0001089819-18-000020.txt : 20180801 0001089819-18-000020.hdr.sgml : 20180801 20180801122535 ACCESSION NUMBER: 0001089819-18-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 96 CONFORMED PERIOD OF REPORT: 20180630 FILED AS OF DATE: 20180801 DATE AS OF CHANGE: 20180801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Cleco Corporate Holdings LLC CENTRAL INDEX KEY: 0001089819 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 721445282 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15759 FILM NUMBER: 18983833 BUSINESS ADDRESS: STREET 1: 2030 DONAHUE FERRY ROAD CITY: PINEVILLE STATE: LA ZIP: 71360-5226 BUSINESS PHONE: 3184847400 MAIL ADDRESS: STREET 1: PO BOX 5000 CITY: PINEVILLE STATE: LA ZIP: 71361-5000 FORMER COMPANY: FORMER CONFORMED NAME: CLECO CORP DATE OF NAME CHANGE: 19990708 FORMER COMPANY: FORMER CONFORMED NAME: CLECO HOLDING CORP DATE OF NAME CHANGE: 19990630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLECO POWER LLC CENTRAL INDEX KEY: 0000018672 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 720244480 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05663 FILM NUMBER: 18983832 BUSINESS ADDRESS: STREET 1: 2030 DONAHUE FERRY ROAD CITY: PINEVILLE STATE: LA ZIP: 71360-5226 BUSINESS PHONE: 3184847400 MAIL ADDRESS: STREET 1: 2030 DONAHUE FERRY ROAD CITY: PINEVILLE STATE: LA ZIP: 71360-5226 FORMER COMPANY: FORMER CONFORMED NAME: CLECO UTILITY GROUP INC DATE OF NAME CHANGE: 19990708 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL LOUISIANA ELECTRIC CO INC DATE OF NAME CHANGE: 19920703 10-Q 1 cnl-6302018xq2.htm 10-Q Document
 
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 June 30, 2018
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 x  No ¨
 
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 (Do not check if a smaller reporting company) 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 (Do not check if a smaller reporting company) 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

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
 
2018 2ND QUARTER FORM 10-Q

This Combined 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 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.


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CLECO POWER
 
2018 2ND 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
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%
ADIT
Accumulated Deferred Income Tax
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 
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
ARRA
American Recovery and Reinvestment Act of 2009
Attala
Attala Transmission LLC, a wholly owned subsidiary of Cleco Holdings
BCI
British Columbia Investment Management Corporation, formerly bcIMC
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 Corporation
Pre-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
Cottonwood Energy
Cottonwood Energy Company LP, an indirect subsidiary of NRG South Central. Upon closing of the Purchase and Sale Agreement, Cottonwood Energy will become an indirect subsidiary of Cleco Holdings.
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
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
LPSC
Louisiana Public Service Commission
Madison Unit 3
A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana

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CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

ABBREVIATION OR ACRONYM
DEFINITION
MATS
Mercury and Air Toxics Standards
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
Merger Agreement
Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation
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
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 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
NMTC
New Markets Tax Credit
NMTC Fund
USB NMTC Fund 2008-1 LLC was formed to invest in projects qualifying for New Markets Tax Credits and Solar Projects
Not Meaningful
A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000%
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
PCB
Polychlorinated biphenyl
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 Energy LLC (now Cleco Cajun)
RE
Regional Entity
Registrant(s)
Cleco Holdings and/or Cleco Power
ROE
Return on Equity
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
Southwest Power Pool
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
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
 
2018 2ND QUARTER FORM 10-Q

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Combined 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 Combined Quarterly Report 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 Merger on Cleco Holdings’ and Cleco Power’s business relationships, operating results, and business generally,
regulatory factors, such as changes in rate-setting practices or policies; the unpredictability in 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,
the ability to recover fuel costs through the FAC,
the ability to close the proposed transaction with NRG Energy and NRG South Central, including the related financings,
the ability to successfully integrate the assets to be acquired in the proposed transaction with NRG Energy and NRG South Central, if completed, 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 Power’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 until at least 2036,
Cleco Power’s ability to maintain its right to sell wholesale power at market-based rates within its control area, 
Cleco Power’s dependence on energy from sources other than its facilities and future sources of such additional energy,
reliability of Cleco Power’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 certain 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 (including the NRG South Central acquisition), 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

5


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

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 Merger Commitments,
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,
the ability to remain in compliance with 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

 
employee workforce factors, including aging workforce, changes in management, and inadequate resources.

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 report 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, 2017.
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 Combined 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
 
2018 2ND 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, 2017. 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.”

7


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
294,213

 
$
287,435

Other operations
18,685

 
21,465

Gross operating revenue
312,898

 
308,900

Electric customer credits
(13,637
)
 
(239
)
Operating revenue, net
299,261

 
308,661

Operating expenses
 
 
 
Fuel used for electric generation
77,562

 
87,974

Power purchased for utility customers
50,154

 
43,356

Other operations
30,511

 
26,235

Maintenance
24,192

 
24,400

Depreciation and amortization
41,807

 
41,552

Taxes other than income taxes
11,326

 
11,874

Total operating expenses
235,552

 
235,391

Operating income
63,709

 
73,270

Interest income
1,427

 
381

Allowance for equity funds used during construction
3,224

 
1,440

Other income
798

 
475

Other expense
(3,745
)
 
(3,281
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
32,957

 
31,022

Allowance for borrowed funds used during construction
(1,048
)
 
(401
)
Total interest charges
31,909

 
30,621

Income before income taxes
33,504

 
41,664

Federal and state income tax expense
7,665

 
16,220

Net income
$
25,839

 
$
25,444

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

8


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
25,839

 
$
25,444

Other comprehensive income, net of tax
 

 
 
Postretirement benefits gain (net of tax expense of $87 in 2018 and $37 in 2017)
247

 
60

Total other comprehensive income, net of tax
247

 
60

Comprehensive income, net of tax
$
26,086

 
$
25,504

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

9


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
556,424

 
$
521,491

Other operations
40,881

 
38,345

Gross operating revenue
597,305

 
559,836

Electric customer credits
(21,284
)
 
(674
)
Operating revenue, net
576,021

 
559,162

Operating expenses
 
 
 
Fuel used for electric generation
144,578

 
157,846

Power purchased for utility customers
103,313

 
75,320

Other operations
58,477

 
55,561

Maintenance
53,311

 
48,924

Depreciation and amortization
84,314

 
82,402

Taxes other than income taxes
23,584

 
24,376

Total operating expenses
467,577

 
444,429

Operating income
108,444

 
114,733

Interest income
2,211

 
693

Allowance for equity funds used during construction
5,587

 
2,350

Other income
981

 
1,845

Other expense
(6,928
)
 
(6,219
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
64,988

 
62,967

Allowance for borrowed funds used during construction
(1,921
)
 
(628
)
Total interest charges
63,067

 
62,339

Income before income taxes
47,228

 
51,063

Federal and state income tax expense
10,528

 
19,327

Net income
$
36,700

 
$
31,736

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

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CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
36,700

 
$
31,736

Other comprehensive income (loss), net of tax
 
 
 
Postretirement benefits gain (loss) (net of tax expense of $102 in 2018 and tax benefit of $1,333 in 2017)
290

 
(2,131
)
Total other comprehensive income (loss), net of tax
290

 
(2,131
)
Comprehensive income, net of tax
$
36,990

 
$
29,605

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

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CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT JUNE 30, 2018

 
AT DEC. 31, 2017

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
116,312

 
$
119,040

Restricted cash and cash equivalents
9,945

 
13,081

Customer accounts receivable (less allowance for doubtful accounts of $1,054 in 2018 and $1,457 in 2017)
65,886

 
60,117

Other accounts receivable
24,648

 
30,806

Unbilled revenue
46,480

 
36,398

Fuel inventory, at average cost
78,621

 
87,520

Materials and supplies, at average cost
87,927

 
85,404

Energy risk management assets
26,077

 
7,396

Accumulated deferred fuel
36,786

 
13,980

Cash surrender value of company-/trust-owned life insurance policies
83,365

 
83,117

Prepayments
8,249

 
9,050

Regulatory assets
21,361

 
24,670

Other current assets
1,749

 
1,146

Total current assets
607,406

 
571,725

Property, plant, and equipment
 
 
 
Property, plant, and equipment
3,691,344

 
3,594,525

Accumulated depreciation
(251,348
)
 
(192,348
)
Net property, plant, and equipment
3,439,996

 
3,402,177

Construction work in progress
238,218

 
186,629

Total property, plant, and equipment, net
3,678,214

 
3,588,806

Equity investment in investee
18,172

 
18,172

Goodwill
1,490,797

 
1,490,797

Restricted cash and cash equivalents
19,080

 
20,081

Regulatory assets
417,849

 
432,358

Intangible assets
99,889

 
114,850

Other deferred charges
54,204

 
41,593

Total assets
$
6,385,611

 
$
6,278,382

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 

 
 

 
 
 
 
(Continued on next page)
 
 
 

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CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT JUNE 30, 2018

 
AT DEC. 31, 2017

Liabilities and member’s equity
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Long-term debt due within one year
$
20,405

 
$
19,193

Accounts payable
145,459

 
147,562

Customer deposits
60,494

 
58,582

Provision for rate refund
25,311

 
4,206

Taxes payable, net
46,237

 
22,698

Interest accrued
16,024

 
14,703

Deferred compensation
11,500

 
12,132

Other current liabilities
24,027

 
21,278

Total current liabilities
349,457

 
300,354

Long-term liabilities and deferred credits
 

 
 

Accumulated deferred federal and state income taxes, net
624,584

 
614,812

Postretirement benefit obligations
243,740

 
242,135

Regulatory liabilities - deferred taxes, net
136,447

 
140,426

Restricted storm reserve
14,955

 
14,469

Other deferred credits
34,625

 
33,724

Total long-term liabilities and deferred credits
1,054,351

 
1,045,566

Long-term debt, net
2,888,356

 
2,836,105

Total liabilities
4,292,164

 
4,182,025

Commitments and contingencies (Note 12)


 


Member’s equity
 

 
 

Membership interest
2,069,376

 
2,069,376

Retained earnings
26,702

 
29,902

Accumulated other comprehensive loss
(2,631
)
 
(2,921
)
Total member’s equity
2,093,447

 
2,096,357

Total liabilities and member’s equity
$
6,385,611

 
$
6,278,382

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 

 
 


13


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO
 
 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 
 
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating activities
 
 
 
Net income
$
36,700

 
$
31,736

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
92,756

 
93,943

Provision for doubtful accounts
84

 
2,587

Unearned compensation expense
2,005

 
1,909

Allowance for equity funds used during construction
(5,587
)
 
(2,350
)
Deferred income taxes
5,691

 
16,881

Deferred fuel costs
(26,339
)
 
(305
)
Cash surrender value of company-/trust-owned life insurance
(248
)
 
(2,393
)
Changes in assets and liabilities
 
 
 
Accounts receivable
(8,309
)
 
(30,205
)
Unbilled revenue
(10,083
)
 
(5,677
)
Fuel inventory and materials and supplies
6,500

 
(9,652
)
Accounts payable
306

 
(23,828
)
Customer deposits
6,746

 
5,646

Provision for merger commitments
(1,847
)
 
(6,761
)
Postretirement benefit obligations
1,998

 
2,696

Regulatory assets and liabilities, net
7,917

 
4,896

Other deferred accounts
1,612

 
(8,631
)
Taxes accrued
22,621

 
15,000

Interest accrued
1,321

 
965

Other operating
1,964

 
608

Net cash provided by operating activities
135,808

 
87,065

Investing activities
 
 
 
Additions to property, plant, and equipment
(135,702
)
 
(128,693
)
Allowance for equity funds used during construction
5,587

 
2,350

Reimbursement for property loss
1,223

 
105

Issuance of note receivable
(16,800
)
 

Return of equity investment in tax credit fund
2,775

 
841

Other investing
672

 
328

Net cash used in investing activities
(142,245
)
 
(125,069
)
Financing activities
 
 
 
Draws on credit facilities

 
114,000

Payments on credit facilities

 
(29,000
)
Issuances of long-term debt
50,000

 

Repayment of long-term debt
(9,700
)
 
(9,060
)
Distributions to member
(39,900
)
 
(55,655
)
Other financing
(828
)
 
(849
)
Net cash (used in) provided by financing activities
(428
)

19,436

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
(6,865
)

(18,568
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
152,202

(1) 
69,571

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
145,337

(2) 
$
51,003

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
60,528

 
$
57,937

Income taxes paid, net
$
272

 
$
1

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
40,011

 
$
13,125

Non-cash additions to property, plant, and equipment
$

 
$
3,009

Incurrence of capital lease obligation - barges
$
16,800

 
$

(1) Includes cash and cash equivalents of $119,040, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,081.
(2) Includes cash and cash equivalents of $116,312, current restricted cash and cash equivalents of $9,945, and non-current restricted cash and cash equivalents of $19,080.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

14


CLECO
 
 
CLECO POWER
 
2018 2ND 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

 
(39,900
)
 

 
(39,900
)
Net income

 
36,700

 

 
36,700

Other comprehensive income, net of tax

 

 
290

 
290

Balances, June 30, 2018
$
2,069,376

 
$
26,702


$
(2,631
)

$
2,093,447

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

 
 

 
 


15


CLECO
 
 
CLECO POWER
 
2018 2ND 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, 2017. 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.”


16


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
296,633

 
$
289,855

Other operations
18,685

 
20,950

Affiliate revenue
220

 
221

Gross operating revenue
315,538

 
311,026

Electric customer credits
(13,637
)
 
(239
)
Operating revenue, net
301,901

 
310,787

Operating expenses
 
 
 
Fuel used for electric generation
77,562

 
87,974

Power purchased for utility customers
50,154

 
43,356

Other operations
26,812

 
27,649

Maintenance
24,138

 
24,264

Depreciation and amortization
39,720

 
39,473

Taxes other than income taxes
10,913

 
11,404

Total operating expenses
229,299

 
234,120

Operating income
72,602

 
76,667

Interest income
1,313

 
328

Allowance for equity funds used during construction
3,224

 
1,440

Other income
797

 
165

Other expense
(3,099
)
 
(2,393
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
19,155

 
17,812

Allowance for borrowed funds used during construction
(1,048
)
 
(401
)
Total interest charges
18,107

 
17,411

Income before income taxes
56,730

 
58,796

Federal and state income tax expense
13,710

 
23,063

Net income
$
43,020

 
$
35,733

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 


17


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
43,020

 
$
35,733

Other comprehensive income, net of tax
 

 
 

Postretirement benefits gain (net of tax expense of $94 in 2018 and $120 in 2017)
267

 
193

Amortization of interest rate derivatives to earnings (net of tax expense of $22 in 2018 and $33 in 2017)
64

 
53

Total other comprehensive income, net of tax
331

 
246

Comprehensive income, net of tax
$
43,351

 
$
35,979

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 


18


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating revenue
 
 
 
Electric operations
$
561,264

 
$
527,408

Other operations
40,880

 
37,315

Affiliate revenue
428

 
440

Gross operating revenue
602,572

 
565,163

Electric customer credits
(21,284
)
 
(674
)
Operating revenue, net
581,288

 
564,489

Operating expenses
 
 


Fuel used for electric generation
144,578

 
157,846

Power purchased for utility customers
103,313

 
75,320

Other operations
54,116

 
57,913

Maintenance
53,216

 
48,684

Depreciation and amortization
80,109

 
78,230

Taxes other than income taxes
22,831

 
23,404

Total operating expenses
458,163

 
441,397

Operating income
123,125

 
123,092

Interest income
1,953

 
594

Allowance for equity funds used during construction
5,587

 
2,350

Other income
1,537

 
375

Other expense
(5,708
)
 
(4,391
)
Interest charges
 
 
 
Interest charges, including amortization of debt issuance costs, premiums, and discounts, net
37,684

 
36,143

Allowance for borrowed funds used during construction
(1,921
)
 
(628
)
Total interest charges
35,763

 
35,515

Income before income taxes
90,731

 
86,505

Federal and state income tax expense
21,707

 
32,918

Net income
$
69,024

 
$
53,587

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

19


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Net income
$
69,024

 
$
53,587

Other comprehensive income (loss), net of tax
 
 
 
Postretirement benefits gain (loss) (net of tax expense of $177 in 2018 and tax benefit $142 in 2017)
500

 
(227
)
Amortization of interest rate derivatives to earnings (net of tax expense of $45 in 2018 and $66 in 2017)
128

 
106

Total other comprehensive income (loss), net of tax
628

 
(121
)
Comprehensive income, net of tax
$
69,652

 
$
53,466

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

20


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT JUNE 30, 2018

 
AT DEC. 31, 2017

Assets
 
 
 
Property, plant, and equipment
$
4,985,054

 
$
4,893,484

Accumulated depreciation
(1,763,394
)
 
(1,712,590
)
Net property, plant, and equipment
3,221,660

 
3,180,894

Construction work in progress
238,151

 
185,507

Total utility plant and equipment, net
3,459,811

 
3,366,401

Current assets
 
 
 
Cash and cash equivalents
71,579

 
69,816

Restricted cash and cash equivalents
9,945

 
13,081

Customer accounts receivable (less allowance for doubtful accounts of $1,054 in 2018 and $1,457 in 2017)
65,886

 
60,117

Accounts receivable - affiliate
698

 
1,355

Other accounts receivable
24,149

 
30,680

Unbilled revenue
46,480

 
36,398

Fuel inventory, at average cost
78,621

 
87,520

Materials and supplies, at average cost
87,927

 
85,404

Energy risk management assets
26,077

 
7,396

Accumulated deferred fuel
36,786

 
13,980

Cash surrender value of company-owned life insurance policies
20,394

 
20,278

Prepayments
6,700

 
7,236

Regulatory assets
12,504

 
15,812

Other current assets
905

 
475

Total current assets
488,651

 
449,548

Equity investment in investee
18,172

 
18,172

Restricted cash and cash equivalents
19,059

 
20,060

Regulatory assets
248,494

 
257,408

Intangible asset
31,707

 
41,701

Other deferred charges
50,868

 
35,451

Total assets
$
4,316,762

 
$
4,188,741

 
 
 
 
Liabilities and member’s equity
 
 
 
Member’s equity
$
1,549,331

 
$
1,550,679

Long-term debt, net
1,397,700

 
1,341,475

Total capitalization
2,947,031

 
2,892,154

Current liabilities
 
 
 
Long-term debt due within one year
20,405

 
19,193

Accounts payable
137,599

 
134,374

Accounts payable - affiliate
10,701

 
8,697

Customer deposits
60,494

 
58,582

Provision for rate refund
25,311

 
4,206

Taxes payable, net
64,562

 
31,611

Interest accrued
8,490

 
7,083

Other current liabilities
18,826

 
16,172

Total current liabilities
346,388

 
279,918

Commitments and contingencies (Note 12)


 


Accumulated deferred federal and state income taxes, net
668,128

 
656,362

Postretirement benefit obligations
172,220

 
173,747

Regulatory liabilities - deferred taxes, net
136,447

 
140,426

Restricted storm reserve
14,955

 
14,469

Other deferred credits
31,593

 
31,665

Total long-term liabilities and deferred credits
1,023,343

 
1,016,669

Total liabilities and member’s equity
$
4,316,762

 
$
4,188,741

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 

21


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2018

 
2017

Operating activities
 
 
 
Net income
$
69,024

 
$
53,587

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Depreciation and amortization
83,199

 
82,292

Provision for doubtful accounts
84

 
2,500

Unearned compensation expense
609

 
1,023

Allowance for equity funds used during construction
(5,587
)
 
(2,350
)
Deferred income taxes
7,566

 
3,916

Deferred fuel costs
(26,339
)
 
(305
)
Changes in assets and liabilities
 
 
 
Accounts receivable
(7,933
)
 
(30,240
)
Accounts receivable, affiliate
1,639

 
1,560

Unbilled revenue
(10,083
)
 
(5,677
)
Fuel inventory and materials and supplies
6,500

 
(9,652
)
Prepayments
65

 
(1,438
)
Accounts payable
5,465

 
(21,455
)
Accounts payable, affiliate
(1,740
)
 
(58
)
Customer deposits
6,746

 
5,646

Provision for merger commitments
(1,847
)
 
(6,761
)
Postretirement benefit obligations
1,784

 
2,472

Regulatory assets and liabilities, net
6,923

 
3,902

Other deferred accounts
1,949

 
(8,665
)
Taxes accrued
32,033

 
21,753

Interest accrued
1,407

 
1,037

Other operating
2,317

 
1,436

Net cash provided by operating activities
173,781

 
94,523

Investing activities
 
 
 
Additions to property, plant, and equipment
(135,334
)
 
(127,297
)
Allowance for equity funds used during construction
5,587

 
2,350

Reimbursement of property loss
1,223

 
105

Issuance of note receivable
(16,800
)
 

Other investing
672

 
958

Net cash used in investing activities
(144,652
)
 
(123,884
)
Financing activities
 
 
 
Draws on credit facility

 
90,000

Payments on credit facility

 
(15,000
)
Issuances of long-term debt
50,000

 

Repayment of long-term debt
(9,700
)
 
(9,060
)
Distributions to parent
(71,000
)
 
(60,000
)
Other financing
(803
)
 
(595
)
Net cash (used in) provided by financing activities
(31,503
)
 
5,345

Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
(2,374
)
 
(24,016
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
102,957

(1) 
67,955

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
100,583

(2) 
$
43,939

 
 
 
 
Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
33,940

 
$
31,907

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
39,974

 
$
13,081

Non-cash additions to property, plant, and equipment
$

 
$
3,009

Incurrence of capital lease obligation - barges
$
16,800

 
$

(1) Includes cash and cash equivalents of $69,816, current restricted cash and cash equivalents of $13,081, and non-current restricted cash and cash equivalents of $20,060.
(2) Includes cash and cash equivalents of $71,579, current restricted cash and cash equivalents of $9,945, and non-current restricted cash and cash equivalents of $19,059.

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.

22


CLECO
 
 
CLECO POWER
 
2018 2ND 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
(71,000
)
 

 
(71,000
)
Net income
69,024

 

 
69,024

Other comprehensive income, net of tax

 
628

 
628

Balances, June 30, 2018
$
1,562,386

 
$
(13,055
)
 
$
1,549,331

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 

 
 

 
 


23


CLECO
 
 
CLECO POWER
 
2018 2ND 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
Revenue Recognition
Cleco and Cleco Power
Note 3
Recent Authoritative Guidance
Cleco and Cleco Power
Note 4
Regulatory Assets and Liabilities
Cleco and Cleco Power
Note 5
Fair Value Accounting
Cleco and Cleco Power
Note 6
Debt
Cleco and Cleco Power
Note 7
Pension Plan and Employee Benefits
Cleco and Cleco Power
Note 8
Income Taxes
Cleco and Cleco Power
Note 9
Disclosures about Segments
Cleco
Note 10
Regulation and Rates
Cleco and Cleco Power
Note 11
Variable Interest Entities
Cleco and Cleco Power
Note 12
Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees
Cleco and Cleco Power
Note 13
Affiliate Transactions
Cleco and Cleco Power
Note 14
Intangible Assets
Cleco and Cleco Power
Note 15
Accumulated Other Comprehensive Loss
Cleco and Cleco Power
Note 16
Plan of Acquisition
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.

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 year ended December 31, 2017.
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 JUNE 30, 2018

 
AT DEC. 31, 2017

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
8,144


$
8,597

Cleco Power’s charitable contributions
1,200

 
1,200

Cleco Power’s rate credit escrow
601

 
3,284

Total current
9,945

 
13,081

Non-current
 
 
 
Diversified Lands’ mitigation escrow
21

 
21

Cleco Power’s future storm restoration costs
14,934

 
14,456

Cleco Power’s charitable contributions
2,933

 
3,575

Cleco Power’s rate credit escrow
1,192

 
2,029

Total non-current
19,080

 
20,081

Total restricted cash and cash equivalents
$
29,025

 
$
33,162


24


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

Cleco Power
 
 
 
(THOUSANDS)
AT JUNE 30, 2018

 
AT DEC. 31, 2017

Current
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
8,144

 
$
8,597

Charitable contributions
1,200

 
1,200

Rate credit escrow
601

 
3,284

Total current
9,945

 
13,081

Non-current
 
 
 
Future storm restoration costs
14,934

 
14,456

Charitable contributions
2,933

 
3,575

Rate credit escrow
1,192

 
2,029

Total non-current
19,059

 
20,060

Total restricted cash and cash equivalents
$
29,004

 
$
33,141


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, 2017, to June 30, 2018, was due to Cleco Katrina/Rita using $9.7 million for a scheduled storm recovery bond principal payment and $1.4 million for the related interest payment, partially offset by collections of $10.6 million net of administration fees.

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 5 — “Fair Value Accounting.”

Risk Management
Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes in value arising from changes in interest rates and the commodity market prices of power, FTRs, and natural gas in the industry on different energy exchanges. 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. There were no open natural gas positions at June 30, 2018, or December 31, 2017. In 2015, the LPSC approved a long-term
 
natural gas hedging pilot program that requires Cleco Power to establish a proposal for a program that will be designed to provide gas price stability for a minimum of five years. Cleco Power’s proposal was submitted to the LPSC in July 2017. An ALJ has been assigned to the docket, and a status conference was held in October 2017. On February 28, 2018, Cleco Power responded to LPSC data requests for the gas hedging docket. Cleco Power is currently awaiting a new procedural schedule to be established.
Cleco Power purchases FTRs in auctions facilitated by MISO. The majority of its FTRs are purchased in annual auctions during the second quarter, but Cleco Power may purchase additional FTRs in monthly auctions. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Cleco Power’s customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power records FTRs at their estimated fair value when purchased. Each accounting period, Cleco Power adjusts the carrying value of FTRs to their estimated fair value based on the most recent MISO FTR auction prices. Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheets. Realized gains or losses on settled FTRs are recorded in Fuel used for electric generation on Cleco Power’s Condensed Consolidated Statements of Income. For more information on FTRs, see Note 5 — “Fair Value Accounting — Commodity Contracts.”
Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, aggregate counterparty credit exposure, and aggregate counterparty concentration levels. Cleco manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and 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.
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 — Revenue Recognition
Cleco adopted the accounting guidance for revenue recognition and all related amendments on January 1, 2018, using the modified retrospective method. The guidance affects entities that enter into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Application of the new revenue standard did not result in a cumulative effect adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The impact of the adoption of the new standard

25


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

is not material to the results of operations, financial condition, or cash flows of the Registrants.

Revenue from Contracts with Customers

Retail Utility Revenue
Cleco’s revenue from contracts with customers is generated primarily from Cleco Power’s regulated revenue to 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. Cleco records retail revenue under the invoice practical expedient, which states that if an entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date, the entity may recognize revenue in the amount that the entity has a right to invoice.
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.

Wholesale Revenue
Wholesale revenue is generated primarily through the sale of energy and capacity to 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 charges its wholesale customers market based rates that are subject to FERC’s triennial market power analysis. Cleco recognizes wholesale revenue, inclusive of both performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice.

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’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 Teche Unit 3 SSR revenue, connection or other fees, and electric customer credits. 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
Certain energy-related transactions, where Cleco records the change in value of those contracts, qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance.

Disaggregated Revenue
Operating revenue, net for the three and six months ended June 30, 2018, was as follows:
 
FOR THE THREE MONTHS ENDED JUNE 30, 2018
 
(THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
Residential (1)
$
107,805

 
$

 
$

 
$
107,805

Commercial (1)
71,865

 

 

 
71,865

Industrial (1)
40,679

 

 

 
40,679

Other retail (1)
3,793

 

 

 
3,793

Surcharge
6,193

 

 

 
6,193

Total retail revenue
$
230,335

 
$

 
$

 
$
230,335

Wholesale, net (1)
54,662

 
(2,420
)
(2) 

 
52,242

Transmission
11,943

 

 

 
11,943

Other (3)
(6,895
)
 

 

 
(6,895
)
Total revenue from contracts with customers
$
290,045

 
$
(2,420
)
 
$

 
$
287,625

Revenue unrelated to contracts with customers
 
 
 
 
 
 
 
Affiliate
$
220

 
$
17,273

 
$
(17,493
)
 
$

Other
11,636

 

 

 
11,636

Total revenue unrelated to contracts with customers
11,856

 
17,273

 
(17,493
)
 
11,636

Operating revenue, net
$
301,901

 
$
14,853

 
$
(17,493
)
 
$
299,261

(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to wholesale power supply agreements.
(3) Other revenue from contracts with customers includes $13.6 million of electric customer credits, partially offset by $4.1 million of other miscellaneous fee revenue, and $2.6 million of Teche Unit 3 SSR revenue, net of $0.3 million of reserves for capital expenditures.

26


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

 
FOR THE SIX MONTHS ENDED JUNE 30, 2018
 
(THOUSANDS)
CLECO POWER

 
OTHER

 
ELIMINATIONS

 
TOTAL

Revenue from contracts with customers
 
 
 
 
 
 
 
Retail revenue
 
 
 
 
 
 
 
Residential (1)
$
199,195

 
$

 
$

 
$
199,195

Commercial (1)
138,560

 

 

 
138,560

Industrial (1)
78,065

 

 

 
78,065

Other retail (1)
7,594

 

 

 
7,594

Surcharge
11,431

 

 

 
11,431

Total retail revenue
$
434,845

 
$

 
$

 
$
434,845

Wholesale, net (1)
101,631

 
(4,840
)
(2) 

 
96,791

Transmission
26,448

 

 

 
26,448

Other (3)
(6,852
)
 
1

 

 
(6,851
)
Total revenue from contracts with customers
$
556,072

 
$
(4,839
)
 
$

 
$
551,233

Revenue unrelated to contracts with customers
 
 
 
 
 
 

Affiliate
$
428

 
$
32,942

 
$
(33,370
)
 
$

Other
24,788

 

 

 
24,788

Total revenue unrelated to contracts with customers
25,216


32,942


(33,370
)
 
24,788

Operating revenue, net
$
581,288

 
$
28,103

 
$
(33,370
)
 
$
576,021

(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to wholesale power supply agreements.
(3) Other revenue from contracts with customers includes $21.3 million of electric customer credits, partially offset by $8.6 million of other miscellaneous fee revenue, and $5.8 million of Teche Unit 3 SSR revenue, net of $2.2 million of reserves for capital expenditures.
  
Transaction Price Allocated to Remaining Performance Obligations
For contracts that are greater than one year, the following table discloses (1) the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2018, and (2) when Cleco expects to recognize this revenue:
REMAINING PERFORMANCE OBLIGATIONS
(THOUSANDS)
Six months ending Dec. 31, 2018
$
24,213

Years ending Dec. 31,
 
2019
23,874

2020
7,068

2021
7,068

2022
6,468

Thereafter
10,210

Total remaining performance obligations
$
78,901


Unsatisfied performance obligations primarily relate to stand-ready obligations as part of fixed capacity minimums.
Note 3 — Recent Authoritative Guidance
The Registrants adopted, or will adopt, the recent authoritative guidance listed below on their respective effective dates.
In February 2016, FASB amended the guidance to account for leases. This guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of this guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those years. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes practical expedients that may be elected by entities. Management expects to elect the practical expedients which permit the Registrants to retain their current lease assessment and classifications for existing leases at the effective date and to not apply the new guidance to land easements that exist or expire before the effective date. Management is currently
 
working through an adoption plan which includes the evaluation of lease contracts, new business processes, including changes to current recordkeeping systems, and the need for additional internal controls. Other than an expected increase in assets and liabilities, the full impact of the amended guidance has not been determined. Management will continue to evaluate the impact of this guidance, including any additional clarifying amendments issued during implementation. The amended guidance could have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
In November 2016, FASB amended guidance for certain cash flow issues. The amended guidance requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Therefore, amounts generally described as restricted cash and cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this guidance was effective for fiscal years beginning after December 15, 2017, including interim periods within those years. This amendment was applied using a retrospective transition method to each period presented. This guidance impacted the presentation of the cash flows statement, but did not have an impact on the results of operations or financial condition of the Registrants.

27


CLECO
 
 
CLECO POWER
 
2018 2ND QUARTER FORM 10-Q

The following tables summarize the changes in the presentation of the Condensed Consolidated Statements of Cash Flows for Cleco and Cleco Power:
Cleco
 
 
 
 
FOR THE SIX MONTHS ENDED JUNE 30, 2017
 
(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

Transfer of cash from restricted accounts, net
$
6,003

 
$

Net cash used in investing activities
$
(119,066
)
 
$
(125,069
)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
$
(12,565
)
 
$
(18,568
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
$
23,077

 
$
69,571

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
10,512

 
$
51,003

Cleco Power
 
 
 
 
FOR THE SIX MONTHS ENDED JUNE 30, 2017
 
(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

Transfer of cash from restricted accounts, net
$
6,003

 
$

Net cash used in investing activities
$
(117,881
)
 
$
(123,884
)
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents
$
(18,013
)
 
$
(24,016
)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period
$
21,482

 
$
67,955

Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period
$
3,469

 
$
43,939


In March 2017, FASB amended guidance related to defined benefit pension and other postretirement benefit plans. The new amendment requires an entity to present service cost in the same line item as other current employee compensation costs and to present the remaining components of net benefit cost in a separate line item outside of operating items. The amendment also allows only the service cost component of net benefit cost to be eligible for capitalization within property, plant, and equipment. The non-service costs will continue to be capitalized and recovered from ratepayers as approved by FERC. Beginning January 1, 2018, the non-service costs capitalized for ratemaking purposes were reflected as a regulatory asset or liability for GAAP. The adoption of this guidance was effective for annual periods beginning after December 15, 2017, including interim periods within those years. This amendment was applied retrospectively for the presentation of the service cost in the income statement while the capitalization of the service cost was applied prospectively. This guidance did not have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.
 
The following tables summarize the impact of this guidance on the Condensed Consolidated Statements of Income for Cleco and Cleco Power:
Cleco
 
 
 
 
FOR THE THREE MONTHS ENDED JUNE 30, 2017
 
(THOUSANDS)
AS REPORTED

 
AS ADJUSTED

Other operations expenses
$
29,256

 
$
26,235

Total operating expenses
$
238,412