon the closing of the Cleco Cajun Transaction, Cleco assumed two lessor contracts leasing land to farmers for a term of one year . Both of these lessor contracts are classified as operating leases. For more information on the Cleco Cajun Transaction, see Note 2 — “Business Combination.”

Cottonwood Sale Leaseback Agreement
Upon closing the Cleco Cajun Transaction, the Cottonwood Sale Leaseback was executed. Under the terms of the lease, NRG Energy will operate the plant, incur all costs, and receive all revenues from the operations of the plant. Cottonwood Energy will receive fixed lease payments of $40.0 million per year and certain variable payments for LTSA costs paid by NRG Energy on behalf of Cleco. Cleco may terminate the lease contract under specific circumstances stated in the lease contract. The residual value under the Cottonwood Sale Leaseback is expected to be recovered through sales of power generation from the plant. The residual value of the Cottonwood Plant has been determined using the plant’s estimated economic life.

26


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco Cajun is Cleco’s only entity with lessor arrangements. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback was as follows:
(THOUSANDS)
FOR THE THREE MONTHS ENDED MAR. 31, 2019

Fixed payments
$
6,667

Variable payments
3,151

Total lease income
$
9,818


The remaining minimum lease payments to be received under the Cottonwood Sale Leaseback are as follows:
(THOUSANDS)
 
Nine months ending Dec. 31, 2019
$
30,000

Years ending Dec. 31,
 
2020
40,000

2021
40,000

2022
40,000

2023
40,000

Thereafter
56,666

Total payments
$
246,666


Depreciation expense associated with Cleco’s property under the Cottonwood Sale Leaseback was $3.4 million for the three months ended March 31, 2019. Cleco calculated depreciation on a straight-line basis over the useful life of the asset. Property associated with the Cottonwood Sale Leaseback was as follows:
(THOUSANDS)
AT MAR. 31, 2019

Gross property, plant, and equipment
$
484,766

Less: accumulated depreciation
3,370

Net property, plant, and equipment
$
481,396

Note 5 — Revenue Recognition

Revenue from Contracts with Customers

Retail Utility Revenue
Cleco’s revenue from contracts with customers is generated primarily from Cleco Power’s regulated revenue from retail residential, commercial, and industrial customers. Cleco recognizes retail revenue from these contracts as a series, and progress towards satisfaction of the performance obligation is measured using an output method based on kWh delivered. Accordingly, revenue from electricity sales is recognized as energy is delivered to the customer. Cleco bills retail customers, based on rates regulated by the LPSC, on a monthly basis with payments generally due within 20 days of the invoice date.
Included in Cleco’s retail revenue is unbilled electric revenue, which represents the amount customers will be billed for services rendered from the last meter reading to the end of the respective accounting period. Cleco uses actual customer energy consumption data available from AMI to calculate unbilled revenue. Also included in Cleco’s retail revenue is electric customer credits, which primarily represents the accrued estimated refunds to Cleco Power’s retail customers for the tax related benefits of the TCJA.

 
Wholesale Revenue
Wholesale revenue is generated primarily through the sale of energy and capacity to cooperatives, municipalities, and the MISO transmission provider. Cleco also enters into transactions through MISO for spot energy sales which are transacted in the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. The electricity revenue performance obligations, representing both energy and capacity, are satisfied as a series of performance obligations, and progress towards satisfaction of the performance obligations are measured using an output method. The energy performance obligation measure of progress is based on kWh delivered. The capacity performance obligation measure of progress is based on time elapsed and will be recognized each month as Cleco’s generating units stand ready to deliver electricity to the customer. Cleco recognizes wholesale revenue, inclusive of both performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice. Cleco Power charges its wholesale customers market based rates that are subject to FERC’s triennial market power analysis.

Transmission Revenue
Transmission revenue is earned under a tariff with MISO. The performance obligation of transmission service is satisfied as service is provided. Revenue is recognized upon delivery of the transmission service. Cleco Power’s revenue from the transmission of electricity is recorded based on a FERC-approved annual formula rate mechanism. This mechanism provides for an annual filing of revenue requirements with rates effective June 1 of each year.

Other Revenue
Other revenue from contracts with customers, which is not a significant source of Cleco’s revenue, includes Cleco Power’s Teche Unit 3 SSR revenue and connection or other fees. The performance obligation under these contracts is satisfied and revenue is recognized as control of the products is delivered or services are rendered.

Revenue Unrelated to Contracts with Customers
Cleco’s energy-related transactions with the following characteristics, qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance: a) their value is based on the notional amount or payment provisions of an underlying asset; b) they require no or a diminutive initial net investment; and c) their terms require or permit net settlement.
Cleco Cajun’s other revenue includes fixed lease payments and certain variable payments for costs paid by NRG Energy on behalf of Cleco. For more information on the Cottonwood lease agreement, see Note 4 — “Leases — Lessor Agreements Cottonwood Sale Leaseback Agreement.”

Disaggregated Revenue
Upon the completion of the Cleco Cajun Transaction on February 4, 2019, Cleco Cajun became a new reportable segment. For more information on the transaction, see Note 2 — “Business Combinations.”

27


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Operating revenue, net for the three months ended March 31, 2019, and 2018, was as follows:
 
FOR THE THREE MONTHS ENDED MAR. 31, 2019
 
(THOUSANDS)
CLECO POWER

 
CLECO CAJUN

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
 
 
Residential (1)
$
87,148

 
$

 
$

 
$

 
$
87,148

Commercial (1)
65,380

 

 

 

 
65,380

Industrial (1)
37,870

 

 

 

 
37,870

Other retail (1)
3,681

 

 

 

 
3,681

Surcharge
5,321

 

 

 

 
5,321

Electric customer credits
(8,160
)
 

 

 

 
(8,160
)
Total retail revenue
191,240

 

 

 

 
191,240

Wholesale, net
55,546

(1)  
58,191

 
(2,420
)
(2)  

 
111,317

Transmission
12,579

 
8,727

 

 

 
21,306

Other
6,851

(3)  
(26
)
 
2

 

 
6,827

Affiliate (4)
300

 

 
26,535

 
(26,835
)
 

Total revenue from contracts with customers
266,516

 
66,892

 
24,117

 
(26,835
)
 
330,690

Revenue unrelated to contracts with customers
 
 
 
 
 
 
 
 
 
Other
2,229

(5)  
11,267

(6)  

 

 
13,496

Total revenue unrelated to contracts with customers
2,229

 
11,267

 

 

 
13,496

Operating revenue, net
$
268,745

 
$
78,159

 
$
24,117

 
$
(26,835
)
 
$
344,186

(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.
(3) Includes $4.4 million of other miscellaneous fee revenue and $2.4 million of Teche Unit 3 SSR revenue at Cleco Power.
(4) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.
(5) Includes realized gains associated with FTRs of $4.8 million and the reversal of the Lost Contribution to Fixed Cost revenue of ($2.6) million .
(6) Includes $9.8 million in lease revenue related to the Cottonwood Sale Leaseback and $1.4 million of deferred lease revenue amortization.
 
FOR THE THREE MONTHS ENDED MAR. 31, 2018
 
(THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
Residential (1)
$
91,390

 
$

 
$

 
$
91,390

Commercial (1)
66,695

 

 

 
66,695

Industrial (1)
37,386

 

 

 
37,386

Other retail (1)
3,801

 

 

 
3,801

Surcharge
5,238

 

 

 
5,238

Electric customer credits
(7,647
)
 

 

 
(7,647
)
Total retail revenue
196,863

 

 

 
196,863

Wholesale, net (1)
43,830

 
(2,420
)
(2)  

 
41,410

Transmission
17,644

 

 

 
17,644

Other (3)
7,690

 
1

 

 
7,691

Affiliate
208

 
15,669

 
(15,877
)
 

Total revenue from contracts with customers
266,235

 
13,250

 
(15,877
)
 
263,608

Revenue unrelated to contracts with customers
 
 
 
 
 
 
 
Other
13,152

 

 

 
13,152

Total revenue unrelated to contracts with customers
13,152

 

 

 
13,152

Operating revenue, net
$
279,387

 
$
13,250

 
$
(15,877
)
 
$
276,760

(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.
(3) Other revenue from contracts with customers includes $3.2 million of Teche Unit 3 SSR revenue, net of $1.9 million of reserves for capital expenditures and other miscellaneous fee revenue.
  
Cleco has unsatisfied performance obligations with durations ranging between one and fifteen years that primarily relate to stand-ready obligations as part of fixed capacity minimums. Cleco has elected to not disclose the value of unsatisfied performance obligations as part of its application of the right to invoice practical expedient.
Note 6 — Regulatory Assets and Liabilities
Cleco capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these
 
items will be recovered or refunded through the ratemaking process.
Under the current regulatory environment, Cleco believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or competition, Cleco’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco would be required to write-down such assets. In addition, potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco could require

28


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

discontinuance of the application of the authoritative guidance on regulated operations.
The following table summarizes Cleco Power’s regulatory assets and liabilities:
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Regulatory assets (liabilities)
 
 
 
Deferred taxes, net
$
(154,651
)
 
$
(155,537
)
Mining costs
637

 
1,274

Interest costs
4,146

 
4,208

AROs
3,238

 
3,099

Postretirement costs
138,388

 
140,245

Tree trimming costs
9,463

 
9,069

Training costs
6,358

 
6,396

Surcredits, net (1)
289

 
289

AMI deferred revenue requirement
3,545

 
3,681

Emergency declarations
2,560

 
2,980

Production operations and maintenance expenses
11,458

 
12,245

AFUDC equity gross-up (1)
72,622

 
71,952

Acadia Unit 1 acquisition costs
2,204

 
2,230

Financing costs
7,830

 
7,923

Coughlin transaction costs
930

 
938

Corporate franchise tax, net
(231
)
 
1,416

Non-service cost of postretirement benefits
5,925

 
4,629

Energy efficiency
(324
)
 
2,585

Accumulated deferred fuel
17,179

 
20,112

Other, net
(7,884
)
 
(4,979
)
Total regulatory assets, net
$
123,682

 
$
134,755

(1) Represents regulatory assets for past expenditures that were not earning a return on investment at March 31, 2019, and December 31, 2018, respectively. All other assets are earning a return on investment.

The following table summarizes Cleco’s net regulatory assets and liabilities:
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Total Cleco Power regulatory assets, net
$
123,682

 
$
134,755

Cleco 2016 Merger adjustments (1)
 
 
 
Fair value of long-term debt
136,589

 
138,701

Postretirement costs
18,891

 
19,387

Financing costs
8,193

 
8,279

Debt issuance costs
6,149

 
6,252

Total Cleco regulatory assets, net
$
293,504

 
$
307,374

(1) Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.

In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the accumulated decrease in revenues, also known as the Lost Contribution to Fixed Cost (LCFC), associated with the energy efficiency programs. On March 28, 2019, Cleco Power received communication from the LPSC indicating denial of the request. As a result, Cleco Power reversed the $2.6 million regulatory asset that was accrued at December 31, 2018, and recorded a $0.3 million regulatory liability for the LCFC revenue recovered in Cleco Power’s energy efficiency rates effective March 1, 2019.
In January 2019, the LPSC approved the Cleco Cajun Transaction. Approval of the Cleco Cajun Transaction was
 
conditioned upon certain commitments, including a $4.0 million annual reduction to Cleco Power’s retail customer rates. Cleco Power began accruing for this reduction in February 2019 and will continue accruing this reduction until July 1, 2019, at which time it will become part of the FRP rate adjustment. At March 31, 2019, Cleco Power had $0.7 million accrued for the rate reduction.
Note 7 — Fair Value Accounting
The amounts reflected on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at March 31, 2019 , and December 31, 2018 , for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, short-term debt, and accounts payable approximate fair value because of their short-term nature. Cleco applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations, as well as impairment related to goodwill and other long-lived assets.
The following tables summarize the carrying value and estimated market value of Cleco and Cleco Power’s financial instruments not measured at fair value on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets:
Cleco
 
 
 
 
 
 
 
 
AT MAR. 31, 2019
 
 
AT DEC. 31, 2018
 
(THOUSANDS)
CARRYING
VALUE*

 
FAIR VALUE

 
CARRYING
VALUE*

 
FAIR VALUE

Long-term debt
$
3,277,216

 
$
3,327,937

 
$
2,889,631

 
$
2,859,924

* The carrying value of long-term debt does not include deferred issuance costs of $13.5 million at March 31, 2019 , and $10.3 million at December 31, 2018 .
Cleco Power
 
 
 
 
 
 
 
 
AT MAR. 31, 2019
 
 
AT DEC. 31, 2018
 
(THOUSANDS)
CARRYING
VALUE*

 
FAIR VALUE

 
CARRYING
VALUE*

 
FAIR VALUE

Long-term debt
$
1,390,627

 
$
1,539,270

 
$
1,400,930

 
$
1,517,152

* The carrying value of long-term debt does not include deferred issuance costs of $8.1 million at March 31, 2019 , and $8.3 million at December 31, 2018 .

Long-term debt liability consists of a single class. In order to fund capital requirements, Cleco issues fixed and variable rate long-term debt with various tenors. The fair value of this class fluctuates as the market interest rates for fixed and variable rate debt with similar tenors and credit ratings change. The fair value of the debt could also change from period to period due to changes in the credit rating of the Cleco entity by which the debt was issued. The fair value of long-term debt is classified as Level 2 in the fair value hierarchy.

Fair Value Measurements and Disclosures
Cleco classifies assets and liabilities that are measured at their fair value according to three different levels depending on the inputs used in determining fair value.
The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured on a recurring basis:

29


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLECO CONSOLIDATED FAIR VALUE MEASUREMENTS AT REPORTING DATE
 
(THOUSANDS)
AT MAR. 31, 2019

 
QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

 
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

 
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

 
AT DEC. 31, 2018

 
QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

 
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

 
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

Asset description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Institutional money market funds
$
109,848

 
$

 
$
109,848

 
$

 
$
133,722

 
$

 
$
133,722

 
$

FTRs
9,171

 

 

 
9,171

 
23,355

 

 

 
23,355

Total assets
$
119,019

 
$

 
$
109,848

 
$
9,171

 
$
157,077

 
$

 
$
133,722

 
$
23,355

Liability description
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

FTRs
$
1,361

 
$

 
$

 
$
1,361

 
$
468

 
$

 
$

 
$
468

Total liabilities
$
1,361

 
$

 
$

 
$
1,361

 
$
468

 
$

 
$

 
$
468

Cleco Power
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CLECO POWER FAIR VALUE MEASUREMENTS AT REPORTING DATE
 
(THOUSANDS)
AT MAR. 31, 2019

 
QUOTED PRICES IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

 
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

 
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

 
AT DEC. 31, 2018

 
QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

 
SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

 
SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

Asset description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Institutional money market funds
$
43,918

 
$

 
$
43,918

 
$

 
$
55,900

 
$

 
$
55,900

 
$

FTRs
5,684

 

 

 
5,684

 
23,355

 

 

 
23,355

Total assets
$
49,602

 
$

 
$
43,918

 
$
5,684

 
$
79,255

 
$

 
$
55,900

 
$
23,355

Liability description
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

FTRs
$
872

 
$

 
$

 
$
872

 
$
468

 
$

 
$

 
$
468

Total liabilities
$
872

 
$

 
$

 
$
872

 
$
468

 
$

 
$

 
$
468


The following tables summarize the net changes in the net fair value of FTR assets and liabilities classified as Level 3 in the fair value hierarchy for Cleco and Cleco Power:
Cleco
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Beginning balance
$
22,887

 
$
7,044

Unrealized (losses) gains*
(1,917
)
 
1,617

Purchases
5,237

 
371

Settlements
(18,397
)
 
(4,749
)
Ending balance
$
7,810

 
$
4,283

* Unrealized (losses) gains are reported through Accumulated deferred fuel on the condensed consolidated balance sheet for Cleco Power and through Fuel used for electric generation on the condensed income statement for Cleco Cajun.
 
Cleco Power
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Beginning balance
$
22,887

 
$
7,044

Unrealized (losses) gains*
(2,939
)
 
1,617

Purchases
1,286

 
371

Settlements
(16,422
)
 
(4,749
)
Ending balance
$
4,812

 
$
4,283

* Unrealized (losses) gains are reported through Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheet.
The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions as of March 31, 2019 , and December 31, 2018 :
Cleco
 
 
 
 
 
 
 
 
 
 
 
 
FAIR VALUE
 
 
VALUATION TECHNIQUE
 
SIGNIFICANT
UNOBSERVABLE INPUTS
 
FORWARD PRICE RANGE
 
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)
ASSETS

 
LIABILITIES

 
 
 
 
 
LOW

 
HIGH

FTRs at Mar. 31, 2019
$
9,171

 
$
1,361

 
RTO auction pricing
 
FTR price - per MWh
 
$
(3.31
)
 
$
8.00

FTRs at Dec. 31, 2018
$
23,355

 
$
468

 
RTO auction pricing
 
FTR price - per MWh
 
$
(4.40
)
 
$
15.10

Cleco Power
 
 
 
 
 
 
 
 
 
 
 
 
FAIR VALUE
 
 
VALUATION TECHNIQUE
 
SIGNIFICANT
UNOBSERVABLE INPUTS
 
FORWARD PRICE RANGE
 
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)
ASSETS

 
LIABILITIES

 
 
 
 
 
LOW

 
HIGH

FTRs at Mar. 31, 2019
$
5,684

 
$
872

 
RTO auction pricing
 
FTR price - per MWh
 
$
(3.31
)
 
$
8.00

FTRs at Dec. 31, 2018
$
23,355

 
$
468

 
RTO auction pricing
 
FTR price - per MWh
 
$
(4.40
)
 
$
15.10


Cleco utilizes different valuation techniques for fair value calculations. In order to measure the fair value for Level 1 assets and liabilities, Cleco obtains the closing price from published indices in active markets for the various instruments and multiplies this price by the appropriate number of instruments held. Level 2 fair values are determined by
 
obtaining the closing price of similar assets and liabilities from published indices in active markets and then discounting the price to the current period using a U.S. Treasury published interest rate as a proxy for a risk-free rate of return. Level 3 fair values occur in situations in which there is little, if any, market activity for the asset or liability at the measurement date.

30


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco’s Level 3 assets and liabilities are valued using RTO auction prices. Cleco has consistently applied the Level 2 and Level 3 fair value techniques from fiscal period to fiscal period. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
The assets and liabilities reported at fair value are grouped into classes based on the underlying nature and risks associated with the individual asset or liability.
At March 31, 2019 , Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. The institutional money market funds were reported on Cleco’s Condensed Consolidated Balance Sheets in cash and cash equivalents, current restricted cash and cash equivalents, and non-current restricted cash and cash equivalents of $85.2 million , $5.5 million , and $19.1 million , respectively, at March 31, 2019 , and $103.8 million , $11.2 million , and $18.7 million , respectively, at December 31, 2018 . At Cleco Power, the institutional money market funds were reported on Cleco Power’s Condensed Consolidated Balance Sheets in cash and cash equivalents, current restricted cash and cash equivalents, and non-current restricted cash and cash equivalents of $20.1 million , $5.5 million , and $18.3 million , respectively, at March 31, 2019 , and $26.1 million , $11.2 million , and $18.6 million , respectively, at December 31, 2018 . If the money market funds failed to perform under the terms of the investments, Cleco and Cleco Power would be exposed to a loss of the invested amounts. Collateral on these types of investments is not required by either Cleco or Cleco Power. The Level 2 institutional money market funds asset consists of a single class. In order to capture interest income and minimize risk, cash is invested in money market funds that invest primarily in short-term securities issued by the U.S. Treasury to maintain liquidity and achieve the goal of a net asset value of a dollar. The risks associated with this class are counterparty risk of the fund manager and risk of price volatility associated with the underlying securities of the fund.
Cleco Power and Cleco Cajun’s FTRs were priced using MISO’s monthly auction prices. Forward seasonal periods are not included in every monthly auction; therefore, the average of the most recent seasonal auction prices is used for monthly valuation. FTRs are categorized as Level 3 fair value measurements because the only relevant pricing available comes from MISO auctions, which occur monthly in the Multi-Period Monthly Auction.
During the three months ended March 31, 2019 , and the year ended December 31, 2018 , Cleco did no t experience any transfers between levels within the fair value hierarchy.

 
Commodity Contracts
The following tables present the fair values of derivative instruments and their respective line items as recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at March 31, 2019 , and December 31, 2018 :
Cleco
 
 
 
 
 
 
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
 
(THOUSANDS)
BALANCE SHEET LINE ITEM
 
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Commodity-related contracts
 
 
 
 
FTRs:
 
 
 
 
 
Current
Energy risk management assets
 
$
9,171

 
$
23,355

Current
Energy risk management liabilities
 
1,361

 
468

Commodity-related contracts, net
 
$
7,810

 
$
22,887

Cleco Power
 
 
 
 
 
 
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
 
(THOUSANDS)
BALANCE SHEET LINE ITEM
 
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Commodity-related contracts
 
 
 
 
FTRs:
 
 
 
 
 
Current
Energy risk management assets
 
$
5,684

 
$
23,355

Current
Energy risk management liabilities
 
872

 
468

Commodity-related contracts, net
 
$
4,812

 
$
22,887


The following tables present the effect of derivatives not designated as hedging instruments on Cleco and Cleco Power’s Condensed Consolidated Statements of Income for the three months ended March 31, 2019 , and 2018 :
Cleco
 
 
 
 
 
AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
 
 
 
FOR THE THREE MONTHS
 ENDED MAR. 31,
 
(THOUSANDS)
DERIVATIVES LINE ITEM
2019

 
2018

Commodity contracts
 
 
 
 
FTRs (1)
Electric operations
$
5,209

 
$
13,099

FTRs (1)
Power purchased for utility customers
(3,324
)
 
(513
)
Total
 
$
1,885

 
$
12,586

(1) For the three months ended March 31, 2019 , unrealized losses associated with FTRs for Cleco Power of $2.9 million were reported through Accumulated deferred fuel on the balance sheet. For the three months ended March 31, 2018 , unrealized gains associated with FTRs of $1.6 million were reported through Accumulated deferred fuel on the balance sheet.
Cleco Power
 
 
 
 
 
AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
 
 
 
FOR THE THREE MONTHS
 ENDED MAR. 31,
 
(THOUSANDS)
DERIVATIVES LINE ITEM
2019

 
2018

Commodity contracts
 
 
 
 
FTRs (1)
Electric operations
$
5,206

 
$
13,099

FTRs (1)
Power purchased for utility customers
(1,983
)
 
(513
)
Total
 
$
3,223

 
$
12,586

(1) For the three months ended March 31, 2019 , unrealized losses associated with FTRs of $2.9 million were reported through Accumulated deferred fuel on the balance sheet. For the three months ended March 31, 2018 , unrealized gains associated with FTRs of $1.6 million were reported through Accumulated deferred fuel on the balance sheet.

The total volume of FTRs that Cleco Power had outstanding at March 31, 2019 , and December 31, 2018 , was 3.4 million MWh and 8.7 million MWh, respectively. In connection with the Cleco Cajun Transaction, Cleco acquired

31


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

FTRs. The total volume of FTRs that Cleco had outstanding at March 31, 2019 , and December 31, 2018 , was 5.3 million MWh and 8.7 million MWh, respectively.
Note 8 — Debt
In connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings borrowed $300.0 million under a new bridge loan agreement and $100.0 million under a new term loan agreement (Acquisition Debt). Both loan agreements are variable rate debt and have a three -year term. Both loan agreements contain certain financial covenants, including requiring Cleco Holdings to maintain (i) a debt to capital ratio (as defined in the applicable agreement) below 65% and (ii) a rating applicable to the Company’s senior debt rating (as defined in the applicable agreement). Cleco Holdings anticipates that some or all of the variable rate debt may be replaced or repaid with long-term financing, markets permitting, within 12 months of the closing of the Cleco Cajun Transaction. Upon approval of the Cleco Cajun Transaction, commitments were made to the LPSC by Cleco, including repayment of $400.0 million of Cleco Holdings’ debt prior to December 31, 2024. The cumulative minimum principal amounts committed to be repaid for each year through 2024 are as follows:
(THOUSANDS)
 
 
For the year ending Dec. 31,
 
 
2019
 
$
66,700

2020
 
$
132,300

2021
 
$
200,000

2022
 
$
266,700

2023
 
$
332,300

2024
 
$
400,000

 
Also in connection with the Cleco Cajun Transaction, Cleco Holdings increased its credit facility capacity by $75.0 million , for a total credit facility of $175.0 million . All other terms remained the same. In addition, in connection with the Cleco Cajun Transaction, Cleco Holdings, on behalf of Cleco Cajun, issued three letters of credit totaling $1.1 million to a capacity agreement customer and a gas transport company. These letters of credit automatically renew each year and have no impact on the Cleco Holdings’ credit facility. At March 31, 2019 , Cleco Holdings had a $34.5 million letter of credit to MISO pursuant to energy market requirements related to Cleco Cajun’s participation in MISO. This letter of credit automatically renews each year and decreases availability under the Cleco Holdings’ credit facility.
Note 9 — Pension Plan and Employee Benefits
 
Pension Plan and Other Benefits Plan
Employees hired before August 1, 2007, are covered by a non-contributory, defined benefit pension plan. Cleco does not expect to make any contributions to the pension plan in 2019. Cleco Power is the plan sponsor and Support Group is the plan administrator.
Cleco’s retirees may be eligible to receive Other Benefits. Dependents of Cleco’s retirees may also be eligible to receive Other Benefits with the exception of life insurance benefits.
The non-service components of net periodic pension and Other Benefits cost are included in Other expense within Cleco and Cleco Power’s Condensed Consolidated Statements of Income. The components of net periodic pension and other benefits cost for the three months ended March 31, 2019 , and 2018 were as follows:
 
PENSION BENEFITS
 
OTHER BENEFITS
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

 
2019

 
2018

Components of periodic benefit costs
 
 
 
 
 
 
 
Service cost
$
2,067

 
$
2,393

 
$
288

 
$
338

Interest cost
5,650

 
5,183

 
400

 
357

Expected return on plan assets
(6,622
)
 
(5,938
)
 

 

Amortizations
 
 
 
 
 
 
 
Prior period service credit
(18
)
 
(18
)
 

 

Net loss (gain)
1,875

 
2,960

 
(45
)
 
5

Net periodic benefit cost
$
2,952

 
$
4,580

 
$
643

 
$
700

 
Because Cleco Power is the pension plan sponsor and the related trust holds the assets, the net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco’s other subsidiaries is transferred with a like amount of assets to Cleco Power monthly. The expense of the pension plan related to Cleco’s other subsidiaries for both the three months ended March 31, 2019 , and 2018, was $0.5 million .
Cleco Holdings is the plan sponsor for the other benefit plans. There are no assets set aside in a trust, and the liabilities are reported on the individual subsidiaries’ financial statements. The expense related to other benefits reflected in Cleco Power’s Condensed Consolidated Statements of Income for the three months ended March 31, 2019 , and 2018, was $0.7 million and $0.8 million , respectively. The current and non-current portions of the other benefits liability for Cleco and Cleco Power at March 31, 2019 , and December 31, 2018 , were as follows:
 
Cleco
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
$
4,130

 
$
4,130

Non-current
$
35,805

 
$
36,325

Cleco Power
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
$
3,584

 
$
3,584

Non-current
$
31,274

 
$
31,694


SERP
Certain Cleco officers are covered by SERP. Cleco does not fund the SERP liability, but instead pays for current benefits out of the general funds available. Cleco Power has formed a rabbi trust. The life insurance policies issued on SERP participants designate the rabbi trust as the beneficiary.

32


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Market conditions could have a significant impact on the cash surrender value of the life insurance policies. Proceeds from the life insurance policies are expected to be used to pay the SERP participants’ death benefits, as well as future SERP payments. However, because SERP is a non-qualified plan, the assets of the trust could be used to satisfy general creditors of Cleco Power in the event of insolvency. All SERP benefits are paid out of the general cash available of the respective companies that employed the officer. Cleco Power is the plan sponsor and Support Group is the plan administrator.
The non-service components of net periodic benefit cost related to SERP are included in Other expense within Cleco and Cleco Power’s Condensed Consolidated Statements of Income. The components of the net SERP for the three months ended March 31, 2019 , and 2018 were as follows:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Components of periodic benefit costs
 
 
 
Service cost
$
113

 
$
105

Interest cost
825

 
760

Amortizations
 
 
 
Prior period service credit
(35
)
 
(35
)
Net loss
392

 
585

Net periodic benefit cost
$
1,295

 
$
1,415


The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income for both the three months ended March 31, 2019 , and 2018, was $0.3 million .
Liabilities relating to SERP are reported on the individual subsidiaries’ financial statements. The current and non-current portions of the SERP liability for Cleco and Cleco Power at March 31, 2019 , and December 31, 2018 , were as follows:
Cleco
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
$
4,478

 
$
4,478

Non-current
$
73,736

 
$
73,936

Cleco Power
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Current
$
930

 
$
930

Non-current
$
12,009

 
$
12,025


401(k) Plan
Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The 401(k) Plan is a defined contribution plan and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974. In accordance with the 401(k) Plan, employer contributions are made in the form of cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Participation in the Plan is voluntary, and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the three months ended March 31, 2019 , and 2018 was as follows:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

401(k) Plan expense
$
2,267

 
$
2,063


 
Cleco Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan related to Cleco’s other subsidiaries for the three months ended March 31, 2019 , and 2018 was as follows:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

401(k) Plan expense
$
930

 
$
402

Note 10 — Income Taxes

Effective Tax Rates
The following tables summarize the effective income tax rates for Cleco and Cleco Power for the three months ended March 31, 2019 , and 2018 :
Cleco
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
2019

 
2018

Effective tax rate
22.6
%
 
20.9
%
Cleco Power
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
2019

 
2018

Effective tax rate
23.0
%
 
23.5
%

For the three months ended March 31, 2019 , and 2018 , the effective income tax rates for both Cleco and Cleco Power were different than the federal statutory rate primarily due to permanent tax differences; the flowthrough of tax benefits, including AFUDC equity; and state tax expense.

Net Operating Loss
For the 2019 tax year, Cleco is expected to create approximately $561.2 million and $113.8 million of federal and state net operating losses, respectively, primarily due to the Cleco Cajun Transaction.
The federal net operating loss may be carried forward indefinitely, and state net operating loss carryforwards will begin to expire in 2039.
Cleco considers it more likely than not that these income tax losses will be utilized to reduce future income tax payments and utilize the entire net operating loss carryforward within the statutory deadlines.

Uncertain Tax Positions
Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At March 31, 2019 , and December 31, 2018 , Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the three months ended March 31, 2019 , and 2018 , Cleco and Cleco Power had no interest expense related to uncertain tax positions.
At March 31, 2019 , Cleco had no liability for uncertain tax positions. Cleco estimates that it is reasonably possible that the balance of unrecognized tax benefits as of March 31, 2019 , for Cleco and Cleco Power would be unchanged in the next 12 months. The settlement of open tax years could involve the payment of additional taxes, and/or the recognition of tax benefits, which may have an effect on Cleco’s effective tax rate.
The federal income tax years that remain subject to examination by the IRS are 2015, 2016, and 2017.

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Cleco participates in the IRS’s Compliance Assurance Process in which financial results are examined and agreed upon prior to filing the federal consolidated tax return.
The state income tax years that remain subject to examination by the Louisiana Department of Revenue are 2015, 2016, and 2017.
Cleco classifies income tax penalties as a component of other expense. For the three months ended March 31, 2019 , and 2018 , no penalties were recognized.
Note 11 — Disclosures about Segments
Cleco’s reportable segments are based on its method of internal reporting, which disaggregates business units by its first-tier subsidiary. Cleco’s reportable segments are Cleco Power and Cleco Cajun.
Each reportable segment engages in business activities from which it earns revenue and incurs expenses. Segment managers report periodically to Cleco’s CEO with discrete financial information and, at least quarterly, present discrete financial information to Cleco and Cleco Power’s Boards of Managers. The reportable segment prepares budgets that are
 
presented to and approved by Cleco and Cleco Power’s Boards of Managers. The column shown as Other in the following tables includes the holding company, a shared services subsidiary, two transmission interconnection facility subsidiaries, an investment subsidiary, and a subsidiary formed to facilitate the Cleco Cajun Transaction. Upon the completion of the Cleco Cajun Transaction on February 4, 2019, Cleco Cajun became a new reportable segment. For more information on the transaction, see Note 2 — “Business Combinations.”
The financial results in the following tables are presented on an accrual basis. The historical segment information was not recast because the Cleco Cajun segment only consists of the newly acquired business. There were no other changes to Cleco’s existing reportable segments. Management evaluates the performance of its segment and allocates resources to it based on segment profit and the requirements to implement new strategic initiatives and projects to meet current business objectives. Material intercompany transactions occur on a regular basis. These intercompany transactions relate primarily to joint and common administrative support services.
SEGMENT INFORMATION FOR THE THREE MONTHS ENDED MAR. 31,
2019 (THOUSANDS)
CLECO POWER

 
CLECO CAJUN

 
OTHER

 
ELIMINATIONS

 
CONSOLIDATED

Revenue
 
 
 
 
 
 
 
 
 
Electric operations
$
257,175

 
$
58,194

 
$
(2,420
)
 
$

 
$
312,949

Other operations
19,430

 
19,965

 
2

 

 
39,397

Affiliate revenue
300

 

 
26,535

 
(26,835
)
 

Electric customer credits
(8,160
)
 

 

 

 
(8,160
)
Operating revenue, net
$
268,745

 
$
78,159

 
$
24,117

 
$
(26,835
)
 
$
344,186

Depreciation and amortization
$
42,377

 
$
5,410

 
$
2,069

 
$

 
$
49,856

Interest income
$
994

 
$
254

 
$
417

 
$
(174
)
 
$
1,491

Interest charges, net
$
17,145

 
$

 
$
17,028

 
$
(174
)
 
$
33,999

Federal and state income tax expense (benefit)
$
7,998

 
$
3,529

 
$
(5,540
)
 
$
(1
)
 
$
5,986

Net income (loss)
$
26,712

 
$
11,056

 
$
(17,210
)
 
$
(1
)
 
$
20,557

Additions to property, plant, and equipment
$
81,040

 
$
1,530

 
$
1,109

 
$

 
$
83,679

Equity investment in investees
$
18,172

 
$

 
$

 
$

 
$
18,172

Goodwill
$
1,490,797

 
$

 
$

 
$

 
$
1,490,797

Total segment assets
$
5,857,223

 
$
1,043,253

 
$
585,647

 
$
(66,954
)
 
$
7,419,169

2018 (THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
CONSOLIDATED

Revenue
 
 
 
 
 
 
 
Electric operations
$
264,631

 
$
(2,420
)
 
$

 
$
262,211

Other operations
22,195

 
1

 

 
22,196

Affiliate revenue
208

 
15,669

 
(15,877
)
 

Electric customer credits
(7,647
)
 

 

 
(7,647
)
Operating revenue, net
$
279,387

 
$
13,250

 
$
(15,877
)
 
$
276,760

Depreciation and amortization
$
40,388

 
$
2,119

 
$

 
$
42,507

Interest income
$
641

 
$
190

 
$
(48
)
 
$
783

Interest charges, net
$
17,656

 
$
13,549

 
$
(48
)
 
$
31,157

Federal and state income tax expense (benefit)
$
7,997

 
$
(5,135
)
 
$

 
$
2,862

Net income (loss)
$
26,004

 
$
(15,142
)
 
$
(1
)
 
$
10,861

Additions to property, plant, and equipment
$
63,343

 
$
790

 
$

 
$
64,133

Equity investment in investees (1)
$
18,172

 
$

 
$

 
$
18,172

Goodwill (1)
$
1,490,797

 
$

 
$

 
$
1,490,797

Total segment assets (1)
$
5,839,853

 
$
633,756

 
$
(36,795
)
 
$
6,436,814

(1) Balances as of December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Note 12 — Regulation and Rates
At March 31, 2019 , Provision for rate refund on Cleco and Cleco Power’s Consolidated Balance Sheets consisted primarily of $39.3 million for the estimated refund for the tax-related benefits from the TCJA, $1.9 million for potential reductions to the transmission ROE, and $2.1 million for the cost of service savings refunds.

Transmission ROE
Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. As of March 31, 2019 , Cleco Power h ad $1.9 million accrued for potential ROE reductions. For more information on the ROE complaints, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

FRP
Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of the FRP, Cleco Power is allowed to earn a target ROE of 10.0% , while providing the opportunity to earn up to 10.9% . Additionally, 60.0% of retail earnings between 10.9% and 11.75% , and all retail earnings over 11.75% , are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC, annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds are ultimately subject to LPSC approval. Cleco Power will file an application with the LPSC for a new FRP by July 1, 2019, with anticipated new rates being effective July 1, 2020.
Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ending June 30. On October 31, 2017, Cleco Power filed its monitoring report for the 12-month period ended June 30, 2017, which indicated that no refund was due as a result of the FRP and $1.2 million was due as a result of the cost of service savings from the 2016 Merger Commitments. Cleco Power expects the LPSC to approve the 2017 FRP monitoring report in the fourth quarter of 2019. The $1.2 million cost of service savings from the 2016 Merger Commitments were refunded in September 2018.
On October 31, 2018, Cleco Power filed its monitoring report for the 12-month period ended June 30, 2018, which indicated that no refund was due as a result of the FRP and $1.2 million of cost of service savings refunds are due to be returned to eligible customers. On December 21, 2018, Cleco Power responded to the first set of data requests for the 2018 monitoring report. At March 31, 2019, Cleco Power had $2.1 million accrued for the cost of service savings refund.

TCJA
On February 21, 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flowthrough to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. As a result of the tax rate reduction, Cleco Power began accruing an estimated reserve on January 1, 2018. At March 31, 2019 , Cleco Power had $39.3 million accrued for the estimated federal tax-related benefits from the TCJA.
On October 26, 2018, the LPSC Staff approved a final rule that would require utilities to adjust formula rates the earlier of January 31, 2019, or the next date required for implementation
 
of compliance rate changes under the normal operation of the FRP. Cleco Power filed its report with the LPSC on December 3, 2018, describing its methodology for TCJA refunds and related items, including the allocation of such refunds among jurisdictional customers. On January 31, 2019, Cleco Power filed an application with the LPSC requesting the implementation of rate reductions and modifications of certain tariffs resulting from TCJA to be effective July 1, 2019. Cleco Power also requested to reduce the annual FRP rate, effective July 1, 2019, by the amount accrued for the change in tax rates at June 30, 2019. Cleco Power recommended a rate redesign, allowing the change in the statutory corporate tax rate to be applied only to residential customers in order to reduce customer bills. Cleco Power also requested to address the regulatory liability for excess ADIT resulting from the enactment of the TCJA in Cleco Power’s application for its next FRP, which will be filed by July 1, 2019, with anticipated new rates being effective July 1, 2020. All items requested in the January 31, 2019, application are subject to LPSC review and approval prior to implementation. Cleco Power expects the LPSC to approve the application in the first half of 2020.

SSR
In September 2016, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3 effective April 1, 2017. MISO conducted a study which determined the proposed retirement of Teche Unit 3 would result in violations of specific applicable reliability standards for which no mitigation is available. As a result, MISO designated Teche Unit 3 as an SSR unit until such time that an appropriate alternative solution could be implemented to mitigate reliability issues. One mitigating factor identified was Cleco Power’s Terrebonne to Bayou Vista Transmission project. The Terrebonne to Bayou Vista project was completed in April 2019. Cleco Power received a termination notice, effective April 30, 2019, and filed paperwork to withdraw the filed Attachment Y to comply with the settlement agreement. Cleco Power operated Teche Unit 3 as an SSR unit from April 2017 until April 2019.
After the end of the final SSR agreement, which was terminated on April 30, 2019, Cleco Power expects Teche Unit 3 to be available to run until the estimated 2021 in-service date of Bayou Vista to Segura Transmission project, at which time, Cleco Power does not expect to offer the unit into MISO, barring any grid or customer reliability issues or other similar reasons. At March 31, 2019 , Cleco Power had $6.0 million accrued for the net capital refund for capital expenditures paid for by third parties. As part of the settlement, one of the load serving entities agreed to reimburse Cleco Power for their portion of the capital refund.
Note 13 — Variable Interest Entities
Cleco and Cleco Power apply the equity method of accounting to report the investment in Oxbow in the consolidated financial statements. Under the equity method, the assets and liabilities of this entity are reported as Equity investment in investee on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets. The revenue and expenses (excluding income taxes) of this entity are netted and reported as equity income or loss from investees on Cleco and Cleco Power’s Condensed Consolidated Statements of Income.
Oxbow is owned 50% by Cleco Power and 50% by SWEPCO. Cleco Power is not the primary beneficiary because it shares the power to control Oxbow’s significant activities with

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SWEPCO. Cleco Power’s current assessment of its maximum exposure to loss related to Oxbow at March 31, 2019 , consisted of its equity investment of $18.2 million .
The following table presents the components of Cleco Power’s equity investment in Oxbow:
INCEPTION TO DATE (THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Purchase price
$
12,873

 
$
12,873

Cash contributions
6,399

 
6,399

Dividends
(1,100
)
 
(1,100
)
Total equity investment in investee
$
18,172

 
$
18,172


The following table compares the carrying amount of Oxbow’s assets and liabilities with Cleco Power’s maximum exposure to loss related to its investment in Oxbow:
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Oxbow’s net assets/liabilities
$
36,345

 
$
36,345

Cleco Power’s 50% equity
$
18,172

 
$
18,172

Cleco Power’s maximum exposure to loss
$
18,172

 
$
18,172


The following table contains summarized financial information for Oxbow:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Operating revenue
$
1,958

 
$
863

Operating expenses
1,958

 
863

Income before taxes
$

 
$


DHLC mines lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station.
Oxbow has no third-party agreements, guarantees, or other third-party commitments that contain obligations affecting Cleco Power’s investment in Oxbow.
Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

Litigation

2016 Merger
In connection with the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. The petitions in each action generally alleged, among other things, that the members of Cleco Corporation’s Board of Directors breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process, agreeing to the 2016 Merger at a price that allegedly undervalued Cleco, and failing to disclose material information about the 2016 Merger. The petitions also alleged that Cleco Partners, Cleco Corporation, Merger Sub, and in some cases, certain of the investors in Cleco Partners, either aided and abetted or entered into a civil conspiracy to advance those supposed breaches of duty. The petitions seek various remedies, including monetary damages, which includes attorneys’ fees and expenses.
 
The four actions filed in the Ninth Judicial District Court for Rapides Parish are captioned as follows:

Braunstein v. Cleco Corporation , No. 251,383B (filed October 27, 2014),
Moore v. Macquarie Infrastructure and Real Assets , No. 251,417C (filed October 30, 2014),
Trahan v. Williamson , No. 251,456C (filed November 5, 2014), and
L’Herisson v. Macquarie Infrastructure and Real Assets , No. 251,515F (filed November 14, 2014).

In November 2014, the plaintiff in the Braunstein action moved for a dismissal of the action without prejudice, and that motion was granted in November 2014. In December 2014, the Court consolidated the remaining three actions and appointed interim co-lead counsel. Also in December 2014, the plaintiffs in the consolidated action filed a Consolidated Amended Verified Derivative and Class Action Petition for Damages and Preliminary and Permanent Injunction (the Consolidated Amended Petition). The consolidated action named Cleco Corporation, its directors, Cleco Partners, and Merger Sub as defendants. The Consolidated Amended Petition alleged, among other things, that Cleco Corporation’s directors breached their fiduciary duties to Cleco’s shareholders and grossly mismanaged Cleco by approving the 2016 Merger Agreement because it allegedly did not value Cleco adequately, failing to structure a process through which shareholder value would be maximized, engaging in self-dealing by ignoring conflicts of interest, and failing to disclose material information about the 2016 Merger. The Consolidated Amended Petition further alleged that all defendants conspired to commit the breaches of fiduciary duty. Cleco believes that the allegations of the Consolidated Amended Petition are without merit and that it has substantial meritorious defenses to the claims set forth in the Consolidated Amended Petition.
The three actions filed in the Civil District Court for Orleans Parish are captioned as follows:

Butler v. Cleco Corporation , No. 2014-10776 (filed November 7, 2014),
Creative Life Services, Inc. v. Cleco Corporation , No. 2014-11098 (filed November 19, 2014), and
Cashen v. Cleco Corporation , No. 2014-11236 (filed November 21, 2014). 

Both the Butler and Cashen actions name Cleco Corporation, its directors, Cleco Partners, Merger Sub, MIRA, BCI, and John Hancock Financial as defendants. The Creative Life Services action names Cleco Corporation, its directors, Cleco Partners, Merger Sub, MIRA, and Macquarie Infrastructure Partners III, L.P., as defendants. In December 2014, the plaintiff in the Butler action filed an Amended Class Action Petition for Damages. Each petition alleged, among other things, that the members of Cleco Corporation’s Board of Directors breached their fiduciary duties to Cleco’s shareholders by approving the Merger Agreement because it allegedly did not value Cleco adequately, failing to structure a process through which shareholder value would be maximized and engaging in self-dealing by ignoring conflicts of interest. The Butler and Creative Life Services petitions also allege that the directors breached their fiduciary duties by failing to disclose material information about the 2016 Merger. Each petition further alleged that Cleco, Cleco Partners, Merger

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Sub, and certain of the investors in Cleco Partners aided and abetted the directors’ breaches of fiduciary duty. In December 2014, the directors and Cleco filed declinatory exceptions in each action on the basis that each action was improperly brought in Orleans Parish and should either be transferred to the Ninth Judicial District Court for Rapides Parish or dismissed. Also in December 2014, the plaintiffs in each action jointly filed a motion to consolidate the three actions pending in Orleans Parish and to appoint interim co-lead plaintiffs and co-lead counsel. In January 2015, the Court in the Creative Life Services case sustained the defendants’ declinatory exceptions and dismissed the case so that it could be transferred to the Ninth Judicial District Court for Rapides Parish. In February 2015, the plaintiffs in Butler and Cashen also consented to the dismissal of their cases from Orleans Parish so they could be transferred to the Ninth Judicial District Court for Rapides Parish.
In February 2015, the Ninth Judicial District Court for Rapides Parish held a hearing on a motion for preliminary injunction filed by plaintiffs Moore , L’Herisson , and Trahan seeking to enjoin the shareholder vote for approval of the Merger Agreement. Following the hearing, the Court denied the plaintiffs’ motion. In June 2015, three of the plaintiffs filed their Second Consolidated Amended Verified Derivative and Class Action Petition. This will be considered according to a schedule established by the Ninth Judicial District Court for Rapides Parish. Cleco filed exceptions seeking dismissal of the amended petition in July 2015.
In March 2016 and May 2016, the plaintiffs filed their Third Consolidated Amended Verified Derivative Petition for Damages and Preliminary and Permanent Injunction and their Fourth Verified Consolidated Amended Class Action Petition, respectively. The fourth petition eliminated the request for preliminary and permanent injunction and also named an additional executive officer as a defendant. Cleco filed exceptions seeking dismissal of the amended Petition. A hearing was held in September 2016, and the District Court granted the exceptions filed by Cleco and dismissed all claims asserted by the former shareholders. The plaintiffs appealed the District Court’s ruling to the Louisiana Third Circuit Court of Appeal. The Third Circuit Court of Appeal heard oral arguments in the case in September 2017. In December 2017, the Third Circuit Court of Appeal issued an order reversing and remanding the case to the District Court for further proceedings. In January 2018, Cleco filed a writ with the Louisiana Supreme Court seeking review of the Third Circuit Court of Appeal’s decision. The writ was denied in March 2018 and the parties are engaged in discovery in the District Court. On November 2, 2018, Cleco filed exceptions of no cause of action and res judicata, seeking to dismiss all claims. The District Court denied the exceptions on January 14, 2019. Cleco believes that the allegations of the petitions in each action are without merit and that it has substantial meritorious defenses to the claims set forth in each of the petitions.

Gulf Coast Spinning
In September 2015, a potential customer sued Cleco for failure to fully perform an alleged verbal agreement to lend or otherwise fund its startup costs to the extent of $6.5 million . Gulf Coast Spinning Company, LLC (Gulf Coast), the primary plaintiff, alleges that Cleco promised to assist it in raising approximately $60.0 million , which Gulf Coast needed to construct a cotton spinning facility near Bunkie, Louisiana. According to the petition filed by Gulf Coast in the 12 th Judicial
 
District Court for Avoyelles Parish, Louisiana (the “District Court”), Cleco made such promises of funding assistance in order to cultivate a new industrial electric customer which would increase its revenues under a power supply agreement that it executed with Gulf Coast. Gulf Coast seeks unspecified damages arising from its inability to raise sufficient funds to complete the project, including lost profits.
Cleco filed an Exception of No Cause of Action arguing that the case should be dismissed. The District Court denied Cleco’s exception in December 2015, after considering briefs and arguments. In January 2016, Cleco appealed the District Court’s denial of its exception by filing with the Third Circuit Court of Appeal. In June 2016, the Third Circuit Court of Appeal denied the request to have the case dismissed. In July 2016, Cleco filed a writ to the Louisiana Supreme Court seeking a review of the District Court’s denial of Cleco’s exception. In November 2016, the Louisiana Supreme Court denied Cleco’s writ application.
In February 2016, the parties agreed to a stay of all proceedings pending discussions concerning settlement. In May 2016, the District Court lifted the stay at the request of Gulf Coast. The parties are currently participating in discovery. Cleco believes the allegations of the petition are contradicted by the written documents executed by Gulf Coast, are otherwise without merit, and that it has substantial meritorious defenses to the claims alleged by Gulf Coast.

Sabine River Flood
In March 2017, Cleco was served with a summons in Perry Bonin, Ace Chandler, and Michael Manuel, et al v. Sabine River Authority of Texas and Sabine River Authority of Louisiana , No. B-160173-C. The action was filed in the 163rd Judicial District Court for Orange County, Texas, and relates to flooding that occurred in Texas and Louisiana in March 2016. The plaintiffs have alleged that the flooding was the result of the release of water from the Toledo Bend spillway gates into the Sabine River. While the plaintiffs have made numerous allegations, they have specifically alleged that Cleco Power, included as one of several companies and governmental bodies, failed to repair one of the two hydroelectric generators at the Toledo Bend Dam, which in turn contributed to the flooding. Cleco Power does not operate the hydroelectric generator.
The suit was removed to federal court in Texas. The new federal case is Perry Bonin, et al. v. Sabine River Authority of Texas et al. , No. 17-cv-134, U.S. District Court for the Eastern District of Texas ( Bonin Case ). The plaintiffs moved to remand the case to state court, but the district court found that the case raises a substantial federal question and denied the motion to remand. Cleco Power, along with its co-defendants, filed a motion to dismiss on various grounds, primarily arguing that the plaintiffs’ claims are preempted because they infringe on FERC’s exclusive control of dam operations. The district court granted the motion to dismiss in part, declining to rule on some of the arguments raised by the defendants, and granted the plaintiffs leave to amend their complaint. The plaintiffs filed a Fifth Amended Complaint in March 2018. Cleco Power filed a new motion to dismiss the plaintiffs’ claims. The briefing on Cleco Power’s motion is now complete, but the district court has not ruled on the motion or set a hearing date.
On March 7, 2018, approximately 26 other individual plaintiffs filed a petition against Cleco Power and other defendants in Larry Addison, et al. v. Sabine River Authority of Texas, et al. , No. D180096-C. The action was filed in the 260th Judicial District Court for Orange County, Texas. The

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defendants removed the case to federal court on April 6, 2018. The new federal case is Larry Addison, et al. v. Sabine River Authority of Texas, et al ., No. 18-cv-153, U.S. District Court for the Eastern District of Texas. The allegations are essentially identical to those in the Bonin Case . On April 13, 2018, Cleco Power filed a motion to dismiss on the same grounds that previously were successful in the Bonin Case . The briefing on Cleco Power’s motion is complete, but the district court has not ruled on the motion or set a hearing date. On July 20, 2018, the district court entered an order consolidating the Addison Case with the Bonin Case. Management believes that both cases, as they relate to Cleco Power, have no merit. On August 28, 2018, the Judge entered an order requiring the Plaintiffs to file a more definitive statement to clarify the Plaintiffs’ claims. In response thereto, the Plaintiffs filed a Sixth Amended Petition on September 11, 2018. Cleco Power filed a response on October 3, 2018. All claims were dismissed against Cleco Power by ruling of the Judge on March 18, 2019.

Dispute with Saulsbury Industries
In October 2018, Cleco Power sued Saulsbury Industries, Inc., the former general contractor for the St. Mary Clean Energy Center project, seeking damages for Saulsbury Industries, Inc.’s failure to complete the St. Mary Clean Energy Center project on time and for costs incurred by Cleco Power in hiring a replacement general contractor. The action was filed in the 9th Judicial District Court for Rapides Parish, No. 263339. Saulsbury Industries, Inc. has not filed responsive pleadings in the case.
In January 2019, Cleco Power was served with a summons in Saulsbury Industries, Inc. v. Cabot Corporation and Cleco Power LLC , No. 6:19-CV-00007, U.S. District Court for the Western District of Louisiana. Saulsbury Industries, Inc. alleges that Cleco Power and Cabot Corporation caused the delays in the St. Mary Clean Energy Center project, resulting in significant impact to Saulsbury Industries, Inc.’s direct and indirect costs. Cleco Power has not filed responsive pleadings in the case.

LPSC Audits

Fuel Audit
Generally, the cost of fuel used for electric generation and the cost of power purchased for utility customers are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. The LPSC FAC General Order issued in November 1997, in Docket No. U-21497 provides that an audit of FAC filings will be performed at least every other year. On March 13, 2018, Cleco Power received notice of an FAC audit from the LPSC for the period of January 1, 2016, to December 31, 2017. The total amount of fuel expense included in the audit was $536.2 million . On August 31, 2018, LPSC Staff issued its audit report, which recommended no disallowance of fuel costs. On April 26, 2019, the report was approved by the LPSC. Cleco Power has FAC filings for January 2018 and thereafter that remain subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of fuel cost is ordered resulting in a refund, any such refund could have a material adverse effect on the results of operations, financial condition or cash flows of the Registrants.
 
Environmental Audit
In 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides for an EAC to recover from customers certain costs of environmental compliance. The costs eligible for recovery are prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. On May 22, 2018, Cleco Power received notice of an EAC audit from the LPSC for the period of January 1, 2016, to December 31, 2017, and Cleco Power has responded to several sets of data requests. The total amount of environmental expense included in this audit is $30.7 million . Periods subsequent to December 31, 2017, are also subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to this audit. Historically, the disallowances have not been material. If a disallowance of environmental cost is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power incurs environmental compliance expenses for reagents associated with the compliance standards of MATS. In June 2015, the U.S. Supreme Court remanded the MATS rule to the D.C. Circuit Court of Appeals. In December 2015, the D.C. Circuit Court of Appeals remanded the rule to the EPA; however, the D.C. Circuit Court of Appeals did not vacate this rule. In April 2016, the EPA released a final supplemental finding that, even considering costs, it is appropriate and necessary to regulate hazardous air pollutants. By the June 2016 deadline, six petitions were filed with the U.S. Court of Appeals for the D.C. Circuit Court of Appeals for review of the EPA’s findings. At the request of the EPA, in April 2017, the court issued an order holding the cases in abeyance pending the EPA’s review of its supplemental finding. These expenses are also eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC.

FERC Audit
Generally, Cleco Power records wholesale transmission revenue through Attachment O of the MISO tariff and certain grandfathered agreements. These rates are subject to periodic audits by FERC. On March 13, 2018, the Division of Audits and Accounting, within the Office of Enforcement of FERC, initiated an audit of Cleco Power for the period of January 1, 2014, to the present. Cleco Power has responded to several sets of data requests. A final report is expected in the third quarter of 2019. Management is unable to determine the outcome or timing of the audit.

Transmission ROE
A complaint was filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. The complaint sought to reduce the 12.38% ROE used in MISO’s transmission rates to a proposed 6.68% .
The complaint, filed in February 2015, was for the period February 2015 through May 2016. In June 2016, an ALJ issued an initial decision in the second rate case docket

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2019 1ST QUARTER FORM 10-Q

recommending a 9.70% base ROE. Cleco Power is unable to determine when a binding FERC order will be issued on the second ROE complaint.
In November 2014, the MISO transmission owners committee, of which Cleco is a member, filed a request with FERC for an incentive to increase the new ROE by 50 basis points for RTO participation as allowed by the MISO tariff. In January 2015, FERC granted the request. The collection of the adder is delayed until the resolution of the ROE complaint proceedings.
As of March 31, 2019 , Cleco Power had $1.9 million accrued for potential ROE reductions. Management believes a reduction in the ROE, as well as any additional refund, will not have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. 

Louisiana Generating
In 2017, Louisiana Generating received insurance settlement proceeds for costs incurred to resolve a lawsuit which was brought by the EPA and Louisiana Department of Environmental Quality against Louisiana Generating related to Big Cajun II-Unit 3. Entergy, as co-owner of Big Cajun II-Unit 3, is expected to be allocated a portion of the insurance settlement proceeds. Any amount allocated to Entergy will be determined by ongoing litigation and negotiations. NRG South Central estimated this amount to be $10.0 million . As part of the Cleco Cajun Transaction, Cleco Cajun assumed the contingent liability and NRG Energy indemnified Cleco for losses associated with this litigation matter. As a result, Cleco also recorded a $10.0 million indemnification asset.
Prior to the Cleco Cajun Transaction, NRG South Central was involved in various litigation matters, including environmental and contract proceedings, before various courts regarding matters arising out of the ordinary course of business. Management is unable to estimate any potential losses that Cleco Cajun may ultimately be responsible for with respect to any one of these matters in the event of a negative outcome. As part of the Cleco Cajun Transaction, NRG Energy indemnified Cleco for losses associated with matters that existed as of the closing date, including pending litigation.

Other
Cleco is involved in various litigation matters, including regulatory, environmental, and administrative proceedings before various courts, regulatory commissions, arbitrators, and governmental agencies regarding matters arising in the ordinary course of business. The liability Cleco may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued. Management regularly analyzes current information and, as of March 31, 2019 , believes the probable and reasonably estimable liabilities based on the eventual disposition of these matters are $4.6 million and has accrued this amount.

Off-Balance Sheet Commitments and Guarantees
Cleco Holdings and Cleco Power have entered into various off-balance sheet commitments, in the form of guarantees and standby letters of credit, in order to facilitate their activities and the activities of Cleco Holdings’ subsidiaries and equity investees (affiliates). Cleco Holdings and Cleco Power have also agreed to contractual terms that require the Registrants to pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees.
 
Cleco Holdings entered into these off-balance sheet commitments in order to entice desired counterparties to contract with its affiliates by providing some measure of credit assurance to the counterparty in the event Cleco’s affiliates do not fulfill certain contractual obligations. If Cleco Holdings had not provided the off-balance sheet commitments, the desired counterparties may not have contracted with Cleco’s affiliates, or may have contracted with them at terms less favorable to its affiliates.
The off-balance sheet commitments are not recognized on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets because management has determined that Cleco and Cleco Power’s affiliates are able to perform the obligations under their contracts and that it is not probable that payments by Cleco or Cleco Power will be required.
Cleco Holdings provided guarantees and indemnities to Entergy Louisiana and Entergy Gulf States as a result of the sale of the Perryville generation facility in 2005. The remaining indemnifications relate to environmental matters that may have been present prior to closing. These remaining indemnifications have no time limitations. The maximum amount of the potential payment to Entergy Louisiana and Entergy Gulf States is $42.4 million . Management does not expect to be required to pay Entergy Louisiana and Entergy Gulf States under these guarantees.
On behalf of Acadia, Cleco Holdings provided guarantees and indemnifications as a result of the sales of Acadia Unit 1 to Cleco Power and Acadia Unit 2 to Entergy Louisiana in 2010 and 2011, respectively. The remaining indemnifications relate to the fundamental organizational structure of Acadia. These remaining indemnifications have no time limitations or maximum potential future payments. Management does not expect to be required to pay Cleco Power or Entergy Louisiana under these guarantees.
Cleco Holdings provided indemnifications to Cleco Power as a result of the transfer of Coughlin to Cleco Power in March 2014. Cleco Power also provided indemnifications to Cleco Holdings and Evangeline as a result of the transfer of Coughlin to Cleco Power. The maximum amount of the potential payment to Cleco Power, Cleco Holdings, and Evangeline for their respective indemnifications is $40.0 million , except for indemnifications relating to the fundamental organizational structure of each respective entity, of which the maximum amount is $400.0 million . Management does not expect to be required to make any payments under these indemnifications.
As part of the Amended Lignite Mining Agreement, Cleco Power and SWEPCO, joint owners of Dolet Hills Power Station, have agreed to pay the loan and lease principal obligations of the lignite miner, DHLC, when due if DHLC does not have sufficient funds or credit to pay. Any amounts paid on behalf of the miner would be credited by the lignite miner against future invoices for lignite delivered. The maximum projected payment by Cleco Power under this guarantee is estimated to be $86.4 million ; however, the Amended Lignite Mining Agreement does not contain a cap. The projection is based on the forecasted loan and lease obligations to be incurred by DHLC, primarily for purchases of equipment. Cleco Power has the right to dispute the incurrence of loan and lease obligations through the review of the mining plan before the incurrence of such loan and lease obligations. The Amended Lignite Mining Agreement is not expected to terminate pursuant to its terms until 2036 and does not affect the amount the Registrants can borrow under their credit facilities. Currently, management

39


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

does not expect to be required to pay DHLC under this guarantee.
At March 31, 2019, Cleco Holdings had a $34.5 million letter of credit to MISO pursuant to energy market requirements. This letter of credit automatically renews each year and decreases availability under the Cleco Holdings’ credit facility.
Generally, neither Cleco Holdings nor Cleco Power has recourse that would enable them to recover amounts paid under their guarantee or indemnification obligations. There are no assets held as collateral for third parties that either Cleco Holdings or Cleco Power could obtain and liquidate to recover amounts paid pursuant to the guarantees or indemnification obligations.

Other Commitments
Cleco has accrued for liabilities related to third parties, employee medical benefits, and AROs. For more information about Cleco Cajun AROs, see Note 2 — “Business Combination.”

Risks and Uncertainties
Cleco could be subject to possible adverse consequences if Cleco’s counterparties fail to perform their obligations or if Cleco or its affiliates are not in compliance with loan agreements or bond indentures.
Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows.
Changes in the regulatory environment or market forces could cause Cleco to determine its assets have suffered an other-than-temporary decline in value, whereby an impairment would be required and Cleco’s financial condition could be materially adversely affected.
Cleco Power and Cleco Cajun are participants in the MISO market. Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have higher LMPs. Physical transmission constraints present in the MISO market could increase energy costs within pricing zones. Cleco Power and Cleco Cajun use FTRs to mitigate transmission congestion price risks. Changes to anticipated transmission paths may result in an unexpected increase in energy costs.
Note 15 — Affiliate Transactions
At March 31, 2019, Cleco has a payable of $3.1 million to Cleco Group for a federal income tax refund that was received by Cleco Holdings.
Cleco Power has balances that are payable to or due from its affiliates. The following table is a summary of those balances:
 
AT MAR. 31, 2019
 
 
AT DEC. 31, 2018
 
(THOUSANDS)
ACCOUNTS
RECEIVABLE

 
ACCOUNTS
PAYABLE

 
ACCOUNTS
RECEIVABLE

 
ACCOUNTS
PAYABLE

Cleco Holdings
$
396

 
$
574

 
$
699

 
$
88

Support Group
1,644

 
17,688

 
2,619

 
7,755

Cleco Cajun
6

 
12

 

 

Total
$
2,046

 
$
18,274

 
$
3,318

 
$
7,843

Note 16 — Intangible Assets and Liabilities
During 2008, Cleco Katrina/Rita acquired a $177.5 million intangible asset which includes $176.0 million for the right to
 
bill and collect storm recovery charges from customers of Cleco Power and $1.5 million of financing costs. This intangible asset is expected to have a life of 12 years, but could have a life up to 15 years depending on the time period required to collect the required amount from Cleco Power’s customers. The intangible asset’s expected amortization expense is based on the estimated collections from Cleco Power’s customers. At the end of its life, the asset will have no residual value. At the date of the 2016 Merger, the gross balance of the Cleco Katrina/Rita intangible asset for Cleco was adjusted to be net of accumulated amortization, as no accumulated amortization existed on the date of the 2016 Merger. Cleco Katrina/Rita records amortization expenses based on actual collections.
As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the valuation of the Cleco trade name and long-term wholesale power supply agreements. At the end of their life, these intangible assets will have no residual value. The trade name intangible asset is being amortized over its estimated economic useful life of 20 years . The intangible assets related to the power supply agreements are amortized over the remaining life of each applicable contract ranging between 4 years and 16 years and the amortization is included in Electric operations.
As a result of the Cleco Cajun Transaction, preliminary fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the valuation of the acquired long-term wholesale power supply agreements. The preliminary fair value of intangible assets of $102.5 million and intangible liabilities of $7.8 million was reflected in the preliminary purchase price allocation. At the end of their life, these intangible assets and liabilities will have no residual value. These intangibles are amortized over the remaining life of each applicable contract of approximately six years. The amortization is included in Electric operations.
As part of the Cleco Cajun Transaction, Cleco assumed an LTSA for maintenance services related to the Cottonwood Plant. The preliminary fair value of the LTSA was estimated by applying the differential cash flows approach. An intangible liability of $24.1 million was reflected in the preliminary purchase price allocation and is being amortized using the straight-line method over the estimated remaining life of the LTSA of seven years. The amortization is included as a reduction to the acquired LTSA prepayments.
The following tables present Cleco and Cleco Power’s amortization of intangible assets and liabilities:
Cleco
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Intangible assets
 
 
 
Cleco Katrina/Rita right to bill and collect storm recovery charges
$
4,870

 
$
4,485

Trade name
$
64

 
$
64

Power supply agreements
$
5,190

 
$
2,420

Intangible liabilities
 
 
 
LTSA
$
(581
)
 
$

Power supply agreements
$
(211
)
 
$


40


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco Power
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

Cleco Katrina/Rita right to bill and collect storm recovery charges
$
4,870

 
$
4,485


The following tables summarize the balances for intangible assets and liabilities subject to amortization for Cleco and Cleco Power:
Cleco
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Intangible assets
 
 
 
Cleco Katrina/Rita right to bill and collect storm recovery charges
$
70,594

 
$
70,594

Trade name
5,100

 
5,100

Power supply agreements
187,604

 
85,104

Total intangible assets carrying amount
263,298

 
160,798

Intangible liabilities
 
 
 
LTSA
$
(24,100
)
 
$

Power supply agreements
(7,800
)
 

Total intangible liability carrying amount
(31,900
)
 

Total intangible assets carrying amount, net
231,398

 
160,798

Accumulated amortization
(85,824
)
 
(76,491
)
Net intangible assets subject to amortization
$
145,574

 
$
84,307

Cleco Power
 
 
 
(THOUSANDS)
AT MAR. 31, 2019

 
AT DEC. 31, 2018

Cleco Katrina/Rita right to bill and collect storm recovery charges
$
177,537

 
$
177,537

Accumulated amortization
(161,314
)
 
(156,444
)
Net intangible assets subject to amortization
$
16,223

 
$
21,093

 
Note 17 — Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are summarized in the following tables for Cleco and Cleco Power. All amounts are reported net of income taxes. Amounts in parentheses indicate losses.
Cleco
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31, 2019
 
(THOUSANDS)
POSTRETIREMENT BENEFIT
 NET GAIN
 
Balances, beginning of period
 
$
1,786

Amounts reclassified from AOCI
 
 
Amortization of postretirement benefit net loss
 
(135
)
Balances, Mar. 31, 2019
 
$
1,651

 
FOR THE THREE MONTHS ENDED
MAR. 31, 2018
 
(THOUSANDS)
POSTRETIREMENT BENEFIT
NET LOSS
 
Balances, beginning of period
 
$
(2,921
)
Amounts reclassified from AOCI
 
 
Amortization of postretirement benefit net gain
 
43

Balances, Mar. 31, 2018
 
$
(2,878
)
Cleco Power
 
 
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31, 2019
 
(THOUSANDS)
POSTRETIREMENT
BENEFIT
NET LOSS

 
NET LOSS
ON CASH FLOW
HEDGES

 
TOTAL AOCI

Balances, beginning of period
$
(7,060
)
 
$
(6,122
)
 
$
(13,182
)
Amounts reclassified from AOCI
 
 
 
 
 
Amortization of postretirement benefit net loss
156

 

 
156

Reclassification of net loss to interest charges

 
64

 
64

Balances, Mar. 31, 2019
$
(6,904
)
 
$
(6,058
)
 
$
(12,962
)
 
FOR THE THREE MONTHS ENDED MAR. 31, 2018
 
(THOUSANDS)
POSTRETIREMENT
BENEFIT
NET LOSS

 
NET LOSS
ON CASH FLOW
HEDGES

 
TOTAL AOCI

Balances, beginning of period
$
(8,377
)
 
$
(5,306
)
 
$
(13,683
)
Amounts reclassified from AOCI
 
 
 
 
 
Amortization of postretirement benefit net loss
233

 

 
233

Reclassification of net loss to interest charges

 
64

 
64

Balances, Mar. 31, 2018
$
(8,144
)
 
$
(5,242
)
 
$
(13,386
)

41


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Cleco uses its website, https://www.cleco.com, as a routine channel for distribution of important information, including news releases and financial information. Cleco’s website is the primary source of publicly disclosed news about Cleco. Cleco is providing the address to its website solely for informational purposes and does not intend for the address to be an active link. The contents of the website are not incorporated into this Quarterly Report on Form 10-Q.
The following discussion and analysis should be read in combination with the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 , and Cleco and Cleco Power’s Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. The information included therein is essential to understanding the following discussion and analysis. Below is information concerning the consolidated results of operations of Cleco for the three months ended March 31, 2019 , and 2018 .
OVERVIEW
Cleco is a regional energy company that, prior to the close of the Cleco Cajun Transaction, conducted substantially all of its business operations through its primary subsidiary, Cleco Power. As a result of the Cleco Cajun Transaction, Cleco now conducts substantially all of its business operations through its two primary subsidiaries:

Cleco Power, a regulated electric utility company that owns nine generating units with a total nameplate capacity of 3,310 MW and serves approximately 291,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi; and
Cleco Cajun, an unregulated electric utility company that owns eight generating units with a net capacity of 3,555 MW and supplies wholesale power and capacity to nine Louisiana cooperatives, five municipalities across Arkansas, Louisiana, and Texas, and one investor-owned utility. The Cottonwood Sale Leaseback was entered into upon the close of the Cleco Cajun Transaction.

Cleco Cajun Transaction
On February 4, 2019, the Cleco Cajun Transaction was completed. For the Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, Cleco Cajun is a new reportable segment. For more information on the transaction, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 2 — Business Combination .” Cleco’s condensed consolidated financial statements include the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, until March 31, 2019.

Cleco Power
Many factors affect Cleco Power’s primary business of generating, delivering, and selling electricity. These factors include weather and the presence of a stable regulatory environment, which impacts cost recovery and the ROE, as well as the recovery of costs related to growing energy demand and rising fuel prices; the ability to increase energy sales while containing costs; the ability to reliably deliver power to its jurisdictional customers; the ability to comply with increasingly stringent regulatory and environmental standards;
 
and the ability to successfully perform in MISO while subject to the related operating challenges and uncertainties, including increased wholesale competition. Cleco Power’s current key initiatives are continuing construction on, start-up of, and commissioning of the St. Mary Clean Energy Center project and the Coughlin Pipeline project; beginning construction on the Bayou Vista to Segura Transmission project; implementing the START project; continuing the DSMART project; and maintaining and growing its wholesale and retail business. These initiatives are discussed below.

St. Mary Clean Energy Center Project
The St. Mary Clean Energy Center project includes Cleco Power constructing, owning, and operating a 47.6 net MW generating unit to be fueled by waste heat from Cabot Corporation’s carbon black manufacturing plant in Franklin, Louisiana. Construction began in October 2016 and the unit is expected to be commercially operational in June 2019 at an estimated cost of $134.2 million. The project is expected to generate more than 300,000 MWh of zero additional carbon emitting energy each year. As of March 31, 2019 , Cleco Power had spent $122.2 million on the project. Legal proceedings have been filed in connection with the St. Mary Clean Energy Center project. For more information about the ongoing litigation, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Dispute with Saulsbury Industries.”

Terrebonne to Bayou Vista Transmission Project
The Terrebonne to Bayou Vista Transmission project includes the construction of additional transmission interconnection facilities south of Teche Power Station. The project is expected to increase reliability, reduce congestion, and provide hurricane hardening of the 230-kilovolt transmission system for customers in south Louisiana. The project was placed in service in April 2019. Cleco Power’s portion of the joint project with Entergy Louisiana is expected to cost $64.2 million. As of March 31, 2019 , Cleco Power had spent $60.4 million on the project, with the remaining costs relating to final construction and clean-up costs.

Coughlin Pipeline Project
The Coughlin Pipeline project includes construction of a pipeline directly connecting the Pine Prairie Energy Center to Cleco’s Coughlin Power Station. The project is expected to increase reliability for fuel delivery and mitigate exposure to transportation cost increases. In June 2017, the LPSC approved a regulatory asset to be established upon the completion of the Coughlin Pipeline project for the revenue requirement associated with the project until Cleco Power seeks recovery in the new FRP, which is anticipated to be effective July 1, 2020. Construction on the Coughlin Pipeline project began in September 2018. The project is expected to be completed in the third quarter of 2019 with an estimated cost of $32.7 million. As of March 31, 2019 , Cleco Power had spent $25.4 million on the project.


42


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Bayou Vista to Segura Transmission Project
The Bayou Vista to Segura Transmission project includes the construction of 47 miles of 230kV transmission line, a 230/138kV substation and three substation expansions in south Louisiana. The project is expected to cost approximately $142.7 million. The project is expected to increase reliability, provide transmission system redundancy, and provide hurricane hardening for customers in south Louisiana. Cleco Power received MISO approval for the project in December 2017. The project is currently in the early planning and engineering phase and is expected to begin construction in the fourth quarter of 2019, with the northern phase expected to be completed in the fourth quarter of 2020 and the southern phase expected to be completed in the fourth quarter of 2021. As of March 31, 2019 , Cleco Power had spent $2.0 million on the project.

START Project
The START project includes replacement of and improvement to Cleco’s enterprise business applications. The project’s objectives are to gain efficiencies through consistent, industry-leading work processes and practices; enable better decision making through data transparency across business functions; mitigate risk through knowledge transfer and better process documentation; provide a modernized, flexible platform to support future growth and changing business models; and provide customer-centric focus through technology and flexibility. The project is in the implementation phase. Management expects the project to be completed in the second quarter of 2019. The total estimated project cost is $147.5 million. As of March 31, 2019 , Cleco had spent $134.8 million on the project.

DSMART Project
The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment utilizing new and emerging technologies to facilitate automatic fault isolation, service restoration, and fault location. The project is expected to provide savings through a reduction in outage restoration time, time to locate faults, and improved operational efficiencies. The project is also expected to improve safety and reliability of Cleco Power’s distribution assets by minimizing outage patrols and improving situational awareness in the distribution operations center. The total estimated project cost is $90.2 million. The project implementation will be completed in phases and management expects the total project will be completed by the end of 2025. In January 2019, Cleco Power began the first phase of the project. As of March 31, 2019 , Cleco Power had spent $0.2 million on the project.

Other
Cleco Power is working to secure load growth opportunities that include renewing existing franchises and wholesale contracts, pursuing new wholesale contracts and franchises, and adding new retail load opportunities with large industrial, commercial, and residential load. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government and military, wood and paper, health care, information technology, transportation, and other manufacturing.
 
RESULTS OF OPERATIONS

Comparison of the Three Months Ended March 31, 2019 , and 2018
Cleco
 
 
 
 
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
 
 
 
 
FAVORABLE/(UNFAVORABLE)
 
(THOUSANDS)
2019

 
2018

 
VARIANCE

 
CHANGE

Operating revenue, net
$
344,186

 
$
276,760

 
$
67,426

 
24.4
 %
Operating expenses
293,600

 
232,026

 
(61,574
)
 
(26.5
)%
Operating income
50,586

 
44,734

 
5,852

 
13.1
 %
Interest income
1,491

 
783

 
708

 
90.4
 %
Allowance for equity funds used during construction
5,688

 
2,363

 
3,325

 
140.7
 %
Other income (expense), net
2,777

 
(3,000
)
 
5,777

 
192.6
 %
Interest charges
33,999

 
31,157

 
(2,842
)
 
(9.1
)%
Federal and state income tax expense
5,986

 
2,862

 
(3,124
)
 
(109.2
)%
Net income
$
20,557

 
$
10,861

 
$
9,696

 
89.3
 %
Includes the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019.

Operating revenue, net increased $67.4 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $58.2 million of electric operations revenue and $20.0 million of other operations revenue at Cleco Cajun and $4.5 million of higher fuel cost recovery revenue at Cleco Power. These increases were partially offset by $11.9 million of lower base revenue at Cleco Power, and $2.8 million of lower other operations revenue at Cleco Power.
Operating expenses increased $61.6 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $40.4 million of non-recoverable fuel and power purchased expenses, $14.5 million of other operations and maintenance, $5.4 million of depreciation and amortization, and $3.1 million of other taxes at Cleco Cajun. Additional increases of $3.0 million were due to expenses associated with the Cleco Cajun Transaction. These increases were partially offset by $8.7 million of lower other operations and maintenance expenses at Cleco Power.
Federal and state income tax expense increased $3.1 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $1.8 million for the flowthrough of tax benefits, $1.8 million for the change in pretax income, excluding AFUDC equity, and $0.8 million for miscellaneous tax items. These increases were partially offset by $1.3 million to record tax expense at the consolidated projected annual effective tax rate.
The effective income tax rate for the first quarter of 2019 and 2018 was 22.6% and 20.9% , respectively. The estimated annual effective income tax rate used during the first quarter of 2019 and 2018 for Cleco may not be indicative of the full-year income tax rate.
Results of operations for Cleco Power and Cleco Cajun are more fully described below.

43


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Cleco Power
 
 
 
 
 
 
 
 
 
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
 
 
 
FAVORABLE/(UNFAVORABLE)
 
(THOUSANDS)
2019

 
2018

 
VARIANCE

 
CHANGE

Operating revenue
 
 
 
 
 
 
 
Base
$
142,385

 
$
154,321

 
$
(11,936
)
 
(7.7
)%
Fuel cost recovery
114,790

 
110,310

 
4,480

 
4.1
 %
Electric customer credits
(8,160
)
 
(7,647
)
 
(513
)
 
(6.7
)%
Other operations
19,430

 
22,195

 
(2,765
)
 
(12.5
)%
Affiliate revenue
300

 
208

 
92

 
44.2
 %
Operating revenue, net
268,745

 
279,387

 
(10,642
)
 
(3.8
)%
Operating expenses
 
 
 
 


 


Recoverable fuel and power purchased
114,794

 
110,311

 
(4,483
)
 
(4.1
)%
Non-recoverable fuel and power purchased
8,991

 
9,864

 
873

 
8.9
 %
Other operations and maintenance
47,700

 
56,385

 
8,685

 
15.4
 %
Depreciation and amortization
42,377

 
40,388

 
(1,989
)
 
(4.9
)%
Taxes other than income taxes
9,978

 
11,918

 
1,940

 
16.3
 %
Total operating expenses
223,840

 
228,866

 
5,026

 
2.2
 %
Operating income
44,905

 
50,521

 
(5,616
)
 
(11.1
)%
Interest income
994

 
641

 
353

 
55.1
 %
Allowance for equity funds used during construction
5,688

 
2,363

 
3,325

 
140.7
 %
Other income (expense), net
268

 
(1,868
)
 
2,136

 
114.3
 %
Interest charges
17,145

 
17,656

 
511

 
2.9
 %
Federal and state income tax expense
7,998

 
7,997

 
(1
)
 
 %
Net income
$
26,712

 
$
26,004

 
$
708

 
2.7
 %

Cleco Power’s net income in the first quarter of 2019 increased $0.7 million compared to the first quarter of 2018 primarily as a result of lower other operations and maintenance expense and higher allowance for equity funds used during construction. These increases were partially offset by lower base revenue.
The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(MILLION kWh)
2019

 
2018

FAVORABLE/
(UNFAVORABLE)
 
Electric sales
 
 
 
 
 
Residential
787

 
858

 
(8.3
)%
Commercial
582

 
612

 
(4.9
)%
Industrial
490

 
507

 
(3.4
)%
Other retail
31

 
34

 
(8.8
)%
Total retail
1,890

 
2,011

 
(6.0
)%
Sales for resale
619

 
672

 
(7.9
)%
Total retail and wholesale customer sales
2,509

 
2,683

 
(6.5
)%

 
The following table shows the components of Cleco Power’s base revenue:
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
(THOUSANDS)
2019

 
2018

FAVORABLE/
(UNFAVORABLE)
 
Electric sales
 
 
 
 
 
Residential
$
56,104

 
$
62,779

 
(10.6
)%
Commercial
44,863

 
47,464

 
(5.5
)%
Industrial
20,649

 
21,924

 
(5.8
)%
Other retail
2,558

 
2,740

 
(6.6
)%
Surcharge
5,321

 
5,238

 
1.6
 %
Total retail
129,495

 
140,145

 
(7.6
)%
Sales for resale
12,890

 
14,176

 
(9.1
)%
Total base revenue
$
142,385

 
$
154,321

 
(7.7
)%

Cleco Power’s residential customers’ demand for electricity is largely affected by weather. Weather generally is measured in cooling degree-days and heating degree-days. A cooling degree-day is an indication of the likelihood that a consumer will use air conditioning, while a heating degree-day is an indication of the likelihood that a consumer will use heating. An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days because alternative heating sources are more readily available, and winter energy is typically priced below the rate charged for energy used in the summer. Normal heating degree-days and cooling degree-days are calculated for a month by separately calculating the average actual heating and cooling degree-days for that month over a period of 30 years.
The following chart shows how cooling degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
 
FOR THE THREE MONTHS ENDED MAR. 31,
 
 
 
 
 
 
 
 
CHANGE
 
 
2019

 
2018

 
NORMAL

 
PRIOR YEAR

 
NORMAL

Heating degree-days
733

 
797

 
890

 
(8.0
)%
 
(17.6
)%
Cooling degree-days
108

 
199

 
78

 
(45.7
)%
 
38.5
 %

Base
Base revenue decreased $11.9 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $7.8 million of lower rates and $4.1 million related to lower usage from milder winter weather. Cleco Power’s revenues are expected to increase $16.0 million in 2020 due to the St. Mary Clean Energy Center project expected to become commercially operational in June 2019. For information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see Part I, Item 1A, “Risk Factors — Future Electricity Sales” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

Fuel Cost Recovery/Recoverable Fuel and Power Purchased
Changes in fuel costs historically have not significantly affected Cleco Power’s net income. Generally, fuel and purchased power expenses are recovered through the LPSC-established FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 77% of Cleco Power’s total fuel cost during the first quarter of 2019

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CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. For more information on fuel audits, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

Other Operations Revenue
Other operations revenue decreased $2.8 million during the first quarter of 2019 compared to the first quarter of 2018 primarily related to $2.0 million of lower net transmission and distribution revenue and $0.4 million of lower generation revenue from the Teche Unit 3 SSR. For more information on the SSR payments, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 12 — Regulation and Rates — SSR.”

Other Operations and Maintenance Expense
Other operations and maintenance expense decreased $8.7 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $13.7 million of lower generation maintenance expenses. This decrease was partially offset by $2.0 million of higher compensation expenses, $1.9 million of higher outside services, and $1.0 million of higher customer service expenses.

Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction increased $3.3 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to higher construction costs related to the St. Mary Clean Energy Center project, the Coughlin Pipeline project, the START project, the Terrebonne to Bayou Vista Transmission project, and the Bayou Vista to Segura Transmission project.

Other Income (Expense), Net
Other income (expense), net increased $2.1 million during the first quarter of 2019 compared to the first quarter of 2018 primarily due to $3.8 million for a death benefit recognized on company-owned life insurance policies and $1.5 million of lower pension non-service costs. These increases were partially offset by $3.1 million for the decrease in cash surrender value of company-owned life insurance policies related to the recognized death benefit.
 
Cleco Cajun
 
(THOUSANDS)
FOR THE THREE MONTHS ENDED MAR. 31, 2019

Operating revenue
 
Electric operations
$
58,194

Other operations
19,965

Operating revenue, net
78,159

Operating expenses
 
Fuel used for electric generation
9,922

Power purchased for utility customers
30,445

Other operations and maintenance
14,412

Depreciation and amortization
5,410

Taxes other than income taxes
3,145

Gain on sale of asset
(2
)
Total operating expenses
63,332

Operating income
14,827

Interest income
254

Other (expense) income, net
(496
)
Federal and state income tax expense
3,529

Net income
$
11,056

From the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019.

Significant factors affecting Cleco Cajun’s net income during the first quarter of 2019 from the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019, are described below.

Operating Revenue
Operating revenue of $78.2 million for the first quarter of 2019 consisted of $58.2 million of electric operations revenue from wholesale customers, $9.8 million of lease revenue, including variable lease revenue, as a result of the Cottonwood Sale Leaseback, and $8.4 million of transmission revenue. For more information on the Cottonwood Sale Leaseback agreement, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 4 — Leases Lessor Agreements — Cottonwood Sale Leaseback Agreement.”
 
Operating Expenses
Operating expenses of $63.3 million for the first quarter of 2019 consisted of $21.6 million of power purchased from MISO, $9.9 million of fuel expenses for generation, $8.7 million for generation operation and maintenance expenses, $8.6 million of MISO transmission costs, $5.4 million of depreciation and amortization, $5.3 million in general and administrative expenses, and $3.1 million primarily related to property taxes.

Income Taxes
Federal and state income tax expense of $3.5 million for the first quarter of 2019 includes $3.1 million for the change in pretax income and $0.6 million for miscellaneous tax items.
The effective income tax rate for the first quarter of 2019 was 24.2%. The estimated annual effective income tax rate used during the first quarter of 2019 for Cleco Cajun may not be indicative of the full-year income tax rate.


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CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

FINANCIAL CONDITION
 
Liquidity and Capital Resources
 
General Considerations and Credit-Related Risks

Credit Ratings and Counterparties
Financing for operational needs and capital expenditure requirements not satisfied by operating cash flows depends upon the cost and availability of external funds through both short- and long-term financing. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain or expand its businesses. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, Cleco Holdings’ and Cleco Power’s credit ratings, cash flows from routine operations, and credit ratings of project counterparties. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. The following table presents the credit ratings of Cleco Holdings and Cleco Power at March 31, 2019 :
 
SENIOR UNSECURED DEBT
 
CORPORATE/LONG-TERM ISSUER
 
S&P
MOODY’S
FITCH
 
S&P
MOODY’S
FITCH
Cleco Holdings
BBB-
Baa3
BBB-
 
BBB-
Baa3
BBB-
Cleco Power
BBB+
A3
BBB+
 
BBB+
A3
BBB
Credit ratings are not recommendations to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.

Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest rating held. Savings are dependent upon the level of borrowings. If Cleco Holdings’ or Cleco Power’s credit ratings were to be downgraded, Cleco Holdings or Cleco Power, respectively, could be required to pay additional fees and incur higher interest rates for borrowings under their respective credit facilities.
With respect to any open power or natural gas trading positions that Cleco may initiate in the future, Cleco may be required to provide credit support or pay liquidated damages. The amount of credit support that Cleco may be required to provide at any point in the future is dependent on the amount of the initial transaction, changes in the market price of power and natural gas, changes in open power and gas positions, and changes in the amount counterparties owe Cleco. Changes in any of these factors could cause the amount of requested credit support to increase or decrease.
Cleco Power and Cleco Cajun participate in the MISO market, which operates a fully functioning RTO market with two major market processes: the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. Both use market-based mechanisms to manage transmission congestion across the MISO market area. MISO requires Cleco Power and Cleco Cajun to provide credit support which may increase or decrease due to the timing of the settlement schedules. At March 31, 2019 , Cleco Power had a $2.0 million letter of credit to MISO pursuant to the credit requirements of FTRs. The letter of credit automatically renews each year. At March 31, 2019 , Cleco Holdings had a $34.5 million letter of credit to MISO
 
pursuant to energy market requirements related to Cleco Cajun’s participation in MISO. This letter of credit automatically renews each year and decreases availability under the Cleco Holdings’ credit facility. For information about MISO, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates of Cleco Power” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Global and U.S. Economic Environment
Global and domestic economic conditions may have an impact on Cleco’s business and financial condition. Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. During periods of capital market volatility, the availability of capital could be limited and the costs of capital may increase for many companies. Although the Registrants have not experienced restrictions in the financial markets, their ability to access the capital markets may be restricted at a time when the Registrants would like, or need, to do so. Any restrictions could have a material impact on the Registrants’ ability to fund capital expenditures or debt service, or on their flexibility to react to changing economic and business conditions. Credit constraints could have a material negative impact on the Registrants’ lenders or customers, causing them to fail to meet their obligations to the Registrants or to delay payment of such obligations. The lower interest rates to which the Registrants have been exposed have been beneficial to debt issuances; however, these rates have negatively affected interest income for the Registrants’ short-term investments.

TCJA
The TCJA was signed into law on December 22, 2017. The provisions of the law reduce the top federal statutory corporate income tax rate from 35% to 21%, generally allow for 100% bonus depreciation for new and used equipment purchased after September 27, 2017, generally restrict deduction of interest expense to 30% of adjusted taxable EBITDA, and repeal the corporate alternative minimum tax. As defined by the TCJA, rate regulated activities are not allowed to utilize 100% bonus depreciation and are not subject to the restricted interest deduction.
As a result of a request by the LPSC, Cleco Power began accruing an estimated reserve for the change in the tax rates beginning January 1, 2018. At March 31, 2019, Cleco Power had $39.3 million accrued for the estimated tax-related benefits from the TCJA. On January 31, 2019, Cleco Power filed an application with the LPSC requesting the implementation of rate reductions and modifications of certain tariffs resulting from TCJA to be effective July 1, 2019. Cleco Power also requested to reduce the annual FRP rate, effective July 1, 2019, by the amount accrued for the change in tax rates as of June 30, 2019. Cleco Power recommended a rate redesign, allowing the change in the statutory corporate tax rate to be applied only to residential customers in order to reduce customer bills. Cleco Power also requested to address the regulatory liability for excess ADIT resulting from the enactment of the TCJA in Cleco Power’s application for its next FRP, which will be filed by July 1, 2019, with anticipated new rates being effective July 1, 2020. All items requested in the January 31, 2019, application are subject to LPSC review and approval. Cleco Power is awaiting review and approval from the LPSC.

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CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

At March 31, 2019 , Cleco Power had a regulatory liability of $375.0 million for the portion of the net reduction to ADIT subject to regulatory treatment.
Due to the uncertainty around the regulatory treatment, the entire regulatory liability is reflected in non-current liabilities.

Fair Value Measurements
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power are required to disclose the fair value of certain assets and liabilities by one of three levels. Other financial assets and liabilities are reported at their carrying values at their date of issuance on the consolidated balance sheets with their fair values as of the balance sheet date disclosed within the three levels. For more information about fair value levels, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 7 — Fair Value Accounting.”

Cash Generation and Cash Requirements
 
Restricted Cash and Cash Equivalents
Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes. For more information on Cleco and Cleco Power’s restricted cash and cash equivalents, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”

Debt

Cleco Consolidated
At March 31, 2019 , and December 31, 2018 , Cleco had no short-term debt outstanding. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in the aggregate, to support their working capital needs.
At March 31, 2019 , Cleco’s long-term debt outstanding was $3.28 billion , of which $92.6 million was due within one year. The long-term debt due within one year at March 31, 2019 , represents $66.7 million of principal payments on Cleco Holdings’ debt as required by the Cleco Cajun Transaction commitments, $21.2 million of principal payments for the Cleco Katrina/Rita storm recovery bonds, $4.1 million of fair value adjustments related to the 2016 Merger, and $0.6 million of finance lease payments. Long-term debt increased by $384.2 million from December 31, 2018 , primarily due to the issuance of a $300.0 million bridge term loan agreement and a $100.0 million bank term loan on February 4, 2019, in connection with the Cleco Cajun Transaction. These increases were partially offset by $10.4 million for a scheduled payment made on Cleco Katrina/Rita storm recovery bonds, $3.2 million related to debt discount and expense, $2.1 million for amortization of long-term debt fair value adjustments related to the 2016 Merger, and $0.1 million of finance lease principal payments. For more information on Cleco’s debt, see Item 1, “Notes to the
 
Unaudited Condensed Consolidated Financial Statements — Note 8 — Debt.” For more information on the Cleco Cajun Transaction commitments, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 12 — Regulation and Rates — Cleco Cajun Transaction Commitments.”
Cash and cash equivalents available at March 31, 2019 , were $101.6 million combined with $440.5 million available credit facility capacity ( $140.5 million from Cleco Holdings and $300.0 million from Cleco Power) for total liquidity of $542.1 million . For more information on the credit facility capacity, see “— Credit Facilities.”
At March 31, 2019 , Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 7 — Fair Value Accounting.”
At March 31, 2019 , and December 31, 2018 , Cleco had a working capital surplus of $126.7 million and $185.9 million , respectively. The $59.2 million decrease in working capital is primarily due to:

a $71.5 million increase in long-term debt due within one year primarily due to $66.7 million required by the Cleco Cajun Transaction commitments to repay Cleco Holdings’ debt early and $4.1 million of fair value adjustments related to the 2016 Merger,
a $28.7 million increase in accrued interest primarily due to the timing of interest payments on long-term debt at Cleco Holdings and Cleco Power,
a $13.8 million decrease in accumulated deferred fuel, excluding Cleco Power FTRs, primarily due to the timing of collections,
an $8.5 million decrease in cash and cash equivalents,
an $8.2 million increase in provision for rate refund primarily due to the estimated refunds for the tax-related benefits of the TCJA,
a $7.3 million increase in other current liabilities primarily due to higher benefit expenses accrued, an operating lease liability recorded in accordance with amended lease accounting guidance, and additional liabilities incurred as a result of the Cleco Cajun Transaction, partially offset by the timing of payroll accruals,
a $7.1 million increase in taxes payable primarily due to accrual of property taxes, partially offset by lower provision for income taxes,
a $5.8 million decrease in restricted cash and cash equivalents, and
a $5.1 million decrease in unbilled revenue due to lower usage as a result of milder winter weather.


47


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

These decreases in working capital were partially offset by:

a $44.3 million increase in customer accounts receivable primarily due to the Cleco Cajun Transaction,
a $25.9 million increase in materials and supplies inventory primarily due to the Cleco Cajun Transaction,
a $23.4 million increase in fuel inventory primarily due to inventory acquired in the Cleco Cajun Transaction and the seasonal operations of the Dolet Hills Power Station, partially offset by lower petroleum coke purchases at Cleco Power, and
an $8.6 million increase in other accounts receivable primarily due to the timing of revenue receipts, a receivable for life insurance death benefit, and higher receivables due to the Cleco Cajun Transaction, partially offset by lower receivables from joint owners at Cleco Power.

In connection with the Cleco Cajun Transaction on February 4, 2019, Cleco Holdings borrowed $300.0 million under a new bridge loan agreement and $100.0 million under a new term loan agreement. Both loan agreements are variable rate debt and have a three-year term. Both loan agreements contain certain financial covenants, including requiring Cleco Holdings to maintain (i) a debt to capital ratio (as defined in the applicable agreement) below 65% and (ii) a rating applicable to the company’s senior debt rating (as defined in the applicable agreement). Cleco Holdings anticipates that some or all of the variable rate debt may be replaced or repaid with long-term financing, markets permitting, within 12 months of the closing of the Cleco Cajun Transaction.
In connection with Cleco Cajun Transaction, Cleco Holdings, on behalf of Cleco Cajun, issued three letters of credit totaling $1.1 million to a capacity agreement customer and a gas transport company. These letters of credit automatically renew each year and have no impact on the Cleco Holdings’ credit facility. At March 31, 2019 , Cleco Holdings had a $34.5 million letter of credit to MISO pursuant to energy market requirements related to Cleco Cajun’s participation in MISO. This letter of credit automatically renews each year and decreases availability under the Cleco Holdings’ credit facility.

Cleco Holdings (Holding Company Level)
At March 31, 2019 , and December 31, 2018 , Cleco Holdings had no short-term debt outstanding. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in the aggregate, to support their working capital needs.
At March 31, 2019 , Cleco Holding’s long-term debt outstanding was $1.88 billion , of which $70.8 million was due within one year. The long-term debt due within one year at March 31, 2019 , represents $66.7 million principal payments on Cleco Holdings’ debt as required by the Cleco Cajun Transaction commitments and $4.1 million of fair value adjustments related to the 2016 Merger.
At March 31, 2019 , and December 31, 2018 , Cleco Holdings had no borrowings outstanding under its $175.0 million credit facility. This credit facility provides for working capital and other financing needs. The credit facility includes restrictive financial covenants and expires in 2021.
Cash and cash equivalents available at March 31, 2019 , were $6.2 million , combined with $140.5 million credit facility
 
capacity for total liquidity of $146.7 million . For more information on the credit facility capacity, see “— Credit Facilities.”

Cleco Power
At March 31, 2019 , and December 31, 2018 , Cleco Power had no short-term debt outstanding. Cleco Holdings and Cleco Power have uncommitted lines of credit with a bank that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in the aggregate, to support their working capital needs.
At March 31, 2019 , Cleco Power’s long-term debt outstanding was $1.40 billion , of which $21.8 million was due within one year. The long-term debt due within one year at March 31, 2019 , represents $21.2 million of principal payments for the Cleco Katrina/Rita storm recovery bonds and $0.6 million of finance lease payments. For Cleco Power, long-term debt decreased $10.3 million from December 31, 2018 , primarily due to a scheduled payment made on Cleco Katrina/Rita storm recovery bond.
At March 31, 2019 , and December 31, 2018 , Cleco Power had no borrowings outstanding under its $300.0 million credit facility. This credit facility provides for working capital and other financing needs. The credit facility includes restrictive financial covenants and expires in 2021.
Cash and cash equivalents available at March 31, 2019 , were $22.5 million , combined with $300.0 million credit facility capacity for total liquidity of $322.5 million .
At March 31, 2019 , and December 31, 2018 , Cleco Power had a working capital surplus of $34.2 million and $62.3 million , respectively. The $ 28.1 million decrease in working capital is primarily due to:

a $16.9 million increase in accrued interest primarily due to the timing of interest payments on long-term debt,
a $13.8 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to the timing of collections,
a $10.4 million increase in affiliate accounts payable primarily due to an increase in payable to Cleco Holdings,
a $9.5 million decrease in cash and cash equivalents,
an $8.2 million increase in provision for rate refund primarily due to the estimated refunds for the tax-related benefits of the TCJA,
a $5.8 million decrease in restricted cash and cash equivalents,
a $5.1 million decrease in unbilled revenue due to lower usage as a result of milder winter weather,
a $3.8 million increase in other regulatory liabilities primarily due to the over collections of revenue related to the St. Mary Clean Energy Center project that will be returned to retail customers as part of the July 2019 FRP rate adjustment,
a $3.4 million decrease in other regulatory assets primarily due to the reversal of the accumulated loss contribution factor related to the Energy Efficiency program, the reversal of the contingent liability related to the inventory tax credits, and the amortization of regulatory assets, and
a $3.0 million decrease in cash surrender value of life insurance policies due to the payment of a death benefit.

These decreases in working capital were partially offset by:

a $24.7 million decrease in accounts payable, excluding FTR purchases, primarily due to a decrease in fuel costs, the

48


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

timing of payables, and the STIP payment in March 2019, partially offset by higher gas volumes and higher accruals of capital projects,
a $22.0 million decrease in taxes payable primarily due to lower provisions for income taxes, partially offset by higher accruals of property taxes,
a $7.7 million increase in other accounts receivable primarily due to the timing of revenue receipts and a receivable for life insurance death benefit, partially offset by lower receivables from joint owners, and
a $5.8 million increase in fuel inventory primarily due to the seasonal operations of the Dolet Hills Power Station, partially offset by lower petroleum coke purchases.

Credit Facilities
At March 31, 2019 , Cleco had two separate revolving credit facilities, one for Cleco Holdings in the amount of $175.0 million and one for Cleco Power in the amount of $300.0 million, with a maximum aggregate capacity of $475.0 million .
In connection with the Cleco Cajun Transaction, on February 4, 2019, Cleco Holdings increased its credit facility capacity by $75.0 million, for a total credit facility of $175.0 million credit facility. The credit facility includes restrictive financial covenants and expires in 2021. At March 31, 2019 , Cleco Holdings had a $34.5 million letter of credit to MISO pursuant to energy market requirements related to Cleco Cajun’s participation in MISO. This letter of credit automatically renews each year and decreases availability under the Cleco Holdings’ credit facility. At March 31, 2019 , Cleco Holdings was in compliance with the covenants of its credit facility. The borrowing costs under Cleco Holdings’ credit facility are equal to LIBOR plus 1.75% or ABR plus 0.75%, plus commitment fees of 0.275%. If Cleco Holdings’ credit ratings were to be downgraded one level, Cleco Holdings would be required to pay higher fees and additional interest of 0.075% and 0.50%, respectively, under the pricing levels of its credit facility.
At March 31, 2019 , Cleco Power had a $300.0 million credit facility. The credit facility includes restrictive financial covenants and expires in 2021. At March 31, 2019 , Cleco Power was in compliance with the covenants of its credit facility. The borrowing costs under Cleco Power’s credit facility are equal to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees of 0.125%. If Cleco Power’s credit ratings were to be downgraded one level, Cleco Power would be required to pay higher fees and additional interest of 0.05% and 0.125%, respectively, under the pricing levels of its credit facility.
If Cleco Holdings or Cleco Power were to default under the covenants in their respective credit facilities or other debt agreements, they would be unable to borrow additional funds under the facilities and the lenders could accelerate all principal and interest outstanding. Further, if Cleco Power were to default under its credit facility or other debt agreements, Cleco Holdings would be considered in default under its credit facility.

Debt Limitations
The 2016 Merger Commitments include provisions for limiting the amount of distributions that can be made from Cleco Holdings to Cleco Group, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings. Cleco Holdings may not make any distribution unless, after giving effect to such distribution, Cleco Holdings’ debt to EBITDA ratio is equal to or less than 6.50 to 1.00 and Cleco Holdings’
 
corporate credit rating is investment grade with one or more of the three credit rating agencies. At March 31, 2019 , Cleco Holdings was not in compliance with the debt to EBITDA ratio provision; therefore, restricting the amount of distributions available. Cleco Holdings expects to be in compliance with the debt to EBITDA ratio provision by the fourth quarter of 2019 and does not expect to make distributions to Cleco Group until all provisions of the 2016 Merger Commitments are met. Additionally, in accordance with the 2016 Merger Commitments, Cleco Power is subject to certain provisions limiting the amount of distributions that may be paid to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings. Cleco Power may not make any distribution unless, after giving effect to such distribution, Cleco Power’s common equity ratio would not be less than 48% and Cleco Power’s corporate credit rating is investment grade with two of the three credit rating agencies. At March 31, 2019 , Cleco Power was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. The 2016 Merger Commitments also prohibit Cleco from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. For more information on the 2016 Merger Commitments, see Part I, Item 1A, “Risk Factors — Regulatory Compliance” and “— Holding Company” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Cleco Consolidated Cash Flows

Net Operating Cash Flow
Net cash provided by operating activities was $108.1 million and $88.0 million during the three months ended March 31, 2019 , and 2018 , respectively. Net cash provided by operating activities increased $20.1 million primarily due to:

higher net fuel and power purchase collections of $25.2 million primarily due to timing of collections and
lower pay out for employee benefits of $5.4 million.

These increases were partially offset by:

lower collections from customers of $9.6 million and
lower receipts of $8.1 million primarily due to timing of receipts of joint owners’ portion of generating station expenditures.

Net Investing Cash Flow
Net cash used in investing activities was $892.7 million and $57.7 million during the three months ended March 31, 2019 , and 2018 , respectively. Net cash used in investing activities increased $835.0 million primarily due to:

payment for the acquisition of all the membership interest in NRG South Central of $962.2 million, net of cash received of $147.2 million and
higher additions to property, plant, and equipment, net of AFUDC, of $16.2 million.


49


CLECO
 
 
CLECO POWER
 
2019 1ST QUARTER FORM 10-Q

Net Financing Cash Flow
Net cash provided by financing activities was $770.6 million and $20.1 million , respectively, during the three months ended March 31, 2019 , and 2018 . Net cash provided by financing activities increased $750.5 million primarily due to:

higher contributions from Cleco Group of $384.9 million,
higher issuances of long-term debt of $350.0 million, primarily related to the financing of the Cleco Cajun Transaction,
higher draws on Cleco’s credit facilities of $108.0 million, and
the absence of distributions to Cleco Group of $19.5 million.

These increases were partially offset by higher payments on Cleco’s credit facilities of $108.0 million.

Cleco Power Cash Flows

Net Operating Cash Flow
Net cash provided by operating activities was $70.0 million and $99.3 million during the three months ended March 31, 2019 , and 2018 , respectively. Net cash provided by operating activities decreased $29.3 million primarily due to:

higher payments for affiliate settlements of $32.5 million,
lower collections from customers of $7.0 million, and
lower receipts of $8.5 million primarily due to timing of receipts of joint owners’ portion of generating station expenditures.

These decreases were partially offset by higher net fuel and power purchase collections of $25.2 million primarily due to timing of collections.

Net Investing Cash Flow
Net cash used in investing activities was $75.1 million and $59.7 million during the three months ended March 31, 2019 , and 2018 , respectively. Net cash used in investing activities increased $15.4 million primarily due to higher additions to property, plant, and equipment, net of AFUDC, of $14.4 million.

Net Financing Cash Flow
Net cash used in financing activities was $10.5 million during the three months ended March 31, 2019 . Net cash provided by financing activities was $11.6 million during the three months ended March 31, 2018 . Net cash used in financing activities increased $22.1 million primarily due to:

higher payments on Cleco Power’s credit facilities of $33.0 million and
the absence of $50.0 million issuance of the second tranche of senior notes in March 2018.

These increases were partially offset by:

higher draws on Cleco Power’s credit facilities of $33.0 million and
lower distributions to Cleco Holdings of $28.0 million.

Capital Expenditures
As a result of the Cleco Cajun Transaction, Cleco’s estimated capital expenditures increased to include Cleco Cajun’s estimated capital expenditures.
 
During the three months ended March 31, 2019, Cleco and Cleco Cajun had capital expenditures, excluding AFUDC, of $78.0 million and $1.5 million, respectively.
Cleco Cajun’s estimated capital expenditures for the nine months ending December 31, 2019, and for the remainder of the five-year period ending December 31, 2023, excluding AFUDC, are $30.0 million and $106.0 million, respectively. Cleco’s estimated capital expenditures and debt maturities for the nine months ending December 31, 2019, and for the remainder of the five-year period ending December 31, 2023, excluding AFUDC, are $269.0 million and $2.31 billion, respectively. For more information on Cleco and Cleco Power’s estimated capital expenditures for 2019 and the five-year period ending December 31, 2023, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Cleco expects cash and cash equivalents on hand in addition to cash generated from operations, borrowings from credit facilities, and the net proceeds of any issuances of debt securities to be adequate to fund normal ongoing capital expenditures, working capital, and debt service requirements for the foreseeable future.

Contractual Obligations
Cleco, in the normal course of business activities, enters into a variety of contractual obligations. Some of these result in direct obligations that are reflected in Cleco’s Condensed Consolidated Balance Sheets while others are commitments, some firm and some based on uncertainties, that are not reflected in the Condensed Consolidated Financial Statements. For more information regarding Cleco’s Contractual Obligations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Contractual Obligations” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

Off-Balance Sheet Commitments and Guarantees
Cleco Holdings and Cleco Power have entered into various off-balance sheet commitments, in the form of guarantees and standby letters of credit, in order to facilitate their activities and the activities of Cleco Holdings’ subsidiaries and equity investees (affiliates). Cleco Holdings and Cleco Power have also agreed to contractual terms that require them to pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees. For more information about off-balance sheet commitments and on-balance sheet guarantees, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees.”

Cybersecurity
The operation of Cleco’s electrical systems relies on evolving operational and information technology systems and network infrastructures that are complex. The failure of Cleco or its vendors’ operational and information technology systems and networks due to a physical or cyberattack, or other event could significantly disrupt operations; cause harm to the public or

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employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; result in damage to Cleco’s reputation; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. In addition, the Cleco Cajun Transaction could increase the risk associated with cybersecurity that could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows including phishing attacks, denial of service attacks, and employee insider attacks. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. Cleco’s Chief Transformation Officer leads Cleco’s cybersecurity team and oversees Cleco’s cybersecurity maturity plan. Each quarter, management provides cybersecurity updates to Cleco’s Board of Managers. For more information on risks related to Cleco’s cybersecurity, see Part I, Item 1A, “Risk Factors — Technology and Terrorism Threats” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Regulatory and Other Matters

Environmental Matters
Cleco is subject to extensive environmental regulation by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations, and to obtain and comply with numerous governmental permits, in operating its facilities. In addition, existing environmental laws, regulations, and permits could be revised or reinterpreted; new laws and regulations could be adopted or become applicable to Cleco or its facilities; and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions. Cleco may incur significant additional costs to comply with these revisions, reinterpretations, and requirements. Cleco Power could then seek recovery of additional environmental compliance costs as riders through the LPSC’s EAC or FRP. If Cleco fails to comply with these revisions, reinterpretations, and requirements, it could be subject to civil or criminal liabilities and fines. For a discussion of other Cleco environmental matters, see Part I, Item 1, “Business — Environmental Matters” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
On May 2, 2019, Louisiana Generating notified the EPA and the Louisiana Department of Environmental Quality that it has elected not to Retrofit (as such term is defined in the Consent Decree) Big Cajun II, Unit 1.

Retail Rates of Cleco Power

Fuel Rates
Generally, the cost of fuel used for electric generation and the cost of power purchased for utility customers are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. For more information on the FAC and the most recent fuel audit, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”
 
Environmental Rates
In July 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides for an EAC to recover from customers certain costs of environmental compliance. These expenses are eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC. For more information on the EAC and the ongoing environmental audit covering January 1, 2016, through December 31, 2017, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit.”

Energy Efficiency
In 2009, the LPSC opened a docket to study the promotion of energy efficiency by jurisdictional electric and natural gas utilities. In 2013, the LPSC issued a General Order adopting rules promoting energy efficiency programs. The order addressed two energy efficiency programs, Phase I and Phase II. Phase I, known as the Quick Start program, was a three-year program to expedite the energy efficiency implementation and was expected to develop into Phase II, a more detailed and comprehensive program. Cleco Power participated in the Phase I program beginning in November 2014 for three years and designed several energy efficiency programs for customers. In January 2017, the LPSC amended the third year of the Phase I program to allocate no less than 50% of its annual program budgets to applicable government and state agencies. Beginning in November 2014, Cleco Power recovered approximately $3.3 million annually for each of the three program years through an approved rate tariff.
In September 2017, the LPSC extended Phase I for an additional year. Cleco Power began recovery of approximately $3.3 million for estimated costs for the fourth program year beginning January 1, 2018. Also in September 2017, the LPSC approved a motion for additional energy efficiency program funds for the exclusive benefit of school districts, local governments, state agencies, and higher education institutions or any other public entities (political subdivision). The recovery of approximately $3.3 million annually for estimated costs for the political subdivision program began on January 1, 2018. On December 19, 2018, the LPSC extended Phase I for an additional year. The LPSC staff has begun to work on Phase II rules.
In November 2017, the LPSC initiated an audit on the first two program years to consider all program costs. Cleco Power has responded to the two sets of data requests on the energy efficiency audit. On December 6, 2018, Cleco Power received the LPSC’s preliminary audit report, which concluded that the costs were reasonable and prudent, and eligible for recovery consistent with the Energy Efficiency Rules. Cleco Power expects the LPSC to approve the report in the second quarter of 2019.
Utility companies are allowed to recover from customers the accumulated decrease in revenues associated with the energy efficiency programs. In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the accumulated decrease in revenues. On March 28, 2019, the LPSC Staff denied Cleco Power’s request.

MISO Cost Benefit Analysis
Cleco Power entered into MISO in 2013. Within five years of joining MISO, the LPSC required Cleco Power to conduct a study of the costs and benefits of its membership in MISO.

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During the second quarter of 2017, Cleco Power submitted an analysis with both a backward-looking, historical analysis and a forward-looking, prospective analysis of the costs and benefits of operating in MISO, as compared to a scenario where Cleco Power and Entergy Louisiana exit MISO and operate independently. Cleco Power’s analysis indicated that continued MISO membership would best serve the public interest. Cleco Power has responded to several sets of data requests on the analysis. Management is unable to predict the outcome of this analysis or give a reasonable estimate of the possible range of disallowance of costs, if any.

Wholesale Rates of Cleco Power
The rates Cleco Power charges its wholesale customers are subject to FERC’s triennial market power analysis. FERC requires a utility to pass a screening test as a condition for securing and/or retaining approval to sell electricity in wholesale markets at market-based rates. An updated market power analysis must be filed with FERC every three years or upon the occurrence of a change in status as defined by FERC regulation. Cleco filed its triennial market power analysis with FERC in December 2017. On November 8, 2018, FERC determined that Cleco Power has satisfied the requirements for market-based rate authority. Cleco’s next triennial market power analysis is expected to be filed during the fourth quarter of 2020.

Transmission Rates of Cleco Power
In May 2017, Cleco Power filed a MISO Schedule 2 rate increase request with FERC. MISO Schedule 2 provides for compensation to Cleco Power for providing reactive power to MISO customers. On July 1, 2017, Cleco Power began collecting revenue at the requested rate, subject to refund. On December 1, 2017, a new rate in pursuance with interveners, became effective. FERC approved this rate on February 1, 2018. In April 2018, Cleco refunded $0.1 million, including accrued interest, for the amount over-collected in 2017.
Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. For more information about the ROE complaints, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”
For information about the risks associated with Cleco Power’s participation in MISO, see Part I, Item 1A, “Risk Factors — MISO” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
For information on transmission rates of Cleco Power, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates of Cleco Power” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Transmission, Distribution, and Generation Projects
Cleco Power is currently involved in the Bayou Vista to Segura transmission project as well as the DSMART project. Cleco Power is also involved in the St. Mary Clean Energy Center project, which is a waste heat generating unit, and the Coughlin Pipeline project. For information on these projects, see “— Overview — Cleco Power.”
 
Market Restructuring

Wholesale Electric Markets

RTO
For information on Cleco Power’s operations within MISO and for information on regulatory aspects of wholesale electric markets affecting Cleco, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring — Wholesale Electric Markets” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

ERO
The Energy Policy Act of 2005 added Section 215 to the Federal Power Act, which provides for a uniform system of mandatory, enforceable reliability standards. In 2006, FERC named NERC as the ERO that will be required to develop and enforce the mandatory reliability standards.
A NERC Reliability Standards audit is conducted every three years. Cleco Power’s next NERC Reliability Standards audit is scheduled to begin in October 2019. The Cleco Cajun NERC Reliability Standards audit occurred during April 2019. There were no violations or areas of concern discovered during this audit.
A NERC Critical Infrastructure Protection audit is also conducted every three years. A NERC Critical Infrastructure Protection audit was conducted in February 2017. There were three violations associated with the February 2017 audit. Cleco Power has completed the mitigation plans for the violations. The SPP RE has approved two of the mitigation plans. The third mitigation plan has been transferred to SERC Reliability Corporation (SERC) due to the dissolution of the SPP RE. SERC continues to analyze Cleco Power’s mitigation plan.
Cleco Power’s next NERC Critical Infrastructure Protection audit is scheduled to begin in 2020. Management is unable to predict the final outcome of the remaining violation, or any future audits, or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Cleco Cajun’s next NERC Critical Infrastructure Protection audit is scheduled to begin in June 2019. Management is unable to predict the outcome of any future audits, or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
For a discussion of risks associated with FERC’s regulation of Cleco Power’s transmission system, see Part I, Item 1A, “Risk Factors — Reliability and Infrastructure Protection Standards Compliance” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

Retail Electric Markets
For information on the regulatory aspects of retail electric markets affecting Cleco Power, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring — Retail Electric Markets” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .


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Integrated Resource Plan (IRP)
In accordance with the General Order in LPSC Docket No. R-30021, on October 20, 2017, Cleco Power filed a request with the LPSC to initiate an IRP process. On February 20, 2018, Cleco Power filed the data assumptions to be used in its IRP analysis. The IRP process includes conducting stakeholder meetings and receiving feedback from stakeholders. The first stakeholder meeting was held on April 5, 2018. Comments from the stakeholders were filed on June 5, 2018. Cleco Power responded to multiple sets of data requests. Cleco Power filed a draft IRP report on January 29, 2019. A second stakeholder meeting was held on February 28, 2019. Comments from stakeholders were received on April 30, 2019. Cleco Power expects to file the final IRP report no later than August 30, 2019, with final LPSC approval expected in early 2020.

Franchises
Cleco Power operates under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state law. Cleco Power’s next municipal franchise expires in July 2021. For more information on franchises, see Part I, Item 1, “Business Regulatory Matters, Industry Developments, and Franchises — Franchises” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .

Recent Authoritative Guidance
For a discussion of recent authoritative guidance, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 3 — Recent Authoritative Guidance.”
CRITICAL ACCOUNTING POLICIES
Cleco’s critical accounting policies include accounting policies that are important to Cleco’s financial condition and results of operations and that require management to make difficult,
 
subjective, or complex judgments about future events, which could result in a material impact to the financial statements of Cleco. The preparation of financial statements contained in this report requires management to make estimates and assumptions. Estimates and assumptions about future events and their effects cannot be made with certainty. These estimates involve judgments regarding many factors that in and of themselves could materially affect the financial statements and disclosures. On an ongoing basis, these estimates and assumptions are evaluated and, if necessary, adjustments are made when warranted by new or updated information or by a change in circumstances or environment. Actual results may differ significantly from these estimates under different assumptions or conditions.
For more information on Cleco’s critical accounting policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in the Registrant’s Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
Cleco Power meets the conditions specified in General Instructions H(1)(a) and (b) to Form 10-Q and is, therefore, permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, Cleco Power has omitted from this report the information called for by Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part I of Form 10-Q and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds) and Item 3 (Defaults upon Senior Securities).
ITEM 3.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK OVERVIEW
Market price risk is inherent in Cleco Power and Cleco Cajun’s fuel supply, generation, and customer supply activities. This includes changes in interest rates and commodity market prices, inclusive of solid and natural gas fuel costs, electricity, transmission, and transportation.
Cleco Power and Cleco Cajun evaluate derivatives and hedging activities to determine whether market risk-sensitive instruments and positions are required to be marked-to-market. For Cleco Power, when positions close, actual gains or losses are included in the FAC and reflected on customers’ bills as a component of the FAC. For Cleco Cajun, when positions close, actual gains or losses are reflected as electric operations income or power purchase expense.
Cleco’s exposure to market risk, as discussed below, represents an estimate of possible changes in the fair value or future earnings that would occur, assuming possible future movements in the interest rates and commodity prices of power, FTRs, natural gas, coal, and other components of variable margin. Management’s views on market risk are not necessarily indicative of actual results, nor do they represent the maximum possible gains or losses. The views do represent, within the parameters disclosed, what management estimates may happen.
 
Cleco monitors credit risk exposure through review of counterparty credit quality and counterparty credit exposure. Cleco manages counterparty credit risk exposure by establishing appropriate credit limits with counterparties and requiring contractual guarantees, cash deposits, or letters of credit from counterparties, as deemed necessary. Cleco Power and Cleco Cajun have agreements in place with various counterparties that may authorize transaction netting and contract payments to mitigate credit risk of transactions.
Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. Future actions or inactions of the federal government, including a failure to increase the government debt limit, could increase the actual or perceived risk that the U.S. may not pay its obligations when due and may disrupt financial markets, including capital markets, potentially limiting availability and increasing costs of capital. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain and expand its businesses. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. Cleco Holdings and Cleco Power pay fees and interest under their respective

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credit facilities based on the highest rating held. For more information, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — General Considerations and Credit-Related Risks.”

Interest Rate Risks
Cleco monitors its mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix, for example, refinancing balances outstanding under its variable-rate credit facility with fixed-rate debt. Calculations of the changes in fair market value and interest expense of the debt securities are made over a one-year period.
Sensitivity to changes in interest rates for variable-rate obligations is computed by assuming a 1% change in the current interest rate applicable to such debt.
At March 31, 2019 , Cleco Holdings had no variable-rate debt outstanding under its $175.0 million credit facility. The borrowing costs under Cleco Holdings’ credit facility are equal to LIBOR plus 1.75% or ABR plus 0.75%, plus commitment fees of 0.275%.
At March 31, 2019 , Cleco Holdings had $700.0 million long-term variable rate bank term loans outstanding. One bank term loan has $300.0 million outstanding at an interest rate of LIBOR plus 1.250%, for an all-in interest rate of 3.75% at March 31, 2019. Two other bank term loans have total balances of $400.0 million outstanding, at interest rates of 1.625%, for all-in interest rates of 4.125% at March 31, 2019. The weighted average rate for all outstanding term loan debt was 3.964%. Each 1% increase in the interest rate applicable to such debt would result in a decrease in Cleco Holdings’ pretax earnings of $7.0 million.
For information on variable-rate debt related to Cleco Power, please refer to “— Cleco Power.”

Commodity Price Risks
Management believes Cleco has controls in place to minimize the risks involved in its financial and energy commodity activities. Independent controls over energy commodity functions consist of a middle office (risk management), a back office (accounting), and regulatory compliance staff.
Cleco Power and Cleco Cajun provide fuel for generation and purchase power to meet the power demands of customers. Cleco Power may enter into positions to mitigate the volatility in customer fuel costs, as encouraged by various LPSC orders. Cleco Cajun may enter into positions to manage variable margin. For Cleco Power, these positions would be marked-to-market with the resulting gain or loss recorded on the balance sheet as a component of the accumulated deferred fuel asset or liability and a component of the energy risk management assets or liabilities. When these positions close, actual gains or losses would be included in the FAC and reflected in customers’ bills as a component of the fuel charge. For Cleco Cajun, these positions would be marked-to-market with the resulting gain or loss recorded on the income statement as a component of power purchase expense and on the balance sheet as a component of the energy risk management assets or liabilities. When these positions close, actual gains or losses would be included in power purchase expense or electric operations income, and the expense would be reflected in customers’ bills. There were no open natural gas positions at March 31, 2019 .
 
Cleco Power and Cleco Cajun purchase FTRs in auctions facilitated by MISO. The majority of these FTRs are purchased in annual auctions during the second quarter, but additional FTRs may be purchased in monthly auctions. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power and Cleco Cajun record FTRs at their estimated fair value when purchased. Each accounting period, the carrying value of FTRs is adjusted to their estimated fair value based on the most recent MISO FTR auction prices.
At March 31, 2019 , Cleco Power’s Condensed Consolidated Balance Sheets reflected open FTR positions of $5.7 million in Energy risk management assets and $0.9 million in Other current liabilities. At March 31, 2019 , Cleco’s Condensed Consolidated Balance Sheets reflected open FTR positions of $9.2 million in Energy risk management assets and $1.4 million in Other current liabilities. For more information on FTRs, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 7 — Fair Value Accounting — Commodity Contracts.”
CLECO POWER
Please refer to “— Risk Overview” for a discussion of market risk inherent in Cleco Power’s market risk-sensitive instruments.
Cleco Power may enter into various fixed- and variable-rate debt obligations. Please refer to “— Interest Rate Risks” for a discussion of how Cleco Power monitors its mix of fixed- and variable-rate debt obligations and the manner of calculating changes in fair market value and interest expense of its debt obligations.
At March 31, 2019 , Cleco Power had no variable-rate debt outstanding.
At March 31, 2019 , Cleco Power had no debt outstanding under its $300.0 million credit facility. The borrowing costs under the Cleco Power credit facility are equal to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees of 0.125%.
Please refer to “— Commodity Price Risks” for a discussion of controls, transactions, VaR, and market value maturities associated with Cleco Power’s energy commodity activities.

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ITEM 4.        CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of Cleco Holdings and Cleco Power (individually, “Registrant” and collectively, the “Registrants”) management, including the CEO and CFO, the Registrants have evaluated the effectiveness of their disclosure controls and procedures as of March 31, 2019 . Based on the evaluations, the CEO and CFO have concluded that the Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and that the Registrants’ disclosure controls and procedures are also effective in ensuring that such information is accumulated and communicated to the Registrants’ management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting
On February 4, 2019, Cleco Cajun acquired from NRG Energy all of the outstanding membership interests in NRG South Central. Cleco is evaluating changes to processes and other components of internal controls over financial reporting of Cleco Cajun as part of its ongoing integration activities, and as
 
a result, controls will be periodically changed. For more information on the transaction, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 2 — Business Combination.”
There have been no other changes in the Registrants’ internal control over financial reporting that occurred during the quarter ended March 31, 2019 , that have materially affected, or are reasonably likely to materially affect, the Registrants’ internal control over financial reporting. The Registrants are in the process of implementing a new enterprise business application during the second quarter of 2019. The Registrants have followed a system implementation process that required significant pre-implementation planning, design, and testing. The Registrants are currently performing post-implementation monitoring and process modifications to ensure that internal controls over financial reporting are properly designed.


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PART II — OTHER INFORMATION
ITEM 1.         LEGAL PROCEEDINGS  
CLECO
For information on legal proceedings affecting Cleco, see Part I, Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
 
CLECO POWER
For information on legal proceedings affecting Cleco Power, see Part I, Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
ITEM 1A.        RISK FACTORS

There have been no material changes from the risk factors disclosed in Part I, Item 1A, “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual Report on Form 10-K”). For risks that could affect actual results and cause
 
results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrants, see the risk factors disclosed under Part I, Item 1A, “Risk Factors” of the 2018 Annual Report on Form 10-K.

ITEM 6.        EXHIBITS
 
CLECO
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
 
 
CLECO POWER
31.3
31.4
32.3
32.4
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
CLECO CORPORATE HOLDINGS LLC
 
(Registrant)
 
 
 
 
By:
/s/ F. Tonita Laprarie                                         
 
 
F. Tonita Laprarie
 
 
Controller and Chief Accounting Officer

Date: May 13, 2019




Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
CLECO POWER LLC
 
(Registrant)
 
 
 
 
By:
/s/ F. Tonita Laprarie                                         
 
 
F. Tonita Laprarie
 
 
Controller and Chief Accounting Officer

Date: May 13, 2019

 



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