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Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees
 6 Months Ended
Jun. 30, 2025
Commitments and Contingencies Disclosure [Abstract]  
Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees
Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

Litigation

Gulf Coast Spinning
In September 2015, a potential customer sued Cleco for failure to fully perform an alleged verbal agreement to lend or otherwise fund its startup costs of $6.5 million. Gulf Coast Spinning Company, LLC (Gulf Coast), the primary plaintiff,
alleges that Cleco promised to assist it in raising approximately $60.0 million, which Gulf Coast needed to construct a cotton spinning facility near Bunkie, Louisiana (the Bunkie project). According to the petition filed by Gulf Coast in the 12th Judicial District Court for Avoyelles Parish, Louisiana, Cleco made such promises of funding assistance in order to cultivate a new industrial electric customer which would increase its revenues under a power supply agreement that it executed with Gulf Coast. Gulf Coast seeks unspecified damages arising from its inability to raise sufficient funds to complete the project, including lost profits.
Diversified Lands loaned $2.0 million to Gulf Coast for the Bunkie project. The loan was secured by a mortgage on the Bunkie project site. Diversified Lands foreclosed on the Bunkie property in February 2020 and has also asserted claims personally against the former owner of Gulf Coast. These claims are based on contracts and credit documents executed by Gulf Coast, the obligations and performance of which were personally guaranteed by the former owner of Gulf Coast. Diversified Lands is seeking recovery of the indebtedness still owed by Gulf Coast to Diversified Lands following the February 2020 foreclosure. This action has been consolidated with the litigation filed by Gulf Coast in the 12th Judicial District Court for Avoyelles Parish, Louisiana. Discovery is ongoing and mediation has been scheduled for August 2025. If mediation does not resolve these matters, a trial date has been set for March 2026.
Cleco believes all allegations made by Gulf Coast are contradicted by the written documents executed by Gulf Coast, are otherwise without merit, and that it has substantial meritorious defenses to the claims alleged by Gulf Coast.

Dispute with Saulsbury Industries, Inc.
In October 2018, Cleco Power sued Saulsbury Industries, Inc., the former general contractor for the St. Mary Clean Energy Center project, seeking damages for Saulsbury Industries, Inc.’s failure to complete the St. Mary Clean Energy Center project on time and for costs incurred by Cleco Power in hiring a replacement general contractor. The action was filed in the Ninth Judicial District Court for Rapides Parish. In October 2019, Saulsbury Industries, Inc. filed a counterclaim alleging Cleco Power owed the remaining balance of the fixed contract, additional time and materials costs for an accelerated recovery attempt, and additional productivity and direct craft costs incurred during an extended delay period. Cleco Power and Saulsbury Industries, Inc. are currently participating in discovery. Cleco Power believes that it has substantial meritorious claims and defenses to the counterclaims alleged by Saulsbury Industries, Inc.

LPSC Audits and Reviews

Fuel Audits
Generally, Cleco Power’s cost of fuel used for electric generation and the cost of purchased power are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such expenses. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year.
Cleco Power’s fuel costs for 2020 through 2022 in the amount of $1.10 billion are currently under audit. Cleco Power has responded to multiple sets of LPSC data requests. Cleco Power has FAC filings for January 2023 and thereafter that remain subject to audit. Management is unable to predict or
give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of fuel cost is ordered resulting in a refund, it could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Environmental Audit
In 2009, the LPSC approved Cleco Power to recover certain costs of environmental compliance through an EAC. The costs eligible for recovery are those for prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. Cleco Power has EAC filings for January 2023 and thereafter that remain subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of environmental cost is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Energy Efficiency Audit
In 2013, the LPSC issued a General Order adopting rules promoting energy efficiency programs. Cleco Power began participating in energy efficiency programs in November 2014. Through an approved rate tariff, Cleco Power recovered $10.2 million in both program years 2024 and 2023, which is subject to audit by the LPSC.
In January 2024, the LPSC voted to shift control of energy efficiency programs from the utilities to an independent, third-party administrator selected by and accountable to the LPSC. This action would remove the provision whereby utilities were allowed to recover any lost revenues associated with lower electricity sales. On April 16, 2025, the LPSC approved the termination of the independent third-party administrator of the energy efficiency program. On May 19, 2025, the LPSC voted to establish the LPSC energy efficiency program which incorporates components of the formally approved QuickStart Program and the formally approved Public Entity Program, but with modifications to conform to new rules set forth by the LPSC. The LPSC Staff and the utilities are working to modify the proposed rules and management anticipates approval of these rules in the third quarter of 2025. The new program is set to begin on January 1, 2026. Cleco Power is subject to audits for program years 2023 and thereafter.

Dolet Hills Securitization
Cleco Power sought recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs.
On April 19, 2024, the LPSC approved an uncontested settlement containing the following provisions:

•a $40.0 million reduction in the regulatory asset associated with the Dolet Hills Power Station,
•refunding $20.0 million per year to Cleco Power’s retail customers as a credit to their bills during the third quarters of 2024, 2025, and 2026 for a total of $60.0 million, and
•allowing securitization of $305.0 million. If the securitization was not complete by September 1, 2024, Cleco Power was allowed to accrue a carrying charge through the earlier of the completion of the securitization or January 31, 2025.

As a result of the settlement, the following was recorded in Cleco’s and Cleco Power’s Condensed Consolidated Financial Statements as of March 31, 2024:

•a $40.0 million reduction in regulatory assets with an offsetting increase recorded as depreciation expense and
•a $1.3 million increase in the provision for rate refund and electric customer credits.

For more information on the regulatory asset activity related to the uncontested settlement, see Note 5 — Regulatory Assets and Liabilities.
On March 12, 2025, Cleco Power completed the securitization financing of the Energy Transition Property through Cleco Securitization II. Cleco Securitization II used the net proceeds from its issuance of $305.0 million aggregate principal amount of its senior secured energy transition bonds to purchase Energy Transition Property from Cleco Power, pay for debt issuance costs, and reimburse Cleco Power for upfront securitization costs paid by Cleco Power on behalf of Cleco Securitization II. Cleco Power utilized the proceeds received from Cleco Securitization II to fund the energy transition reserve, repay its $125.0 million bank term loan, and repay its $110.0 million short-term debt outstanding on its revolving credit facility.
Cleco Power began billing its retail customers on April 1, 2025, for the required amounts to service Cleco Securitization II's energy transition bonds.

MISO Load Shed Event
On May 25, 2025, MISO experienced a transmission system emergency due to multiple planned and forced generation outages as well as an ongoing forced outage on a 500 kilovolt line due to prior storm damage. MISO issued an order requiring load-serving entities, including Cleco Power, Entergy Louisiana, and Entergy New Orleans, to shed load to protect the integrity of the bulk electric system. Under MISO’s directives, Cleco Power shed load of approximately 102 MW in its service territory. This load shedding event lasted approximately two hours. Immediately following the load shed event, an after-action review of the event was initiated by the LPSC. Cleco Power has responded to the LPSC’s first set of data requests and is awaiting further action from the LPSC. Management anticipates the review and any subsequent reports from the LPSC to be completed by the end of August 2025. SERC, on behalf of NERC, has also opened a formal investigation regarding this load shed event. Cleco Power believes its response to this event was reasonable under the circumstances and does not expect to be issued a penalty.

FERC Audits and Reviews
In 2024, FERC ruled as part of Docket EL14-12-016 that the MISO transmission owners’ base ROE should be lowered to 9.98%, with a total or maximum ROE including incentives not to exceed 12.58%. The effective date of the change was September 28, 2016, for the MISO Attachment O rates. As a result, Cleco Power estimated and recorded a potential refund of $0.5 million to be refunded in May 2026.

Other
Cleco is involved in various litigation matters, including regulatory, environmental, and administrative proceedings before various courts, regulatory commissions, arbitrators, and governmental agencies regarding matters arising in the ordinary course of business. The liability Cleco may ultimately incur with respect to any one of these matters may be in excess of amounts currently accrued. Management regularly analyzes current information and, as of June 30, 2025, believes the probable and reasonably estimable liabilities based on the eventual disposition of these matters for Cleco and Cleco Power are $10.5 million and $10.0 million, respectively. Cleco and Cleco Power have accrued these amounts in Other deferred credits on their respective Condensed Consolidated Balance Sheets.

Off-Balance Sheet Commitments and Guarantees
Cleco Holdings and Cleco Power have entered into various off-balance sheet commitments, in the form of guarantees and standby letters of credit, in order to facilitate their activities and the activities of Cleco Holdings’ subsidiaries and equity investees (affiliates). Cleco Holdings and Cleco Power have also agreed to contractual terms that require the Registrants to pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees.
Cleco Holdings entered into these off-balance sheet commitments in order to entice desired counterparties to contract with its affiliates by providing some measure of credit assurance to the counterparty in the event Cleco’s affiliates do not fulfill certain contractual obligations. If Cleco Holdings had not provided the off-balance sheet commitments, the desired counterparties may not have contracted with Cleco’s affiliates or may have contracted with them at terms less favorable to its affiliates.
The off-balance sheet commitments are not recognized on Cleco’s and Cleco Power’s Condensed Consolidated Balance Sheets because management has determined that Cleco’s and Cleco Power’s affiliates are able to perform the obligations under their contracts and that it is not probable that payments by Cleco or Cleco Power will be required.
Cleco Holdings provided guarantees and indemnities to Entergy Louisiana and Entergy Gulf States as a result of a sale of a generation facility in 2005. The remaining indemnities relate to environmental matters that may have been present prior to closing. These remaining indemnities have no time limitations. The maximum amount of the potential payment to Entergy Louisiana and Entergy Gulf States is $42.4 million. Management does not expect to be required to pay Entergy Louisiana and Entergy Gulf States under these guarantees.
On behalf of Acadia, Cleco Holdings provided guarantees and indemnities as a result of the sales of Acadia Unit 1 to Cleco Power and Acadia Unit 2 to Entergy Louisiana in 2010 and 2011, respectively. These remaining indemnities have no time limitations or maximum potential future payments.
Management does not expect to be required to pay Cleco Power or Entergy Louisiana under these guarantees.
Cleco Holdings provided indemnities to Cleco Power as a result of the transfer of Coughlin to Cleco Power in March 2014. Cleco Power also provided indemnities to Cleco Holdings as a result of the transfer of Coughlin to Cleco Power. The maximum amount of the potential payment to Cleco Power and Cleco Holdings, for their respective indemnities is $40.0 million, except for indemnities relating to the fundamental organizational structure of each respective entity, of which the maximum amount is $400.0 million. Management does not expect to be required to make any payments under these indemnities.
As part of the Amended Lignite Mining Agreement, Cleco Power and SWEPCO, joint owners of the Dolet Hills Power Station, have agreed to pay the principal obligations of the lignite miner, DHLC, when due if DHLC does not have sufficient funds or credit to pay. Any amounts projected to be paid would be based on the forecasted obligations to be incurred by DHLC, primarily for reclamation obligations. As of June 30, 2025, Cleco Power does not expect any payments to be made under this guarantee. Cleco Power has the right to dispute the incurrence of such obligations through the review of the mining reclamation plan before the incurrence of such obligations. The Amended Lignite Mining Agreement does not affect the amount the Registrants can borrow under their credit facilities.
Cleco Power has a letter of credit to MISO pursuant to energy market requirements and Cleco Holdings has a parent guarantee on behalf of Cleco Power. These agreements automatically renew each year and have no impact on Cleco Holdings’ or Cleco Power’s revolving credit facility.
Generally, neither Cleco Holdings nor Cleco Power has recourse that would enable them to recover amounts paid under their guarantee or indemnification obligations. There are no assets held as collateral for third parties that either Cleco Holdings or Cleco Power could obtain and liquidate to recover amounts paid pursuant to the guarantees or indemnification obligations.

Other Commitments
Cleco has accrued for liabilities related to third parties, employee medical benefits, and AROs.
In April 2015, the EPA published a final rule for regulating the disposal and management of CCRs from coal-fired power plants (CCR Rule). In August 2018, the D.C. Court of Appeals vacated several requirements in the CCR regulation, which included eliminating the previous acceptability of compacted clay material as a liner for impoundments. As a result, in August 2020, the EPA published a final rule that would set deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impoundments. In November 2020, demonstrations were submitted to the EPA specifying its intended course of action for the ash disposal facilities at Rodemacher Unit 2 and the Dolet Hills Power Station in order to comply with the final CCR Rule. In January 2022, Cleco Power received communication from the EPA that the demonstrations had been deemed complete. Cleco Power withdrew the Dolet Hills demonstration due to the cessation of receiving waste. The remaining demonstration is still subject to EPA approval based on pending technical review.

Risks and Uncertainties
Cleco could be subject to possible adverse consequences if Cleco’s counterparties fail to perform their obligations or if Cleco or its affiliates are not in compliance with loan agreements or bond indentures.
Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows.
Changes in the regulatory environment or market forces could cause Cleco to determine if its assets have suffered an other-than-temporary decline in value, whereby an impairment would be required, and Cleco’s financial condition could be materially adversely affected.