10-Q 1 clecocorp10q_093008.htm CLECO CORPORATION AND CLECO POWER LLC SEC FORM 10-Q clecocorp10q_093008.htm


 
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 September 30, 2008
 
Or
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
__________________

Commission file number 1-15759
CLECO CORPORATION
(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 x    No ¨
 
Indicate by check mark whether Cleco Corporation is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer x           Accelerated filer ¨                  Non-accelerated filer ¨  (Do not check if a smaller reporting company)            Smaller reporting company ¨
 
Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer ¨           Accelerated filer ¨                  Non-accelerated filer x  (Do not check if a smaller reporting company)            Smaller reporting company ¨
 
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act)  Yes ¨    No x
 
Number of shares outstanding of each of Cleco Corporation’s classes of Common Stock, as of the latest practicable date.

Registrant
Description of Class
Shares Outstanding at October 31, 2008
     
Cleco Corporation
Common Stock, $1.00 Par Value
60,229,221

Cleco Power LLC, a wholly owned subsidiary of Cleco Corporation, 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 CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
This combined Form 10-Q is separately filed by Cleco Corporation and Cleco Power.  Information in this filing relating to Cleco Power is filed by Cleco Corporation and separately by Cleco Power on its own behalf.  Cleco Power makes no representation as to information relating to Cleco Corporation (except as it may relate to Cleco Power) or any other affiliate or subsidiary of Cleco Corporation.
This report should be read in its entirety as it pertains to each respective Registrant.  The Notes to the Unaudited Condensed Consolidated Financial Statements are combined.
 
TABLE OF CONTENTS
 
PAGE
GLOSSARY OF TERMS
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
5
     
PART I
Financial Information
 
ITEM 1.
Cleco Corporation — Condensed Consolidated Financial Statements
6
 
Cleco Power — Condensed Consolidated Financial Statements
14
 
Notes to the Unaudited Condensed Consolidated Financial Statements
19
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
38
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk 
54
ITEM 4 and 4T.
Controls and Procedures
55
     
PART II
Other Information
 
ITEM 1.
Legal Proceedings
56
ITEM 1A.
Risk Factors
56
ITEM 5.
Other Information
57
ITEM 6.
Exhibits
58
 
Signatures
59
 
 
 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
GLOSSARY OF TERMS

 
References in this filing, including all items in Parts I and II, to “Cleco” mean Cleco Corporation and its subsidiaries, including Cleco Power, and references to “Cleco Power” mean Cleco Power LLC and its subsidiary, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing, including all items in Parts I and II are defined below:

ABBREVIATION OR ACRONYM
DEFINITION
401(k) Plan
Cleco Power 401(k) Savings and Investment Plan
Acadia
Acadia Power Partners, LLC and its combined-cycle, natural gas-fired power plant near Eunice, Louisiana, 50% owned by APH and 50% owned by Cajun.  Prior to September 13, 2007, Acadia was 50% owned by APH and 50% owned by Calpine Acadia Holdings, LLC.
AFUDC
Allowance for Funds Used During Construction
Amended EPC Contract
Amended and Restated EPC Contract between Cleco Power and Shaw, executed on May 12, 2006, for engineering, procurement, and construction of Rodemacher Unit 3, as amended by Amendment No. 1 thereto effective March 9, 2007 and Amendment No. 2 thereto dated as of July 2, 2008.
APB
Accounting Principles Board
APB Opinion No. 10
Consolidated Financial Statements, Poolings of Interest, Convertible Debt and Debt Issued with Stock Warrants Installment Method of Accounting
APB Opinion No. 18
The Equity Method of Accounting for Investments in Common Stock
APB Opinion No. 21
Interest on Receivables and Payables
APH
Acadia Power Holdings LLC, a wholly owned subsidiary of Midstream
ARB
Accounting Research Bulletin
ARB No. 51
Consolidated Financial Statements
Attala
Attala Transmission LLC, a wholly owned subsidiary of Cleco Corporation.  Prior to February 1, 2007, Attala was a wholly owned subsidiary of Midstream.
Attala Interconnection Agreement
Interconnection Agreement and Real Estate Agreements between Attala and Entergy Mississippi
Bear Energy
BE Louisiana LLC, an indirect wholly owned subsidiary of JPMorgan Chase & Co.
Bear Stearns Companies Inc.
The parent company of Bear, Stearns & Co. Inc.
CAH
Calpine Acadia Holdings, LLC
Cajun
Cajun Gas Energy L.L.C., an affiliate of pooled investment funds managed by King Street Capital Management, L.L.C.
Calpine
Calpine Corporation
CCN
Certificate of Public Convenience and Necessity
CES
Calpine Energy Services, L.P.
Cleco Energy
Cleco Energy LLC, a wholly owned subsidiary of Midstream
Cleco Katrina/Rita
Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Diversified Lands
Diversified Lands LLC, a wholly owned subsidiary of Cleco Innovations LLC, a wholly owned subsidiary of Cleco Corporation
EITF
Emerging Issues Task Force of the FASB
EITF No. 06-11
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards
EITF No. 07-1
Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property
EITF No. 07-3
Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities
EITF No. 08-5
Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement
EITF No. 94-1
Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects
Entergy
Entergy Corporation
Entergy Gulf States
Entergy Gulf States, Inc.
Entergy Louisiana
Entergy Louisiana, Inc.
Entergy Mississippi
Entergy Mississippi, Inc.
Entergy Services
Entergy Services, Inc., as agent for Entergy Louisiana and Entergy Gulf States
EPA
United States Environmental Protection Agency
EPC
Engineering, Procurement, and Construction
ERO
Electric Reliability Organization
ESOP
Cleco Corporation Employee Stock Ownership Plan
ESPP
Cleco Corporation Employee Stock Purchase Plan
Evangeline
Cleco Evangeline LLC, a wholly owned subsidiary of Midstream, and its combined-cycle, natural gas-fired power plant located in Evangeline Parish, Louisiana
Evangeline Tolling Agreement
Capacity Sale and Tolling Agreement between Evangeline and BE Louisiana LLC (as successor to Williams Power Company, Inc. (formerly known as Williams Energy Marketing & Trading Company)) which expires in 2020.
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FIN
FASB Interpretation No.
FIN 39
Offsetting of Amounts Related to Certain Contracts – an interpretation of APB Opinion No. 10 and FASB Statement No. 105
 
 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 

ABBREVIATION OR ACRONYM
DEFINITION
FIN 45
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others
FIN 46R
Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51 (revised December 2003)
FIN 48
Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109
FSP
FASB Staff Position
FSP EITF No. 03-6-1
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
FSP No. FAS 133-1 and FIN 45-4
Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161
FSP No. FAS 142-3
Determining the Useful Life of Intangible Assets
FSP No. FAS 157-1
Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13
FSP No. FAS 157-2
Effective date of FASB Statement No. 157
FSP No. FAS 157-3
Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active
FSP No. FIN 39-1
Amendment of FASB Interpretation No. 39
GAAP
Generally Accepted Accounting Principles
ICT
Independent Coordinator of Transmission
IRP
Integrated Resource Planning
IRS
Internal Revenue Service
kWh
Kilowatt-hour(s) as applicable
LDEQ
Louisiana Department of Environmental Quality
LIBOR
London Interbank Offered Rate
Lignite Mining Agreement
Dolet Hills Mine Lignite Mining Agreement, dated as of May 31, 2001
LPSC
Louisiana Public Service Commission
LTICP
Cleco Corporation Long-Term Incentive Compensation Plan
Midstream
Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Corporation
Moody’s
Moody’s Investors Service
MW
Megawatt(s) as applicable
PCAOB
Public Company Accounting Oversight Board
PCB
Polychlorinated biphenyls
Perryville
Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Corporation.  Prior to February 1, 2007, Perryville was a wholly owned subsidiary of Perryville Energy Holdings LLC, a wholly owned subsidiary of Midstream.
Perryville Interconnection Agreement
Interconnection Agreement and Real Estate Agreements between Perryville and Entergy Louisiana
Power Purchase Agreement
Power Purchase Agreement, dated as of January 28, 2004, between Perryville and Entergy Services
PRP
Potentially responsible party
Registrant(s)
Cleco Corporation and Cleco Power
RFP
Request for Proposal
Rodemacher Unit 3
A 600-MW solid fuel generating unit under construction by Cleco Power at its existing Rodemacher plant site in Boyce, Louisiana
RTO
Regional Transmission Organization
Sale Agreement
Purchase and Sale Agreement, dated as of January 28, 2004, between Perryville and Entergy Louisiana
SEC
Securities and Exchange Commission
SERP
Cleco Corporation Supplemental Executive Retirement Plan
SFAS
Statement of Financial Accounting Standards
SFAS No. 13
Accounting for Leases
SFAS No. 71
Accounting for the Effects of Certain Types of Regulation
SFAS No. 109
Accounting for Income Taxes
SFAS No. 123(R)
Share-Based Payment
SFAS No. 131
Disclosures about Segments of an Enterprise and Related Information
SFAS No. 133
Accounting for Derivative Instruments and Hedging Activities
SFAS No. 141(R)
Business Combinations
SFAS No. 142
Goodwill and Other Intangible Assets
SFAS No. 149
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
SFAS No. 157
Fair Value Measurements
SFAS No. 159
The Fair Value Option For Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115
SFAS No. 160
Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51
SFAS No. 161
Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133
SFAS No. 162
The Hierarchy of Generally Accepted Accounting Principles
Shaw
Shaw Contractors, Inc., a subsidiary of The Shaw Group Inc.
Support Group
Cleco Support Group LLC, a wholly owned subsidiary of Cleco Corporation
SWEPCO
Southwestern Electric Power Company, a wholly owned subsidiary of American Electric Power Company, Inc.
VaR
Value-at-risk
 
 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD 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 are forward-looking statements, including, without limitation, statements regarding the construction, timing and cost of Rodemacher Unit 3; timing and outcome of Cleco Power’s proposed new rate plan; Bear Energy’s performance under the Evangeline Tolling Agreement; future capital expenditures; projections; business strategies; goals; competitive strengths; market and industry developments; development and operation of facilities; future environmental regulations and remediation liabilities; 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:
 
§  
Factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage (such as hurricanes and other storms); unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs, cost of and reliance on natural gas as a component of Cleco’s generation fuel mix and their impact on competition and franchises, fuel supply costs or availability constraints due to higher demand, shortages, transportation problems or other developments; environmental incidents; environmental compliance costs; power transmission system constraints; or outcome of Cleco Power’s proposed new rate plan filed with the LPSC in July 2008;
 
§  
Cleco Corporation’s holding company structure and its dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations and pay dividends on its common stock;
 
§  
Cleco Power’s ability to construct, operate, and maintain, within its projected costs (including financing) and timeframe, Rodemacher Unit 3, in addition to any other self-build projects identified in future IRP and RFP processes;
 
§  
Dependence of Cleco Power for energy from sources other than its facilities and the uncertainty of future long-term sources of such additional energy;
 
§  
Nonperformance by and creditworthiness of counterparties under tolling, power purchase, and energy service agreements, or the restructuring of those agreements, including possible termination;
 
§  
Regulatory factors such as changes in rate-setting policies, recovery of investments made under traditional regulation, recovery of storm restoration costs, the frequency and timing of rate increases or decreases, the results of periodic fuel audits, the results of IRP and RFP processes, the formation of RTOs and ICTs, and the compliance with ERO reliability standards for bulk power systems by Cleco Power, Acadia, Attala, Evangeline, and Perryville;
 
§  
Financial or regulatory accounting principles or policies imposed by the FASB, the SEC, the PCAOB, the FERC, the LPSC or similar entities with regulatory or accounting oversight;
 
§  
Economic conditions, including the ability of customers to continue paying for high energy costs, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates;
 
§  
Credit ratings of Cleco Corporation, Cleco Power, and Evangeline;
 
§  
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;
 
§  
Acts of terrorism;
 
§  
Availability or cost of capital resulting from changes in Cleco’s business or financial condition, interest rates or market perceptions of the electric utility industry and energy-related industries;
 
§  
The amount of uncertain tax positions;
 
§  
Employee work force factors, including work stoppages and changes in key executives;
 
§  
Legal, environmental, and regulatory delays and other obstacles associated with mergers, 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;
 
§  
Changes in federal, state, or local laws, and changes in tax laws or rates, regulating policies or environmental laws and regulations; and
 
§  
Ability of Cleco Power to recover, from its retail customers, the costs of compliance with environmental laws and regulations.
 
For additional discussion of these factors and other factors that could cause actual results to differ materially from those contemplated in the Registrants’ forward-looking statements, please read “Risk Factors” in this report and in the Registrants’ second quarter Form 10-Q for the quarterly period ended June 30, 2008, and the Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
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.
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.

 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
PART I — FINANCIAL INFORMATION

 
ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
Cleco Corporation
These unaudited condensed consolidated financial statements should be read in conjunction with Cleco Corporation’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2007.  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.”

 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Statements of Income (Unaudited)
   
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
2008
   
2007
 
Operating revenue
           
Electric operations
  $ 333,936     $ 300,862  
Other operations
    7,004       9,238  
Affiliate revenue
    2,735       1,591  
Operating revenue
    343,675       311,691  
Operating expenses
               
Fuel used for electric generation
    93,717       97,863  
Power purchased for utility customers
    150,502       108,649  
Other operations
    24,822       23,454  
Maintenance
    10,754       10,205  
Depreciation
    19,283       19,739  
Taxes other than income taxes
    9,033       10,620  
Total operating expenses
    308,111       270,530  
Operating income
    35,564       41,161  
Interest income
    1,669       2,873  
Allowance for other funds used during construction
    17,786       9,552  
Equity income from investees
    9,662       27,726  
Other income
    937       28,402  
Other expense
    (2,276 )     (1,284 )
Interest charges
               
Interest charges, including amortization of debt expenses, premium and discount, net of capitalized interest
    20,619       13,752  
Allowance for borrowed funds used during construction
    (4,923 )     (3,444 )
Total interest charges
    15,696       10,308  
Income before income taxes
    47,646       98,122  
Federal and state income tax expense
    10,513       30,077  
Net income
    37,133       68,045  
Preferred dividends requirements, net of tax
    12       12  
Net income applicable to common stock
  $ 37,121     $ 68,033  
Average shares of common stock outstanding
               
Basic
    60,031,962       59,669,692  
Diluted
    60,291,616       59,947,916  
Basic earnings per share
               
From continuing operations
  $ 0.62     $ 1.14  
Net income applicable to common stock
  $ 0.62     $ 1.14  
Diluted earnings per share
               
From continuing operations
  $ 0.62     $ 1.13  
Net income applicable to common stock
  $ 0.62     $ 1.13  
Cash dividends paid per share of common stock
  $ 0.225     $ 0.225  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
   
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Net income
  $ 37,133     $ 68,045  
Other comprehensive income (loss), net of tax:
               
Net unrealized (loss) income from available-for-sale securities (net of tax (benefit) expense of $(11) in 2008 and $11 in 2007)
    (24 )     18  
Amortization of post-retirement benefit net losses (net of tax benefit of $130 in 2008 and $16 in 2007)
    (153 )     (9 )
Other comprehensive (loss) income
    (177 )     9  
Comprehensive income, net of tax
  $ 36,956     $ 68,054  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               


 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Statements of Income (Unaudited)
   
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
 
2008
   
2007
 
Operating revenue
           
Electric operations
  $ 803,397     $ 765,791  
Other operations
    29,826       26,478  
Affiliate revenue
    7,790       4,673  
Operating revenue
    841,013       796,942  
Operating expenses
               
Fuel used for electric generation
    162,140       204,671  
Power purchased for utility customers
    392,245       308,388  
Other operations
    69,958       74,493  
Maintenance
    35,456       35,386  
Depreciation
    57,970       59,827  
Taxes other than income taxes
    27,320       30,286  
Gain on sales of assets
    (99 )     -  
Total operating expenses
    744,990       713,051  
Operating income
    96,023       83,891  
Interest income
    4,544       8,030  
Allowance for other funds used during construction
    46,462       21,715  
Equity income from investees
    2,723       97,608  
Other income
    1,094       28,644  
Other expense
    (4,322 )     (2,536 )
Interest charges
               
Interest charges, including amortization of debt expenses, premium and discount, net of capitalized interest
    49,884       41,786  
Allowance for borrowed funds used during construction
    (14,526 )     (7,502 )
Total interest charges
    35,358       34,284  
Income before income taxes
    111,166       203,068  
Federal and state income tax expense
    22,573       63,187  
Net income
    88,593       139,881  
Preferred dividends requirements, net of tax
    35       446  
Net income applicable to common stock
  $ 88,558     $ 139,435  
Average shares of common stock outstanding
               
Basic
    59,975,190       58,914,141  
Diluted
    60,146,501       59,717,636  
Basic earnings per share
               
From continuing operations
  $ 1.48     $ 2.35  
Net income applicable to common stock
  $ 1.48     $ 2.35  
Diluted earnings per share
               
From continuing operations
  $ 1.47     $ 2.34  
Net income applicable to common stock
  $ 1.47     $ 2.34  
Cash dividends paid per share of common stock
  $ 0.675     $ 0.675  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
   
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Net income
  $ 88,593     $ 139,881  
Other comprehensive loss, net of tax:
               
Net unrealized loss from available-for-sale securities (net of tax benefit of $38 in 2008 and $11 in 2007)
    (68 )     (17 )
Amortization of post-retirement benefit net losses (net of tax benefit of $145 in 2008 and $ 22 in 2007)
    (161 )     (13 )
Other comprehensive loss
    (229 )     (30 )
Comprehensive income, net of tax
  $ 88,364     $ 139,851  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
10 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
 
AT SEPTEMBER 30, 2008
   
AT DECEMBER 31, 2007
 
Assets
           
Current assets
           
Cash and cash equivalents
  $ 77,392     $ 129,013  
Restricted cash
    43,779       17,866  
Customer accounts receivable (less allowance for doubtful accounts of $2,182 in 2008 and $1,028 in 2007)
    58,127       39,587  
Accounts receivable – affiliate
    3,297       9,367  
Other accounts receivable
    39,566       39,029  
Unbilled revenue
    19,342       17,759  
Fuel inventory, at average cost
    49,267       43,291  
Material and supplies inventory, at average cost
    37,556       39,195  
Risk management assets, net
    2,954       7,201  
Accumulated deferred fuel
    43,921       9,398  
Cash surrender value of company-/trust-owned life insurance policies
    25,588       28,857  
Prepayments
    3,061       3,661  
Regulatory assets – other
    2,553       20,194  
Other current assets
    758       1,098  
Total current assets
    407,161       405,516  
Property, plant and equipment
               
Property, plant and equipment
    1,997,485       1,926,848  
Accumulated depreciation
    (938,621 )     (917,043 )
Net property, plant and equipment
    1,058,864       1,009,805  
Construction work in progress
    923,144       716,075  
Total property, plant and equipment, net
    1,982,008       1,725,880  
Equity investment in investees
    257,613       258,101  
Prepayments
    6,082       6,783  
Restricted cash, less current portion
    18,807       95  
Regulatory assets and liabilities – deferred taxes, net
    162,319       126,686  
Regulatory assets – other
    55,616       158,268  
Intangible asset
    171,179       -  
Other deferred charges
    35,036       25,294  
Total assets
  $ 3,095,821     $ 2,706,623  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
(Continued on next page)

 
11 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Balance Sheets (Unaudited) (Continued)
(THOUSANDS)
 
AT SEPTEMBER 30, 2008
   
AT DECEMBER 31, 2007
 
Liabilities and shareholders’ equity
           
Liabilities
           
Current liabilities
           
Long-term debt due within one year
  $ 63,546     $ 100,000  
Accounts payable
    151,549       123,061  
Retainage
    10,577       25  
Accounts payable – affiliate
    4,017       6,860  
Customer deposits
    26,886       25,989  
Taxes accrued
    7,228       12,411  
Interest accrued
    18,937       21,933  
Accumulated deferred taxes, net
    43,935       43,055  
Risk management liability, net
    15,486       3,881  
Regulatory liabilities – other
    523       538  
Deferred compensation
    5,935       6,366  
Other current liabilities
    14,833       13,348  
Total current liabilities
    363,452       357,467  
Deferred credits
               
Accumulated deferred federal and state income taxes, net
    384,695       366,305  
Accumulated deferred investment tax credits
    11,631       12,665  
Regulatory liabilities – other
    71,630       31,855  
Restricted storm reserve
    18,865       -  
Uncertain tax positions
    65,474       68,369  
Other deferred credits
    125,620       89,490  
Total deferred credits
    677,915       568,684  
Long-term debt, net
    992,869       769,103  
Total liabilities
    2,034,236       1,695,254  
Commitments and Contingencies (Note 11)
               
Shareholders’ equity
               
Preferred stock
               
Not subject to mandatory redemption, $100 par value, authorized 1,491,900 shares, issued 10,288 shares at  September 30, 2008 and December 31, 2007
    1,029       1,029  
Common shareholders’ equity
               
Common stock, $1 par value, authorized 100,000,000 shares, issued 60,063,711 and 59,971,945 shares and outstanding
60,038,688 and 59,943,589 shares at September 30, 2008 and December 31, 2007, respectively
    60,064       59,972  
Premium on common stock
    394,002       391,565  
Retained earnings
    615,562       567,724  
Treasury stock, at cost, 25,023 and 28,356 shares at September 30, 2008 and December 31, 2007, respectively
    (452 )     (530 )
Accumulated other comprehensive loss
    (8,620 )     (8,391 )
Total common shareholders’ equity
    1,060,556       1,010,340  
Total shareholders’ equity
    1,061,585       1,011,369  
Total liabilities and shareholders’ equity
  $ 3,095,821     $ 2,706,623  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
12 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO CORPORATION

 
Condensed Consolidated Statements of Cash Flows (Unaudited)
   
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Operating activities
           
Net income
  $ 88,593     $ 139,881  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    81,335       61,492  
Gain on sales of assets
    (99 )     -  
Proceeds from sale of bankruptcy claims
    -       78,200  
Provision for doubtful accounts
    2,906       1,799  
Return on equity investment in investees
    8,690       60,023  
Income from equity investments
    (2,723 )     (97,608 )
Unearned compensation expense
    2,994       6,507  
ESOP expense
    -       2,140  
Allowance for other funds used during construction
    (46,462 )     (21,715 )
Amortization of investment tax credits
    (1,035 )     (1,076 )
Net deferred income taxes
    (10,098 )     10,295  
Deferred fuel costs
    (25 )     400  
Loss (gain) on economic hedges
    434       (706 )
Cash surrender value of company-/trust-owned life insurance
    2,603       (1,486 )
Changes in assets and liabilities:
               
Accounts receivable
    (24,414 )     (36,644 )
Accounts and notes receivable, affiliate
    14,373       8,943  
Unbilled revenue
    (1,583 )     (2,288 )
Fuel, materials and supplies inventory
    (4,336 )     (2,153 )
Prepayments
    1,725       1,629  
Accounts payable
    6,456       (12,281 )
Accounts and notes payable, affiliate
    (38,472 )     (7,415 )
Customer deposits
    4,396       4,166  
Regulatory assets and liabilities, net
    32,119       17,156  
Other deferred accounts
    (63,971 )     (13,618 )
Retainage payable
    10,551       (12,384 )
Taxes accrued
    22,874       15,738  
Interest accrued
    (2,289 )     8,272  
Risk management assets and liabilities, net
    (8,827 )     14,814  
Other, net
    1,387       3,459  
Net cash provided by operating activities
    77,102       225,540  
Investing activities
               
Additions to property, plant and equipment
    (264,303 )     (343,458 )
Allowance for other funds used during construction
    46,462       21,715  
Proceeds from sale of property, plant and equipment
    99       422  
Return of equity investment in investee
    95       -  
Equity investment in investees
    (14,697 )     (2,220 )
Premiums paid on company-/trust-owned life insurance
    (629 )     (2,017 )
Settlements received from insurance policies
    941       -  
Transfer of cash (to) from restricted accounts
    (44,625 )     24,358  
Other investing
    599       96  
Net cash used in investing activities
    (276,058 )     (301,104 )
Financing activities
               
Retirement of long-term obligations
    (350,318 )     (25,290 )
Issuance of long-term debt
    537,541       135,000  
Deferred financing costs
    (315 )     (876 )
Dividends paid on preferred stock
    (35 )     (446 )
Dividends paid on common stock
    (40,521 )     (39,805 )
Other financing
    983       9,872  
Net cash provided by financing activities
    147,335       78,455  
Net (decrease) increase in cash and cash equivalents
    (51,621 )     2,891  
Cash and cash equivalents at beginning of period
    129,013       192,471  
Cash and cash equivalents at end of period
  $ 77,392     $ 195,362  
Supplementary cash flow information
               
Interest paid (net of amount capitalized)
  $ 33,950     $ 33,504  
Income taxes paid 
  $ 40,180     $ 48,000  
Supplementary non-cash investing and financing activities
               
Issuance of treasury stock – LTICP and ESOP plans
  $ 79     $ 67  
Issuance of common stock – LTICP/ESOP/ESPP 1
  $ 93     $ 21,501  
Accrued additions to property, plant and equipment not reported above
  $ 10,868     $ 92,789  
1  Includes conversion of preferred stock to common stock ($19,063/2007)
               
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
13 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
PART I — FINANCIAL INFORMATION

 
ITEM 1.     CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 
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, 2007.  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 CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO POWER

 
Condensed Consolidated Statements of Income (Unaudited)
   
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Operating revenue
           
Electric operations
  $ 333,936     $ 300,862  
Other operations
    6,981       9,231  
Affiliate revenue
    425       511  
Operating revenue
    341,342       310,604  
Operating expenses
               
Fuel used for electric generation
    93,717       97,863  
Power purchased for utility customers
    150,502       108,649  
Other operations
    23,242       22,739  
Maintenance
    9,719       9,590  
Depreciation
    18,861       19,401  
Taxes other than income taxes
    8,732       10,053  
Total operating expenses
    304,773       268,295  
Operating income
    36,569       42,309  
Interest income
    1,545       1,082  
Allowance for other funds used during construction
    17,786       9,552  
Other income
    956       528  
Other expense
    (779 )     (189 )
Interest charges
               
Interest charges, including amortization of debt expenses, premium and discount
    19,896       11,657  
Allowance for borrowed funds used during construction
    (4,923 )     (3,444 )
Total interest charges
    14,973       8,213  
Income before income taxes
    41,104       45,069  
Federal and state income taxes
    10,566       10,871  
Net income
  $ 30,538     $ 34,198  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
15 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO POWER

 
Condensed Consolidated Statements of Income (Unaudited)
   
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Operating revenue
           
Electric operations
  $ 803,397     $ 765,791  
Other operations
    29,757       26,413  
Affiliate revenue
    1,527       1,540  
Operating revenue
    834,681       793,744  
Operating expenses
               
Fuel used for electric generation
    162,140       204,671  
Power purchased for utility customers
    392,245       308,388  
Other operations
    65,862       71,318  
Maintenance
    32,556       33,587  
Depreciation
    56,886       58,784  
Taxes other than income taxes
    24,727       28,540  
Total operating expenses
    734,416       705,288  
Operating income
    100,265       88,456  
Interest income
    3,121       3,548  
Allowance for other funds used during construction
    46,462       21,715  
Other income
    1,172       812  
Other expense
    (1,643 )     (985 )
Interest charges
               
Interest charges, including amortization of debt expenses, premium and discount
    45,961       35,385  
Allowance for borrowed funds used during construction
    (14,526 )     (7,502 )
Total interest charges
    31,435       27,883  
Income before income taxes
    117,942       85,663  
Federal and state income taxes
    27,135       20,517  
Net income
  $ 90,807     $ 65,146  
The accompanying notes are an integral part of the condensed financial statements.
               

 
16 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO POWER

 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
 
AT SEPTEMBER 30, 2008
   
AT DECEMBER 31, 2007
 
Assets
           
Utility plant and equipment
           
Property, plant and equipment
  $ 1,981,568     $ 1,911,626  
Accumulated depreciation
    (927,968 )     (907,434 )
Net property, plant and equipment
    1,053,600       1,004,192  
Construction work in progress
    921,934       714,978  
Total utility plant, net
    1,975,534       1,719,170  
Current assets
               
Cash and cash equivalents
    67,979       11,944  
Restricted cash
    43,779       17,866  
Customer accounts receivable (less allowance for doubtful accounts of $2,182 in 2008 and $1,028 in 2007)
    58,127       39,587  
Other accounts receivable
    39,414       38,527  
Accounts receivable – affiliate
    2,257       17,425  
Unbilled revenue
    19,342       17,759  
Fuel inventory, at average cost
    49,267       43,291  
Material and supplies inventory, at average cost
    37,556       39,195  
Risk management assets, net
    2,954       7,201  
Prepayments
    2,389       2,900  
Regulatory assets – other
    2,553       20,194  
Accumulated deferred fuel
    43,921       9,398  
Cash surrender value of company-owned life insurance policies
    5,453       5,333  
Other current assets
    275       439  
Total current assets
    375,266       271,059  
Prepayments
    6,082       6,783  
Restricted cash, less current portion
    18,711       -  
Regulatory assets and liabilities – deferred taxes, net
    162,319       126,686  
Regulatory assets – other
    55,616       158,268  
Intangible asset
    171,179       -  
Other deferred charges
    24,533       24,516  
Total assets
  $ 2,789,240     $ 2,306,482  
Liabilities and member’s equity
               
Member’s equity
  $ 906,592     $ 816,110  
Long-term debt, net
    944,869       769,103  
Total capitalization
    1,851,461       1,585,213  
Current liabilities
               
Long-term debt due within one year
    63,546       -  
Accounts payable
    147,945       117,640  
Accounts payable – affiliate
    6,242       18,881  
Retainage
    10,577       25  
Customer deposits
    26,886       25,989  
Taxes accrued
    24,830       6,958  
Interest accrued
    18,872       17,536  
Accumulated deferred taxes, net
    45,590       45,205  
Risk management liability, net
    15,486       3,881  
Regulatory liabilities – other
    523       538  
Other current liabilities
    11,634       9,690  
Total current liabilities
    372,131       246,343  
Deferred credits
               
Accumulated deferred federal and state income taxes, net
    344,939       321,747  
Accumulated deferred investment tax credits
    11,631       12,665  
Regulatory liabilities – other
    71,630       31,855  
Restricted storm reserve
    18,865       -  
Uncertain tax positions
    43,223       44,960  
Other deferred credits
    75,360       63,699  
Total deferred credits
    565,648       474,926  
Total liabilities and member’s equity
  $ 2,789,240     $ 2,306,482  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
17 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
CLECO POWER

 
Condensed Consolidated Statements of Cash Flows (Unaudited)
   
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
 
Operating activities
           
Net income
  $ 90,807     $ 65,146  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    63,543       60,019  
Provision for doubtful accounts
    2,901       1,799  
Unearned compensation expense
    867       3,044  
Allowance for other funds used during construction
    (46,462 )     (21,715 )
Amortization of investment tax credits
    (1,035 )     (1,076 )
Net deferred income taxes
    (4,577 )     (11,952 )
Deferred fuel costs
    (25 )     400  
Loss (gain) on economic hedges
    434       (706 )
Cash surrender value of company-owned life insurance
    (317 )     (221 )
Changes in assets and liabilities:
               
Accounts receivable
    (24,760 )     (36,424 )
Accounts and notes receivable, affiliate
    15,209       (10,693 )
Unbilled revenue
    (1,583 )     (2,288 )
Fuel, materials and supplies inventory
    (4,336 )     (2,153 )
Prepayments
    1,636       1,440  
Accounts payable
    8,947       (10,753 )
Accounts and notes payable, affiliate
    (12,990 )     (24,726 )
Customer deposits
    4,396       4,166  
Regulatory assets and liabilities, net
    32,119       17,156  
Other deferred accounts
    (69,536 )     (14,468 )
Retainage payable
    10,551       (12,384 )
Taxes accrued
    17,872       13,592  
Interest accrued
    2,043       5,981  
Risk management assets and liabilities, net
    (8,827 )     14,814  
Other, net
    2,191       3,188  
Net cash provided by operating activities
    79,068       41,186  
Investing activities
               
Additions to property, plant and equipment
    (263,454 )     (342,688 )
Allowance for other funds used during construction
    46,462       21,715  
Proceeds from sale of property, plant and equipment
    99       422  
Premiums paid on company-owned life insurance
    (424 )     (470 )
Transfer of cash (to) from restricted accounts
    (44,624 )     24,361  
Net cash used in investing activities
    (261,941 )     (296,660 )
Financing activities
               
Retirement of long-term obligations
    (250,318 )     (25,290 )
Issuance of long-term debt
    489,541       135,000  
Deferred financing costs
    (315 )     (873 )
Contribution from parent
    -       60,000  
Net cash provided by financing activities
    238,908       168,837  
Net increase (decrease) in cash and cash equivalents
    56,035       (86,637 )
Cash and cash equivalents at beginning of period
    11,944       101,878  
Cash and cash equivalents at end of period
  $ 67,979     $ 15,241  
Supplementary cash flow information
               
Interest paid (net of amount capitalized)
  $ 29,531     $ 29,985  
Income taxes paid
    2,100       -  
Supplementary non-cash investing and financing activities
               
Accrued additions to property, plant and equipment not reported above
  $ 10,868     $ 92,789  
The accompanying notes are an integral part of the condensed consolidated financial statements.
               

 
18 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD 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 Corporation and Cleco Power
Note 2
Recent Accounting Standards
Cleco Corporation and Cleco Power
Note 3
Fair Value Measurement Disclosures
Cleco Corporation and Cleco Power
Note 4
Regulatory Assets and Liabilities
Cleco Corporation and Cleco Power
Note 5
Restricted Cash
Cleco Corporation and Cleco Power
Note 6
Debt
Cleco Corporation and Cleco Power
Note 7
Pension Plan and Employee Benefits
Cleco Corporation and Cleco Power
Note 8
Income Taxes
Cleco Corporation and Cleco Power
Note 9
Disclosures about Segments
Cleco Corporation
Note 10
Equity Investment in Investees
Cleco Corporation
Note 11
Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees
Cleco Corporation and Cleco Power
Note 12
Affiliate Transactions
Cleco Corporation and Cleco Power
Note 13
Intangible Asset
Cleco Corporation and Cleco Power
Note 14
Storm Restoration
Cleco Corporation 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 and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.
Cleco has adopted the provisions of FIN 46R on its scheduled effective dates.  Through a review of equity interests and other contractual relationships, Cleco has determined that it is not the primary beneficiary of Evangeline, Perryville, Attala, and Acadia.  These are considered variable interest entities.  In accordance with FIN 46R, Cleco reports its investment in these entities on the equity method of accounting.  As a result, the assets and liabilities of these entities are represented by one line item corresponding to Cleco’s equity investment in these entities.  The pre-tax results of operations of these entities are reported as equity income from investees on Cleco Corporation’s Condensed Consolidated Statements of Income.  For additional information on the operations of these entities, see Note 10 — “Equity Investment in Investees.”
In March 2008, in connection with the closing of the securitization transaction, Cleco Power sold the right to bill and collect from customers unamortized storm damage costs to Cleco Katrina/Rita, a special purpose, wholly owned subsidiary of Cleco Power.  Cleco Power, through a review of its relationships with Cleco Katrina/Rita, has determined the entity should be consolidated with Cleco Power.  For additional information about Cleco Katrina/Rita, see Note 4 — “Regulatory Assets and Liabilities — Deferred Storm Restoration Costs - Katrina/Rita.”
In August 2008, Cleco Corporation acquired an equity interest in a limited liability company.  Cleco will not be affected by the performance of the investment.  The investment is reported at the cost of the investment net of the liability incurred.  For additional information about this transaction, see Note 11 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees.” 
 
Basis of Presentation
The condensed consolidated financial statements of Cleco Corporation and Cleco Power have been prepared pursuant to the rules and regulations of the SEC.  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although Cleco believes that the disclosures are adequate to make the information presented not misleading.
The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles.  The unaudited financial information included in the condensed consolidated financial statements of Cleco Corporation and Cleco Power reflects all adjustments of a normal recurring nature which are, in the opinion of the management of Cleco Corporation and Cleco Power, necessary for a fair statement of the financial position and the results of operations for the interim periods. Information for interim periods is affected by seasonal variations in sales, rate changes, timing of fuel expense recovery and other factors, and is not indicative necessarily of the results that may be expected for the full fiscal year.  For more information on recent accounting standards and their effect on financial results, see Note 2 — “Recent Accounting Standards.”
 
Reclassifications
Certain reclassifications have been made to prior period financial statements to conform them to the presentation used in the current year’s financial statements. These reclassifications had no effect on Cleco Corporation’s net income

 
19 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
 applicable to common stock or total common shareholders’ equity or Cleco Power’s net income or total member’s equity.
 
Fair Value Measurements
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values.  Certain 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 issuance.  Beginning with reporting periods ending after January 1, 2008, Cleco and Cleco Power are required to disclose the fair value of financial assets and liabilities by one of three levels.  For more information about fair value levels, see Note 3 — “Fair Value Measurement Disclosures.”
 
Risk Management 
Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes arising from changes in interest rates and the commodity market prices of power and natural gas. Cleco’s Energy 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 and natural gas.  Cleco uses SFAS No. 133 to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market.  Generally, Cleco Power’s market risk-sensitive instruments and positions qualify for the normal-purchase, normal-sale exception to mark-to-market accounting of SFAS No. 133, as modified by SFAS No. 149, since Cleco Power takes physical delivery and the instruments and positions are used to satisfy customer requirements.  
Cleco Power has entered into certain financial transactions it considers economic hedges to mitigate the risk associated with the fixed-price power to be provided to a wholesale customer through December 2010.  The economic hedges cover approximately 92% of the estimated daily peak-hour power sales to the wholesale customer.  These transactions are derivatives as defined by SFAS No. 133 but do not meet the accounting criteria to be considered hedges.  These transactions are marked-to-market with the resulting gain or loss recorded on the income statement as a component of operating revenue, net.  For the three and nine months ended September 30, 2008, and 2007, the following gains and losses related to these economic hedge transactions were recorded in other operations revenue.

   
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
   
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
 
(THOUSANDS)
 
2008
   
2007
   
2008
   
2007
 
Realized gain (loss)
  $ 163     $ (189 )   $ 950     $ (205 )
Mark-to-market  (loss) gain
    (4,940 )     (522 )     (433 )     706  
Total (loss) gain
  $ (4,777 )   $ (711 )   $ 517     $ 501  
 
Cleco Power has entered into other positions to mitigate the volatility in customer fuel costs. These positions are recorded as risk management assets or liabilities with the corresponding mark-to-market gain or loss recorded on the balance sheet as a component of accumulated deferred fuel.  When these positions close, actual gains or losses will be included in the fuel adjustment clause and reflected on customers’ bills as a component of the fuel cost adjustment.  Based on market prices at September 30, 2008, and December 31, 2007, the net mark-to-market impacts relating to these positions were losses of $31.8 million and $7.0 million, respectively.  The increase in losses is due to the decline in natural gas prices at September 30, 2008, compared to December 31, 2007.  Deferred losses relating to closed natural gas positions at September 30, 2008, and December 31, 2007, totaled $4.0 million and $3.1 million, respectively.
Cleco Power maintains margin accounts with commodity brokers used to partially fund the acquisition of natural gas futures, options and swap contracts.  These contracts/positions are used to mitigate the risks associated with the fixed-price power sales and volatility in customer fuel costs noted above.  At September 30, 2008, and December 31, 2007, Cleco Power had paid collateral of $11.8 million and $3.0 million, respectively, to cover margin requirements relating to open natural gas futures, options and swap positions.  These margin requirements are netted with the mark-to-market positions recorded in the risk management asset or liability and other deferred charges or credits on the balance sheet.
Cleco Power’s economic hedge positions and the positions used to mitigate the volatility in customer fuel costs are transacted through the use of futures positions on the NYMEX (New York Mercantile Exchange) and with OTC (over the counter) swap and option positions traded with major banks.  Exchange traded positions (NYMEX) mitigate counterparty risk; however, the positions require more liquidity due to the daily settlement provision.  OTC positions are executed under International Swap Dealers Association (ISDA) agreements.  
Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, corporate-wide aggregate counterparty credit exposure and corporate-wide aggregate counterparty concentration levels.  Cleco actively manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and by requiring contractual guarantees, cash deposits or letters of credit from counterparties or their affiliates, as deemed necessary.  Cleco Power has agreements in place with various counterparties that authorize the netting of financial buys and sells and contract payments to mitigate credit risk for transactions entered into for risk management purposes. 
 
 
20 

 
 
CLECO CORPORATION       
CLECO POWER                
2008 3RD QUARTER FORM 10-Q 
 
Earnings per Average Common Share
The following tables show the calculation of basic and diluted earnings per share.

                     
FOR