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     Portions of Cleco Corporation's Annual Report to Shareholders for the year ended December 31, 2002 (2002 Annual Report to Shareholders), furnished to the Securities and Exchange Commission pursuant to Rule 14a-3(c) under the Securities Exchange Act of 1934, are filed as Exhibit 13 to this Report and incorporated by reference into Part I and Part II herein.  Portions of Cleco Corporation's definitive Proxy Statement relating to its Annual Meeting of Shareholders to be held on April 25, 2003, are incorporated by reference into Part III herein.

GLOSSARY OF TERMS

          References in this filing to "the Company" or "Cleco" mean Cleco Corporation and its subsidiaries, including Cleco Power LLC, references to "Cleco Power" mean Cleco Power LLC and references to "the Registrants" mean both Cleco and Cleco Power, unless the context clearly indicates otherwise.  Additional abbreviations or acronyms used in this filing are defined below:

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          This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements other than statements of historical fact included in this report are forward-looking statements.  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 t o differ materially from those contemplated in any of the Registrants' forward-looking statements:

          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 or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions or other factors affecting such statements.

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          Effective December 31, 2000, Utility Group merged into Cleco Power, another wholly owned subsidiary of Cleco.  Immediately prior to the merger, Cleco Power had only nominal assets and liabilities.  Pursuant to the merger, Cleco Power acquired all of the assets and assumed all of the liabilities and obligations of Utility Group.

          Cleco Power's predecessor was incorporated on January 2, 1935, under the laws of the State of Louisiana.  Cleco Power was organized on December 12, 2000, and succeeded to Utility Group's assets and liabilities pursuant to a merger of Utility Group into Cleco Power in December 2000.  Cleco Power is an electric utility regulated by the LPSC and the FERC, which determine the rates Cleco Power can charge its customers.  Cleco Power serves approximately 261,000 customers in 104 communities in central and southeastern Louisiana.  Cleco Power's operations are described below in the consolidated description of Cleco's business segments.

          Midstream, organized on September 4, 1998, under the laws of the State of Louisiana, is an unregulated subsidiary with operations in Louisiana and Texas.  Midstream owns and operates wholesale generation stations and wholesale natural gas pipelines, invests in joint ventures that own and operate wholesale generation stations, and engages in energy management activities.

          UTS is a discontinued business segment.  UTS was a utility line construction business originally organized on October 30, 1997.  In December 2000, Cleco decided to sell substantially all of the assets of UTS.  Revenue and expenses associated with UTS were netted and are shown on Cleco's Consolidated Statements of Income as a loss from discontinued operations.  For additional information on selling substantially all of the UTS assets, see the Notes to the Consolidated Financial Statements, Note 17 - "Discontinued Operations" on page 77 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

          At December 31, 2002, Cleco employed 1,214 persons.  Cleco's mailing address is P.O. Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is (318) 484-7400.  Cleco's homepage on the Internet's World Wide Web is located at http://www.cleco.com.  Cleco's and Cleco Power's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC are available, free of charge, through Cleco's website, as soon as reasonably practicable after those reports or filings are electronically filed with or furnished to the SEC.  Information on Cleco's website or any other website is not incorporated by reference into this Report and does not constitute a part of this Report.  Cleco, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to Section 3(a)(1) of the 1935 Act.

          At December 31, 2002, Cleco Power employed 844 persons.  Cleco Power's mailing address is P.O. Box 5000, Pineville, Louisiana, 71361-5000, and its telephone number is (318) 484-7400.

          As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors affecting the electric utility industry in general.  These factors include, among others, increasingly competitive business conditions, the cost of compliance with environmental regulations and changes in the federal and state regulation of the generation, transmission and sale of electricity.  For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see "Regulatory Matters, Industry Developments and Franchises - Industry Developments" below.  For a discussion of factors affecting Cleco Power's financial condition and results of operations, see "Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Cleco Power - Management's Narrative Analysis of the Results of Operations - General Fa ctors Affecting Cleco Power."

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          Cleco Power operates and either owns or has an ownership interest in three steam electric generating stations and one gas turbine.  At December 31, 2002, Cleco Power's aggregate net electric generating capacity was 1,359 MW.  The following table sets forth certain information with respect to Cleco Power's generating facilities:

          The following table sets forth the amounts of power generated by Cleco Power for the years indicated.

          Changes in fuel and purchased power expenses reflect fluctuations in fuel used for electric generation, fuel handling costs, availability of economical power for purchase, and deferral of expenses for recovery from customers in subsequent months through Cleco Power's fuel adjustment clause.

          The following table sets forth, for the periods indicated, the percentages of power generated from various fuels at Cleco Power's electric generating plants, the cost of fuel used per kWh attributable to each such fuel and the weighted average fuel cost per kWh.

Power Purchases

          If transmission capacity is available, Cleco Power purchases power from neighboring utilities and energy marketing companies when the purchase of power is more economical than the generation of power or when it needs power to supplement its own electric generation.  Cleco Power has a long-term contract under which it purchases 20 MW of power from the Sabine River Authority, which operates a hydroelectric generating plant.  Cleco Power also has three power contracts with Williams Energy and Dynegy for 705 MW of capacity in 2002 and 2003, increasing to 760 MW of capacity in 2004, and decreasing to 100 MW of capacity in 2005.  These contracts were approved by the LPSC in March 2000.  In addition, Cleco Power has power contracts with the City of Ruston (81 MW expiring May 2004) and the City of Natchitoches (51 MW expiring December 2006).  With a significant portion of the contracts expiring on December 31, 2004, Cleco Power is currently evaluating its long-term capacity and energy needs.  Cleco Power anticipates it will initiate a solicitation during the first quarter of 2003 to identify existing or new generation resources, including new power

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purchase contracts, to replace the Williams Energy contracts and the Dynegy contract.  Pursuant to the LPSC's 1983 General Order governing the construction and/or procurement of generation capacity, Cleco Power is required to make an informational filing with the LPSC to substantiate that securing such generation resources is in the public interest.  Cleco Power anticipates making such a filing during the first quarter of 2003 and will continue to evaluate supply options through the first half of 2003.  As part of that process, Cleco Power will also evaluate the possibility of acquiring additional generation facilities, including one or more of Midstream's unregulated power plants.

          The following table sets forth the amounts of power purchased by Cleco Power on the wholesale market for the years indicated.

          During 2002, 45% of Cleco Power's energy requirements was met with purchased power, up from 40% in 2001.  The primary factor causing the increase in power purchases in 2002 as compared to 2001 was the lower price of purchased power compared to the incremental cost of generation of power.  For information on Cleco Power's ability to pass on to its customers substantially all of its fuel and purchased power expenses, see "Regulatory Matters, Industry Developments and Franchises - Rates" below.

          Cleco Power does not supply all of its customers' power requirements from generation facilities owned by the company.  Cleco Power must purchase additional power from the wholesale power market in the form of generation capacity and/or purchased power to satisfy these needs.  Portions of Cleco Power's capacity and power purchases are made at a fixed price, and the remainder is made at prevailing market prices.  Cleco Power obtains approximately 40% of its annual capacity and energy needs under its power purchase contracts with Williams Energy and Dynegy.  Management expects to meet substantially all of its native load demand through 2004 with Cleco Power's own generation capacity and the power contracts with Williams Energy and Dynegy.  For information on Cleco Power's plan to initiate a solicitation to identify existing or additional generation resources, see "Management's Discuss ion and Analysis of Financial Condition and Results of Operations - Cleco Power - Management's Narrative Analysis of the Results of Operations - General Factors Affecting Cleco Power - Fuel and power purchased are primarily affected by the following factors."

          Because of its location on the transmission grid, Cleco Power relies on one main supplier of electric transmission, and constraints sometimes limit the amount of purchased power it can bring into its system.  The power contracts described above may be affected by these transmission constraints.

          During 2002, Cleco Power purchased a total of 26,695,000 MMBtu of natural gas for the generation of electricity.  The annual and average per-day quantities of gas purchased by Cleco Power from each supplier are shown in the table below.

          CLE Intrastate, a wholly owned subsidiary of Cleco Energy, which is wholly owned by Midstream, owns a series of natural gas interconnections with Trunkline Gas Company, Columbia Gulf Transmission Co., Louisiana Intrastate Pipeline Company and ANR Pipeline Company.  The pipeline interconnections allow Cleco Power to access various additional natural gas supply markets, which helps to maintain an economic fuel supply for Cleco Power's customers.

          Natural gas was available without interruption throughout 2002, except during hurricane-related curtailments.  Cleco Power currently meets, and expects to continue to meet, its natural gas requirements with purchases on the spot market through daily, monthly and seasonal contracts with various natural gas suppliers.  However, future supplies to Cleco Power remain vulnerable to disruptions due to weather events and transportation delays.  Cleco Power has access to multiple sources of natural gas at each plant and therefore access to diverse supplies.  Nevertheless, large boiler fuel users of natural gas, including electric utilities, generally have low priority among gas users in the event pipeline suppliers are forced to curtail deliveries due to inadequate supplies.  As a result, supplies of natural gas may become unavailable from time to time, or prices may increase rapidly in re sponse to temporary supply interruptions.  Such events, though rare, may require Cleco Power to shift its gas-fired generation to alternative fuel sources, such as fuel oil, to the extent it has the capability to burn alternative fuels.  Currently, Cleco Power anticipates that its diverse supply options and alternative fuel capability, combined with its solid-fuel generation resources, are adequate to meet its fuel needs during any temporary interruption of natural gas supplies.

Coal and Lignite Supply

          Cleco Power uses coal for generation at Rodemacher Unit 2.  The majority of the coal for Rodemacher Unit 2 is purchased from mines in Wyoming.  A new contract, that includes fixed pricing through 2004, was negotiated in 2002 with Kennecott.  After purchasing a given annual quantity of base coal (approximately 500,000 tons), Cleco Power has the right to purchase additional coal from Kennecott or from third parties in the spot market through competitive bidding.  This agreement provides the platform to govern future agreements with Kennecott.  Renegotiations may begin January 1, 2004, but must be completed by July 1, 2004.  If renegotiation is not successful, Cleco Power can negotiate terms with other suppliers.  The coal is transported to the Rodemacher Unit 2 site under a long-term rail transportation contract in unit trains, which are leased by Cleco Power pursuant to various long-term leases.

          Cleco Power uses lignite for generation at Dolet Hills Unit 1.  Substantially all of the lignite used to fuel Dolet Hills Unit 1 is obtained under two long-term agreements.  Cleco Power and SWEPCO, each a 50% owner of Dolet Hills Unit 1, have entered into agreements pursuant to which each acquired an undivided 50% interest in the other's leased and owned lignite reserves in northwestern Louisiana.  In May 2001, Cleco Power and SWEPCO entered into a long-term agreement with automatic annual renewals through 2011 with DHLC for the mining and delivery of such lignite reserves.  The agreement replaces a previous LMA that was terminated under a settlement agreement in connection with certain litigation relating to the previous LMA.  These reserves are expected to provide a substantial portion of the fuel requirements throughout the life of the contract with DHLC.

          Additionally, Cleco Power and SWEPCO have entered into a long-term agreement expiring in 2011 with Red River Mining Co. which provides for base contract purchases.  Cleco Power's minimum annual purchase requirement under this agreement is 550,000 tons.  The base lignite price under the contract is a base price per MMBtu, subject to escalation, plus certain "pass-through" costs.  DHLC provides all of the lignite in excess of the 550,000 tons base commitment.

          The continuous supply of coal and lignite from the mining sources described above may be subject to interruption due to adverse weather conditions or other factors that may disrupt mining operations or transportation.  At December 31, 2002, Cleco Power's coal inventory at Rodemacher Unit 2 was approximately 247,000 tons (about a 112-day supply), and Cleco Power's lignite inventory at Dolet Hills Unit 1 was approximately 91,000 tons (about a 15-day supply).

Oil Supply

          Cleco Power stores fuel oil as an alternative fuel source.  The Rodemacher power station has storage capacity for an approximate 75-day supply, and the Teche power station has storage capacity totaling about a 20-day supply.  However, in accordance with Cleco Power's current fuel oil inventory practices, at December 31, 2002, Cleco Power had approximately an 18-day supply of fuel oil stored at its generating stations.  During 2002, approximately 0.1 million gallons of fuel oil were burned.

Sales

          Cleco Power is a public utility engaged principally in the generation, transmission, distribution and sale of electricity within Louisiana.  For further information regarding Cleco Power's generating stations and its transmission and distribution facilities, see "- Power Generation" above and Item 2, "Properties - Cleco Power."

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          Cleco Power's 2002 and 2001 system peak demand both occurred in July and was 1,833 MW and 1,751 MW, respectively.  Sales and system peak demand are affected by weather and are generally highest during the summer air-conditioning and winter heating seasons.  In 2002, Cleco Power experienced warmer than normal summer weather and cooler than normal winter weather.  For information on the financial effects of seasonal demand on Cleco Power's quarterly operating results, see Item 8, "Financial Statements and Supplementary Data - Notes to Cleco Power's Financial Statements - Note 15 - Miscellaneous Financial Information (Unaudited)."

          Capacity margin is the net capacity resources (either owned capacity or purchased capacity) less native load demand divided by net capacity resources.  Cleco Power's capacity margin requirement is established by the SPP at 12%.  A member of the SPP meets its capacity margin goal by submitting the forecasted native load demand and the forecasted mix of net capacity resources to meet this demand.  In 2002, Cleco Power was deemed to have met the capacity margin requirements established by the SPP.  If capacity margin requirements are not met, the SPP can require that more capacity be supplied in subsequent years.  Cleco Power's actual capacity margin for 2002 was 16.5%, while in 2001 it was 16.3%.  Cleco Power expects the system peak demand to grow at a compound annual rate of approximately 1% to 2% over the next five years.  To meet the capacity reserve margin thr ough 2004, Cleco Power has purchased transmission service and 705 MW of firm capacity which began on June 1, 2000, increasing to 760 MW of capacity in 2004, and decreasing to 100 MW of capacity in 2005.  Cleco Power believes it can meet its anticipated growth in customer demand by purchasing additional needed capacity on the wholesale market.

Energy Trading

          For information on energy trading and the decision to discontinue speculative trading activities within Cleco Power, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations, - Cleco Power - Management's Narrative Analysis of the Results of Operations" and Item 7A, "Quantitative and Qualitative Disclosures About Market Risk - Cleco Power."

          For additional information on Cleco Power's operations, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Cleco Power - Management's Narrative Analysis of the Results of Operations - Results of Operations - Year ended December 31, 2002, Compared to Year ended December 31, 2001," in this Report and "- Financial Condition - Cash Generation and Cash Requirements - Cleco Power Construction," and the Notes to the Consolidated Financial Statements, Note 11 - "Disclosures about Segments" on pages 37, and 73-74, respectively, of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Midstream

          Midstream wholly owns six active limited liability companies that operate mainly in Louisiana and Texas:

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          The following table sets forth certain information with respect to Midstream's operating generating facilities.

          Midstream competes against regional and national companies that develop wholesale power stations.  Marketing & Trading competes against regional energy management companies.  Cleco Energy competes against regional gas transportation and gas marketing companies.

          Marketing & Trading primarily provides energy management services to several municipalities and, prior to the fourth quarter of 2002, marketed and traded wholesale natural gas and power.  During the third quarter of 2002, Cleco began an assessment of its speculative trading strategy.  This assessment was completed during the fourth quarter of 2002, and Cleco determined, in light of market conditions and other factors, that Marketing & Trading would discontinue speculative trading activities.

          Evangeline's capacity is dedicated to one customer, Williams Energy, which is the counterparty to the Evangeline Tolling Agreement.  APP's capacity is dedicated to two customers, Aquila Energy and CES, which are the counterparties to the Aquila Tolling Agreement and the Calpine Tolling Agreement, respectively.  PEP's capacity is dedicated to one customer, MAEM, which is the counterparty to the Perryville Tolling Agreement.  Each tolling agreement gives the tolling counterparty the right to own, dispatch and market all of the electric generation capacity of the respective facility and expires in 2022, except for the Evangeline Tolling Agreement, which expires in 2020.  Under each tolling agreement, the tolling counterparty is responsible for providing its own natural gas to the facility and pays Evangeline, APP or PEP, as the case may be, a fixed fee and a variable fee for operating and maint aining the facility.  For additional information on the tolling agreements and related transactions, risks and uncertainties, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - General Factors Affecting Midstream - Revenue is primarily affected by the following factors," "- Financial Condition - Liquidity and Capital Resources - General Considerations and Credit-Related Risks," and "- New Power Plants," on pages 24-26, 34-35 and 45-46, respectively, of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

          Cleco Energy's revenues are primarily driven by natural gas throughput and the demand for natural gas, which in turn is influenced by the weather and the number of power stations, industrial plants and commercial and residential customers who use natural gas within its region.

          At December 31, 2002, Midstream and its subsidiaries employed 84 people: 10 within Marketing & Trading, 28 within Cleco Energy, 43 within GEN and 3 at Midstream.

          For additional information on Midstream's operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Midstream's Results of Operations," "- Financial Condition - Cash Generation and Cash Requirements - Midstream Construction and Investment in Subsidiaries," and the Notes to the Consolidated Financial Statements, Note 11 - "Disclosures about Segments" on pages 26-28, 37-38 and 73-74, respectively, of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Discontinued Operations

          In December 2000, management decided to sell substantially all of the UTS assets and discontinue UTS' operations after the sale.  On March 31, 2001, management signed an asset purchase agreement to sell UTS to Quanta for approximately $3.1 million in cash and assumption of an operating lease for equipment of approximately $11.6 million.  For more information about the discontinued operations, see the Notes to the Consolidated Financial Statements, Note 17 - "Discontinued Operations" on page 77 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

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          Retail electric operations of Cleco Power are subject to the jurisdiction of the LPSC with respect to rates, standards of service, accounting and other matters.  Cleco Power also is subject to the jurisdiction of the FERC with respect to certain aspects of its electric business, including rates for wholesale service, interconnections with other utilities, and the transmission of power.  Periodically, Cleco Power has sought and received increases in base rates from both the LPSC and the FERC to cover increases in operating costs and costs associated with additions to generation, transmission and distribution facilities.

          Cleco Power's electric rates include fuel and purchased power cost adjustment clauses that enable it to adjust rates for monthly fluctuations in the cost of fuel and short-term purchased power.  Pretax income from certain off-system sales to other utilities is passed on to customers through a reduction in fuel cost adjustment billing factors.  Fuel costs and fuel adjustment billing factors are approved by the LPSC and the FERC.  These cost adjustments are based on costs from earlier periods that can result in over- or under-recovery for the period in which the adjustment is made.  Any over- or under-recovery is corrected by an adjustment in later periods.  The LPSC staff has informed Cleco Power that it is planning to conduct a periodic fuel audit beginning in the first quarter of 2003.  The audit, pursuant to the Fuel Adjustment Clause General Order issued November 6, 19 97, in Docket No. U-21497, is required to be performed no less frequently than every other year; however, this will be the first LPSC fuel adjustment clause audit of Cleco Power.  Cleco Power has not been informed which time period will be covered by the audit, nor is management able to predict the results of the LPSC fuel audit.  As of December 31, 2002, the net accumulated liability for over-recovery on sales subject to the LPSC's and FERC's jurisdiction was approximately $3.6 million.

          For additional information on Cleco Power's retail rates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Retail Rates of Cleco Power" on pages 41-42 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Franchises

          A number of parishes (counties) have attempted in recent years to impose franchise fees on retail revenues earned within the unincorporated areas Cleco Power serves.  If the parishes (counties) are ultimately successful, taxes other than income taxes could increase substantially in future years.

          For additional information on franchises, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Retail Rates of Cleco Power - Franchises" on page 42 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Industry Developments

          For information on industry developments, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Industry Developments / Customer Choice" on page 41 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Wholesale Electric Competition

          For a discussion of regulatory matters relating to Cleco's electric utility operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters" on pages 42-45 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Retail Electric Competition

          Federal regulators and legislators continue to study the potential effects of restructuring the vertically integrated utility systems and providing retail customers a choice of supplier.  Congress also is evaluating power production and delivery as part of their formation of a national energy policy.  At this time, it is not possible to predict when or if retail customers nationwide will be able to choose their electric suppliers as a result of federal legislation.  Cleco cannot predict what future legislation may be proposed and/or passed and what impact it may have upon the Registrants' results of operations or financial condition.

          The LPSC has determined retail choice is not currently in the best interest of Louisiana electric utility customers.  Cleco Power and a number of parties, including the other Louisiana electric utilities, certain power marketing companies, and various associations

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representing industry and consumers, have participated in electric industry restructuring proceedings before the LPSC since 1997.  In November 2001, the LPSC directed the staff to organize a series of collaboratives to more fully explore the unresolved issues in the retail choice plan presented earlier in the year.  For more information on the LPSC's assessment of retail electric competition for Louisiana electric utility customers, see "Industry Developments" above in this Report.

          Currently, the LPSC does not provide exclusive service territories for electric utilities under its jurisdiction.  Instead, retail service is obtained through a long-term nonexclusive franchise.  The LPSC uses a "300 foot rule" for determining the supplier for new customers.  The application of this rule has led to competition with neighboring utilities for retail customers at the borders of Cleco Power's service areas.  Cleco Power also competes in its service area with suppliers of alternative forms of energy, some of which may be less costly than electricity for certain applications.  Cleco Power could experience some competition for electric sales to industrial customers in the form of cogeneration or from independent power producers.

          The LPSC staff informed Cleco Power that it is planning to conduct a periodic fuel audit beginning in the first quarter of 2003.  The audit, pursuant to the Fuel Adjustment Clause General Order issued November 6, 1997, in Docket No. U-21497, is required to be performed no less frequently than every other year; however, this will be the first LPSC fuel adjustment clause audit of Cleco Power.  Cleco Power has not been informed which time period will be covered by the audit, nor is management able to predict the results of the LPSC fuel audit.  Recovery of fuel adjustment clause costs is subject to refund until final approval is received from the LPSC upon completion of a periodic audit.  LPSC-jurisdictional revenue recovered by Cleco Power through its fuel adjustment clause for the three years, five years, and seven years ending December 31, 2002, was $811.5 million, $1,189.4 million, and $1,531.5 million, r espectively.

Legislative and Regulatory Changes and Matters

          Various federal and state legislative and regulatory bodies are considering a number of issues in addition to those discussed above that will shape the future of the electric utility industry.  Such issues include, among others:

          The Registrants are unable, at this time, to predict the outcome of such issues or their effect on their financial position, results of operations or cash flows.

          For information on certain regulatory matters and regulatory accounting affecting Cleco, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters" on pages 42-45 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Environmental Matters

Environmental Quality

          Cleco is subject to federal, state and local laws and regulations governing the protection of the environment.  Violations of these laws and regulations may result in substantial fines and penalties.  Cleco has obtained all material environmental permits necessary for its operations and management believes Cleco is in substantial compliance with these permits, as well as all applicable environmental laws and regulations.  Environmental requirements continue to increase as a result of new legislation, administrative actions and judicial interpretations.  Therefore, the precise future effects of existing and potential requirements are difficult to determine.  During 2002, Cleco's capital expenditures related to environmental compliance were about $5.5 million, due largely to environmental capital additions at Acadia and Perryville.  Expenditures related to environme ntal compliance are estimated to total approximately $1.1 million in 2003.

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          In late December 2002, APP was issued a Consolidated Compliance Order and Notice of Potential Penalty from the LDEQ.  The enforcement action was due to exceedances of the facility's water discharge permit.  Most of the exceedances were due to initial startup difficulties that have been corrected.  In addition, on December 31, 2002, Evangeline was issued a Notice of Violation for exceedances of hourly discharge limitations that also have been corrected.  Although the LDEQ may ultimately impose a penalty on APP and/or Evangeline as a result of these exceedances, management does not believe any such penalty will have a material adverse effect on the Registrants' financial condition or results of operations.

Air Quality

          The State of Louisiana regulates emissions from each of Cleco's generating units through regulations issued by the AQD of the LDEQ.  In addition, the AQD implements certain programs initially established by the federal EPA.  The AQD establishes standards of performance or requires permits for certain generating units in Louisiana.  All of Cleco's generating units are subject to these requirements.

          Cleco Power continues to monitor potential multi-pollutant legislation pending in Congress.  While it is unknown at this time what the final outcome of the legislation will be, any capital and operating costs of additional pollution control equipment that may be required could materially adversely affect future results of operations, cash flows, and possibly financial condition unless such costs could be recovered through regulated rates or future market prices for energy.

          The Clean Air Act also requires the EPA to revise NOx emission limits for existing coal-fired boilers.  In November 1996, the EPA finalized rules lowering the NOx emission rate for certain boilers, including Rodemacher Unit 2 and Dolet Hills Unit 1, which are partially owned by Cleco Power.  Under this rule, Rodemacher Unit 2 and Dolet Hills Unit 1 would have had to meet this new emission rate by January 1, 2000.  The rule also allowed an option to "early elect," that is, achieve compliance with a less restrictive NOx limit beginning no later than January 1, 1997.  Cleco Power exercised this option in December 1996.  Early election protects Cleco Power from any further reductions in the NOx permitted emission rate until 2008.  Rodemacher Unit 2 and Dolet Hills Unit 1 have been in compliance with the NOx early election limits since 1998 and are expected to continue to be i n compliance in 2003 without undergoing significant capital improvements.  Significant future reductions in NOx emission limits may require modification of burners or other capital improvements at either or both of the units.

          NOx emissions from Evangeline's, PEP's and APP's generating units fall well within EPA limits, as the units use a combination of natural gas as a fuel and modern turbine technology that reduces NOx emissions to immaterial levels.

Water Quality

          Cleco has received from the EPA and LDEQ permits required under the Clean Water Act for discharges from its six generating stations.  Discharge permits have fixed dates of expiration, and Cleco applies for renewal of these permits within the applicable time periods.  The LDEQ has been delegated the NPDES program and issues a single LPDES permit in lieu of the separate federal and state permits.  As older NPDES permits are renewed, they will become LPDES permits.

          The federal Clean Water Act, which was passed in 1972, contains provisions requiring the EPA to evaluate all bodies of water within its jurisdiction to determine if they meet water quality standards and to establish a program to bring non-compliant bodies of water into compliance with the standards.  Given the enormous number of bodies of water required to be evaluated and the complexity of standards set forth in the Clean Water Act, the EPA has not completed the requirements.  In the last few years, environmental groups have sued the EPA over the failure to address their requirements of the Clean Water Act.  In October 1999, the EPA received a federal court order to develop and implement TMDLs for all impacted streams in Louisiana.  The TMDLs will restrict the amount of specific covered pollutants, which may be discharged under revised permits, which will incorporate the limitations of TMDL s.  The EPA has released TMDLs for copper, oxygen demanding substances and nutrients on certain water bodies, none of which have had a material impact on Cleco.  Cleco continues to evaluate the potential impact of TMDLs limitations currently being developed by LDEQ and EPA.

          Another new regulatory program, Section 316(b) of the Clean Water Act, which deals with water intake structures, may require some capital improvements to several of the Registrants' generation facilities.  The regulations are currently being developed with a

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projected publication date of February 2004 and, therefore, the capital and operating costs are not known at the present time.  Cleco anticipates that any new requirements will be established as the facilities go through the permit renewal process and will be established on a site-specific basis.

          During the 2001 session of the Louisiana Legislature, legislation was passed which required the Department of Natural Resources to evaluate the need for new regulations to ensure that Louisiana's water resources are managed in an effective manner.  The agency is evaluating water use and the status of Louisiana's aquifers to determine what regulations may be necessary.  Management believes that any new regulations will not have a material adverse effect on the Registrants' financial condition or results of operations.

Solid Waste Disposal

          The Solid Waste Division of the LDEQ has adopted regulations and a permitting system for the management and disposal of solid waste generated by power stations.  Cleco has received all required permits from the LDEQ for the on-site disposal of solid waste generated at its generating stations.

          Cleco produces certain wastes at its six generating stations and at other locations that are classified as hazardous.  The Hazardous Waste Division of the LDEQ regulates these wastes and has issued identification numbers to the sites where such wastes are produced.  Cleco does not treat, store or dispose of these wastes on-site; therefore, no permits are required.  All hazardous wastes produced by Cleco are disposed of at federally permitted hazardous waste disposal sites.

Toxics Release Inventory

          The TRI is a part of the Emergency Planning and Community Right to Know Act and is administered by the EPA.  The TRI is an annual reporting requirement for industrial facilities on about 650 substances that they release into air, water and land.  The TRI ranks companies based on how much of a particular substance they release on a state level and a parish (county) level.  Cleco was exempt from the reporting requirements of the TRI until the EPA added seven new industry groups, including electric utility facilities, to the TRI in May 1997.  Annual reports are due to the EPA on July 1^st following the reporting year-end.  Cleco has submitted timely TRI reports on its 1998, 1999, 2000, and 2001 activities, and the TRI rankings are made available to the public.  The rankings do not result in any federal or state penalties and have not caused significant adverse public perceptions of Cleco.  Management is aware of the potential adverse effects and is continuing to monitor the TRI process.  Management is currently taking steps such as increasing the recycling of fly ash at Dolet Hills to protect against possible negative public perceptions of Cleco as a result of the TRI.

Electric and Magnetic Fields

          The possibility that exposure to EMFs emanating from electric power lines, household appliances and other electric devices may result in adverse health effects or damage to the environment has been a subject of recent public attention.  Cleco Power funds research on EMFs through various organizations.  The scientific research conducted to date concerning the effects of EMFs has not led to any definitive results, but research is continuing.  Lawsuits alleging that the presence or use of electric power transmission and distribution lines has an adverse effect on health and/or property values have arisen in several states against electric utilities and others.  Cleco Power is not a party in any lawsuits related to EMFs.

          Midstream does not own any electric power lines.

Customers

          No customer accounted for 10% or more of Cleco's consolidated revenue or Cleco Power's revenue in 2002, 2001 or 2000.  Additional information regarding Cleco's sales and revenues is set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations" on pages 19-32 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Construction and Financing

          For information on Cleco's construction program, financing and related matters, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Cash Generation and Cash Requirements" on pages 36-40 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

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Electric Generating Stations

          As of December 31, 2002, Cleco Power either owned or had an ownership interest in three steam electric generating stations and a gas turbine with a combined electric net generating capacity of 1,358,900 kW.  For additional information on Cleco Power's generating facilities, see "Operations - Cleco Power - Power Generation" in Item 1 of this Report.

Electric Substations

          As of December 31, 2002, Cleco Power owned 58 active transmission substations and 228 active distribution substations.

Electric Lines

          As of December 31, 2002, Cleco Power's transmission system consisted of approximately 67 circuit miles of 500 kV lines; 462 circuit miles of 230 kV lines; 663 circuit miles of 138 kV lines; and 17 circuit miles of 69 kV lines.  Cleco Power's distribution system consisted of approximately 3,320 circuit miles of 34.5 kV lines and 7,717 circuit miles of other lines.

General Properties

          Cleco Power owns various properties, which include a headquarters office building, regional offices, service centers, telecommunications equipment and other facilities owned for general purposes.

Title

          Cleco Power's electric generating plants and certain other principal properties are owned in fee.  Electric transmission and distribution lines are located either on private rights-of-way or along streets or highways by public consent.

          Substantially all of Cleco Power's property, plant and equipment is subject to a lien securing obligations of Cleco Power under an Indenture of Mortgage, which does not impair the use of such properties in the operation of its business.

Electric Generation

          As of December 31, 2002, Midstream owned two steam electric generating stations, Evangeline and Perryville, and had a 50% ownership interest in an additional station, Acadia.  For additional information on Midstream's generating facilities, see "Operations - Midstream" in Item 1 of this Report.

Oil and Gas Related

          As of December 31, 2002, Midstream had an ownership interest in 415 miles of gas gathering and transmission pipeline in Texas and Louisiana, as well as oil and gas producing properties in Texas.

Title

          Midstream's assets are owned in fee, including Midstream's portion of Acadia.  Evangeline and Perryville are subject to a lien securing obligations under an Indenture of Mortgage, which does not impair the use of such properties in the operation of its business.  Various other properties also are subject to mortgages associated with the debt used to acquire such properties.

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          The names of the executive officers of Cleco and certain subsidiaries, their positions held, five-year employment history, ages and years of service as of December 31, 2002, are presented below.  Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed.

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          Subject to the prior rights of the holders of the respective series of Cleco's preferred stock, such dividends as determined by the Board of Directors of Cleco may be declared and paid on the common stock from time to time out of funds legally available.  The provisions of Cleco's charter applicable to preferred stock and certain provisions contained in the debt instruments of Cleco under certain circumstances restrict the amount of retained earnings available for the payment of dividends by Cleco.  The most restrictive covenant requires that common shareholders' equity be not less than 35% of total capitalization, including short-term debt and excluding Midstream nonrecourse debt.  At December 31, 2002, approximately $69.7 million of retained earnings were not restricted.  On January 24, 2003, Cleco's Board of Directors declared a quarterly dividend of $0.225 per share, which dividend was p aid on February 15, 2003 to common shareholders of record on February 3, 2003.

          As of February 28, 2003, there were 9,086 holders of record of Cleco's common stock, and the closing price of Cleco's common stock as reported on the NYSE Composite Tape was $11.69 per share.

          Some provisions in Cleco Power's debt instruments restrict the amount of equity available for distribution to Cleco Corporation by Cleco Power under specified circumstances.  The most restrictive covenant requires that member's equity be not less than 30% of total capitalization, including short-term debt.  At December 31, 2002, approximately $157.0 million of member's equity were not restricted.

          The following table shows the distributions or dividends paid by Cleco Power, or its predecessor, Utility Group, to Cleco Corporation during the years 2000, 2001 and 2002:

          Utility Group's common equity was in the form of corporate common stock before December 31, 2000, the date of its merger with Cleco Power.  After the merger, Cleco Power's common equity is in the form of limited liability company common equity units.

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          The following narrative analysis should be read in combination with the financial statements and notes of Cleco Power contained in Item 8 of this Report.  Cleco Power is providing the following narrative analysis of the results of its operations in lieu of management's discussion and analysis of financial condition and results of operations in accordance with Instruction I(2)(a) to Form 10-K (Omission of Information by Certain Wholly Owned Subsidiaries).

General Factors Affecting Cleco Power

Revenue is primarily affected by the following factors:

          Retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC.  Retail rates consist of a base rate and a fuel rate.  Base rates are designed to allow recovery of the cost of providing service and a return on utility assets.  Fuel revenue rates fluctuate while generally allowing recovery of, with no profit, the costs of purchased power and fuel used to generate electricity.  Rates for transmission service and wholesale power sales are regulated by the FERC.  An LPSC-approved rate stabilization plan is in place through September 2004.  This plan effectively allows Cleco Power the opportunity to realize a regulatory rate of return of up to 12.625%.  As part of the rate stabilization plan, the LPSC annually reviews revenue and return on equity.  A new plan may be ordered by the LPSC upon expiration of the existing plan, or the existing plan may be extended with or without modification.  Cleco Power anticipates discussions with the LPSC staff regarding the status of the plan will begin in late 2003.  For additional information on Cleco Power's rate stabilization plan, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Retail Rates of Cleco Power" on pages 41-42 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

          Energy trading, net, generally is affected by supply and demand in the market, the financial viability of Cleco Power's marketing and trading counterparties, and the volatility in market prices.  During the third quarter of 2002, Cleco Power began an assessment of its speculative trading strategy.  This assessment was completed during the fourth quarter of 2002, and it was determined, in light of market conditions and other factors, that Cleco Power would discontinue speculative trading activities.  Most of Cleco Power's exposure to the market from positions opened prior to the change in strategy was mitigated in the fourth quarter of 2002 by transactions entered into specifically to offset those open positions.  For additional information on energy trading, net, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Financial Risk Management" on pages 46-48 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

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          Residential customers' demand for electricity is largely affected by weather.  Weather is generally measured in cooling degree-days and heating degree-days.  A cooling degree-day is an indication of the likelihood that a consumer will use air conditioning, while a heating degree-day is an indication of the likelihood that a consumer will use heating.  An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days, because customers can choose an alternative fuel source for heating, such as natural gas.  Normal heating degree-days and cooling degree-days are calculated for a month by separately calculating the average actual heating and cooling degree-days for that month over a period of approximately 30 years.

          Commercial and industrial customers' demand for electricity is affected less by the weather and is primarily dependent upon the strength of the economy.  Cleco Power's two largest customers manufacture wood products, such as newsprint, cardboard, corrugated packaging and kraft paper.  Sales to industrial customers are affected by the worldwide demand for the customers' products compared to their ability to produce the products economically.

          KWh sales to retail electric customers have grown an average of 3.4% annually over the last five years, but Cleco Power expects this growth to range from 0.5% to 1.0% per year during the next five years.  The growth of future sales will depend upon factors such as weather conditions, customer conservation efforts, retail marketing and business development programs, and the economy of Cleco Power's service area.  Some of the issues facing the electric utility industry that could affect sales include:

Fuel and power purchased are primarily affected by the following factors:

          Changes in fuel and purchased power expenses reflect fluctuations in fuel used for electric generation, fuel handling costs, availability of economical power for purchase, and deferral of expenses for recovery from customers through the fuel adjustment clause in subsequent months.

          Changes in fuel costs historically have not significantly affected Cleco Power's net income.  Generally, fuel and purchased power expenses are recovered through the LPSC-established fuel adjustment clause, which enables Cleco Power to pass on to customers substantially all such charges.  Cleco Power's fuel adjustment clause is regulated by the LPSC (representing about 93% of its total fuel costs) and the FERC.  The LPSC staff has informed Cleco Power that it is planning to conduct a periodic fuel audit beginning in the first quarter of 2003.  The audit, pursuant to the Fuel Adjustment Clause General Order issued November 6, 1997, in Docket No. U-21497, is required to be performed no less frequently than every other year; however, this will be the first LPSC fuel adjustment clause audit of Cleco Power.  Cleco Power has not been informed which time period will be covered by the audit , nor is management able to predict the results of the LPSC fuel audit.   Recovery of fuel adjustment clause costs is subject to refund until final approval is received from the LPSC upon completion of the periodic audit.  LPSC-jurisdictional revenue recovered by Cleco Power through its fuel adjustment clause for the three years, five years, and seven years ending December 31, 2002, was $811.5 million, $1,189.4 million, and $1,531.5 million, respectively.

          An earnings review settlement reached with the LPSC in 1996 sometimes requires accruals for estimated customer credits, depending on Cleco Power's level of earnings.  The amount of credit due customers, if any, is determined annually by the LPSC based on results for the 12-month period ending September 30 of each year.  Cleco Power accrued $2.9 million in 2002 for estimated customer credits compared to $1.8 million in 2001.  The $2.9 million accrual relates to the 12-month cycles ended September 30, 2001, 2002, and 2003.  For additional information on the accrual for estimated customer credits, see the Notes to Cleco Power's Financial Statements, Note 8 - "Accrual of Estimated Customer Credits" in Item 8 of this Report.

          Cleco Power obtains coal and lignite through long-term contracts and through the spot market.  Natural gas is purchased under short-term contracts.  Cleco Power has power contracts with two power marketing companies, Williams Energy and Dynegy, for a total of 705 MW of capacity in 2002 and in 2003, increasing to 760 MW of capacity in 2004, decreasing to 100 MW of capacity in 2005.  Because substantially all of the contracts expire on December 31, 2004, Cleco Power is currently evaluating its long-term capacity and energy needs.  Cleco Power anticipates it will initiate a solicitation during the first quarter of 2003 to identify existing or new generation resources, including new power purchase contracts, to replace the Williams Energy contracts and the Dynegy contract.  Pursuant to the LPSC's 1983 General Order governing the construction and/or procurement of generation capacity, C leco Power is required to make an informational filing with the LPSC to substantiate that securing such generation resources is in the public

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interest.  Cleco Power anticipates making such a filing during the first quarter of 2003 and will continue to evaluate supply options through the first half of 2003.  As part of that process, Cleco Power will also evaluate the possibility of acquiring additional generation facilities, including one or more of Midstream's unregulated power plants.  In addition to the power obtained under long-term contracts, Cleco Power purchases power from other utilities and other marketers to supplement its generation at times of relatively high demand or when the purchase price of the power is less than Cleco Power's cost of generation.  However, transmission capacity must be available to transport the purchased power to Cleco Power's system in order for it to be able to utilize the power.  During 2002, 45.4% of Cleco Power's energy requirements was met with purchased power, up from 40.3% in 2001 and 34.2% in 2000.

          In future years, Cleco Power's power plants may not be able to supply enough power to meet its growing native load.  Because of its location on the transmission grid, Cleco Power relies on one main supplier of electric transmission, and constraints sometimes limit the amount of purchased power it can bring into its system.  The power contracts described above may be affected by these transmission constraints.  For information on Cleco Power's purchased power and on certain Cleco Power obligations under the Williams Energy contracts and the Dynegy contract, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Purchased Power" on page 46 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

Other expenses are primarily affected by the following factors:

          The majority of other expenses include other operations, maintenance, depreciation, and taxes other than income taxes.  Other operations expenses are affected by, among other things, the cost of employee benefits, insurance expenses, and the costs associated with providing customer service.  Maintenance expenses associated with Cleco Power's plants generally are driven by the physical characteristics of the plants, as well as planned preventive maintenance.  Depreciation expenses are primarily affected by the cost of the facility in service, the time the facility was placed in service, and the estimated useful life of the facility.  Taxes other than income taxes are generally affected by payroll taxes and ad valorem taxes.

Results of Operations - Year ended December 31, 2002, Compared to Year ended December 31, 2001

          Cleco Power's net income applicable to member's equity for 2002 was $59.5 million compared to $59.1 million for 2001.  Factors contributing to the slight increase include:

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          The following chart shows how cooling degree-days and heating degree-days in 2002 and 2001 varied from normal conditions and from the prior year for cooling degree-days and heating degree-days for 2002 and 2001.  Before 2002, Cleco Power used an internally generated temperature reading to determine cooling and heating degree-days.  In the fourth quarter of 2002, Cleco Power began to use temperature data collected by the NOAA for this purpose.  Cooling and heating degree-days for 2001 have been adjusted to reflect the change in temperature data source.

          Base revenue increased $17.5 million, or 6.1%, from 2001 to 2002.  The increase was primarily due to higher retail sales resulting from customer growth and increased cooling degree-days and heating degree-days compared to normal and prior year, as shown in the chart above.  The 79.6% increase in sales for resale volume was primarily due to the addition of one wholesale customer in June 2001 and the addition of a second wholesale customer in January 2002.

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          Fuel cost recovery revenue collected from customers decreased $41.6 million, or 13.7%, primarily as a result of a 22.6% decrease in the average per unit cost of fuel used for electric generation and a 6.8% decrease in the average per unit cost of purchased power for 2002 compared to 2001, which made the purchase of power more economical than the incremental cost of generation of power.  For additional information on Cleco Power's ability to recover fuel and purchased power costs, see "- General Factors Affecting Cleco Power - Fuel and power purchased are primarily affected by the following factors," above.

Estimated Customer Credits

          Revenue for 2002 was decreased by a $2.9 million accrual for estimated customer credits compared to a $1.8 million accrual in 2001.  For additional information on the accrual for estimated customer credits, see the Notes to Cleco Power's Financial Statements, Note 8 - "Accrual of Estimated Customer Credits" in Item 8 of this Report.

Energy Trading, Net

          For 2002 compared to 2001, the increase in power and gas volumes traded was primarily due to expansion of Cleco Power's power and gas trading portfolio.  During the third quarter of 2002, Cleco Power began an assessment of its speculative trading strategy.  This assessment was completed during the fourth quarter of 2002, and it was determined, in light of market conditions and other factors, that Cleco Power would discontinue speculative trading activities.  Most of Cleco Power's exposure to the market from positions opened prior to the change in strategy was mitigated in the fourth quarter of 2002 by transactions entered into specifically to offset those open positions.  Volumes and associated net revenue will continue to be affected by those positions during 2003.  A summary of power and natural gas traded by Cleco Power for the periods indicated appears below.

          Generally, Cleco Power's energy trading transactions are considered nonhedging derivatives under SFAS No. 133, as amended, which requires that the transactions be reported at fair market value or "marked-to-market."  The chart below presents the components of energy trading, net.

          Energy trading, net, decreased $2.2 million from 2001 to 2002.  The decrease was primarily due to an adjustment for premiums on certain gas put options, and Cleco Power's efforts in the fourth quarter of 2002 to mitigate most of Cleco Power's exposure to the market following the decision to discontinue speculative trading activities and volatility in power and natural gas prices in 2002.  For additional information on the premiums on certain gas put options, see "Management's Discussion and Analysis of Financial Condition and Results of Operations- Financial Condition - Regulatory Matters - Gas Put Options" on pages 43-44 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.  For information on certain "round-trip" trades and affiliate gas transportation charges involving Cleco Power, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters - Review of Trading Activities," and "Gas Transportation Charges," on page 44 of the Annual Report, which is filed as Exhibit 13 to this Report and incorporated herein by reference.

          Issue 1 of EITF No. 02-3 requires that all gains and losses from energy trading contracts be reported on the income statement on a net basis, with revenue and expenses aggregated and the net number reported in one line item.  Cleco Power adopted EITF No. 02-3 effective July 1, 2002.  For additional information on Cleco Power's adoption of EITF No. 02-3, see the Notes to Cleco Power's Financial Statements, Note 1 - "Summary of Significant Accounting Policies - Recent Accounting Standards" in Item 8 of this Report.

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          In October 2002, the EITF rescinded EITF No. 98-10 effective the first fiscal period beginning after December 15, 2002.  EITF No. 98-10 required certain energy contracts to be reported at fair market value or "marked-to-market."  Instead of using EITF No. 98-10, energy contracts will now be evaluated using SFAS No. 133, as amended, in order to determine whether mark-to-market accounting is appropriate.  For additional information on the rescission of EITF No. 98-10, see the Notes to Cleco Power's Financial Statements, Note 1 - "Summary of Significant Accounting Policies - Recent Accounting Standards" in Item 8 of this Report.

Intercompany Revenue

          Intercompany revenue decreased $4.3 million, or 71.6%, in 2002 compared to 2001.  The decrease was primarily due to a change in the billing process to an affiliate and reduced billings to other affiliates for software usage.

Operating Expenses

          Operating expenses decreased $40.7 million, or 7.9%, in 2002 compared to 2001.  In 2002 compared to 2001 fuel used for electric generation decreased $45.9 million, or 24.9%, primarily due to the following factors: a decrease in the average per unit cost of fuel from $2.92 per MMBtu in 2001 to $2.31 per MMBtu in 2002; an increase in power purchased for utility customers; and a $6.6 million one-time adjustment in 2001 for the recovery of fuel-related costs that had not been collected previously from utility customers.  From 2001 to 2002, power purchased for utility customers increased $10.5 million, or 7.5%, primarily due to a 6.8% decrease in average per unit cost, which made the purchase of power more economical than the incremental cost of generation of power.  The $16.6 million, or 15.3%, decrease in other operations and maintenance expenses for 2002 compared to 2001 was primarily due to a decre ase in affiliate billings and to a decrease in administrative expenses as a result of a change in vacation policy between 2001 and 2002.  Depreciation expenses increased $1.6 million, or 3.2%, in 2002 compared to 2001 primarily due to normal asset additions such as line extensions and substation upgrades and new software.  Also, an $8.1 million organizational restructuring charge was incurred in 2002.  For additional information on the restructuring charge, see the Notes to Cleco Power's Financial Statements, Note 12 - "Restructuring Charge" in Item 8 of this Report.  Taxes other than income taxes increased $1.5 million, or 4.3%, primarily due to increased payroll and ad valorem taxes.

Interest Income and Expenses

        Interest income decreased $5.6 million, or 85.6%, in 2002 compared to 2001 primarily due to interest related to the recognition in 2001 of a one-time recovery of fuel-related costs that had not been previously collected from utility customers.  Because the recovery of the fuel-related costs was a one-time adjustment, management does not expect interest income in future periods to be as large as it was in 2001.  Interest expense increased $2.3 million, or 8.5%, primarily due to interest related to gas transportation charges.  For additional information regarding gas transportation charges, see the Notes to Cleco Power's Financial Statements, Note 13 - "Gas Transportation Charges" in Item 8 of this Report.

          The market risk inherent in Cleco Power's market risk-sensitive instruments and positions includes the potential change arising from changes in interest rates, the commodity price of power traded on the different power exchanges and the commodity price of natural gas traded.  Prior to the third quarter of 2002, Cleco Power used EITF No. 98-10 to determine whether the market risk-sensitive instruments and positions were required to be marked-to-market.  In October 2002, the EITF rescinded EITF No. 98-10 effective the first fiscal period beginning after December 15, 2002.  For additional information about the rescission of EITF No. 98-10, see the Notes to Cleco Power's Financial Statements, Note 1 - "Summary of Significant Accounting Policies - Recent Accounting Standards" in Item 8 of this Report.  Cleco Power currently uses SFAS No. 133 in order to determine whether the market risk-sensi tive

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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, since Cleco Power generally takes physical delivery and the instruments and positions are used to satisfy customer requirements.  Cleco Power does have some positions that are required to be marked-to-market because they do not meet the exceptions of SFAS No. 133 and do not qualify for hedge accounting treatment.  The positions entered into for marketing and trading purposes do not meet the exemptions of SFAS No. 133, and the net mark-to-market of those positions is recorded in income.  Cleco Power has entered into other positions to mitigate some of the volatility in fuel costs passed on to customers.  These positions are marked-to-market, with the resulting gain or loss recorded on the balance sheet as a component of the accumulated deferred fuel asset or liability.  When these positions close, actual gains or losses will be included in the fuel adjustment clause and reflected on customers' bills.

          Cleco Power's exposure to market risk, as discussed below, represents an estimate of possible changes in the fair value or future earnings that would occur, assuming possible future movements in the interest rates and commodity prices of power and natural gas.  Management's views on market risk are not necessarily indicative of actual results, nor do they represent the maximum possible gains or losses.  The views do represent, within the parameters disclosed, what management estimates may happen.

          Cleco Power has entered into various fixed- and variable-rate debt obligations.  For details, see the Notes to Cleco Power's Financial Statements, Note 4 - "Debt" in Item 8 of this Report.  The calculations of the changes in fair market value and interest expense of the debt securities are made over a one-year period.

          As of December 31, 2002, the carrying value of Cleco Power's long-term, fixed-rate debt was approximately $361.3 million, with a fair market value of approximately $384.5 million.  Fair value was determined using quoted market prices.  Each 1.0% change in the average interest rates applicable to such debt would result in a change of approximately $20.6 million in the fair values of these instruments.  If these instruments are held to maturity, no change in stated value will be realized.

          As of December 31, 2002, the carrying value of Cleco Power's short-term, variable-rate debt was approximately $107.0 million, which approximates the fair market value.  Each 1.0% change in the average interest rates applicable to such debt would result in a change of approximately $1.1 million in Cleco Power's pretax earnings.

          Cleco Power monitors its mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under its variable-rate credit facility with fixed-rate debt.

Market Risk

        Cleco Power's management believes it has controls in place to help minimize the risks involved in trading.  Controls over trading consist of a back office (accounting) and a middle office (risk management) independent of the trading operations, oversight by a risk management committee comprised of officers, and a daily risk report which shows VAR and current market conditions.  Cleco's Board of Directors appoints the members of the Risk Management Committee.  VAR limits are set and monitored by the Risk Management Committee.

          Cleco Power engages in trading of power and natural gas, provides fuel for generation, and purchases power to meet the power demands of customers.  Financial positions that are not used to meet the power demands of customers are marked-to-market as required by SFAS No. 133.  For the year ended December 31, 2002, the net mark-to-market amount for these positions was a loss of $0.6 million.

          During the third quarter of 2002 Cleco Power began an assessment of its speculative trading strategies.  This assessment was completed during the fourth quarter of 2002, and Cleco Power determined, in light of market conditions and other factors, that it would discontinue speculative trading activities.

          Cleco Power has entered into positions to mitigate some of the volatility in fuel costs passed on to customers, as permitted by a LPSC order.  These positions are marked-to-market, with the resulting gain or loss recorded on the balance sheet as a component of the accumulated deferred fuel asset or liability.  At December 31, 2002, the net mark-to-market impact was a loss of $1.4 million.

          Cleco Power utilizes a VAR model to assess the market risk of its trading portfolios, including derivative financial instruments.  VAR represents the potential loss in fair values for an instrument from adverse changes in market factors for a specified period of time and confidence level.  The VAR is estimated using a historical simulation calculated daily assuming a holding period of one day, with a 95% confidence level for natural gas and power positions.  Total volatility is based on historical cash volatility, implied market volatility, current cash volatility, and option pricing.

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          Based on these assumptions, the high, low and average VAR for Cleco Power for 2002, as well as the VAR at December 31, 2002, and 2001, is summarized below:

          The decrease in VAR from December 31, 2002 compared to December 31, 2001, is primarily due to a decrease in trading activity as a result of Cleco Power's decision to no longer engage in speculative trading activities.  Under its VAR model, Cleco Power considers changes in market value of its open positions in excess of $200,000 over its estimated VAR to be material.  During 2002, Cleco Power experienced one day in which there was such an excess, which was $318,000.

          The following table summarizes the market value maturities of contracts with prices actively traded at December 31, 2002 with respect to Cleco Power:

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To the Member and
Board of Managers of Cleco Power LLC:

As discussed in Note 1 to the financial statements of Cleco Power LLC, effective January 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities."

PricewaterhouseCoopers LLP
New Orleans, Louisiana
January 28, 2003

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General

          Cleco Power is an electric utility regulated by the LPSC and the FERC, which determine the rates it can charge its customers.  Cleco Power serves approximately 261,000 customers in 104 communities in central and southeastern Louisiana.

Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

Reclassifications

          Certain reclassifications have been made to the 2001 and 2000 Cleco Power financial statements to conform to the presentation used in the 2002 Cleco Power financial statements.  These reclassifications had no effect on net income or total member's equity.

          Cleco Power maintains its accounts in accordance with the Uniform System of Accounts prescribed for electric utilities by the FERC, as adopted by the LPSC.  Cleco Power's retail rates are regulated by the LPSC, and its rates for transmission services and wholesale power sales are regulated by the FERC.  Cleco Power follows SFAS No. 71, which allows utilities to capitalize or defer certain costs based on regulatory approval and management's ongoing assessment that it is probable these items will be recovered through the ratemaking process.  During 2000, the LPSC staff developed a transition to competition plan that was presented to the LPSC.  In November 2001, the LPSC directed its staff to organize a series of collaboratives to more fully explore the unresolved issues in the plan.  The staff also is to monitor surrounding areas and, if any commence retail access, report ba ck the success or failure of that effort 12 months after the initiative began.  Any future plan adopted by the LPSC may affect the regulatory assets and liabilities recorded by Cleco Power, if the criteria for the application of SFAS No. 71 cannot continue to be met.

          Pursuant to SFAS No. 71, as of December 31, 2002, Cleco Power has recorded regulatory assets and liabilities, primarily for the effects of income taxes.  In addition, Cleco has recorded regulatory assets for deferred mining and storm restoration costs as a result of rate actions of regulators.  The effects of potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco Power could require discontinuance of the application of SFAS No. 71.  At December 31, 2002, Cleco Power had recorded $65.3 million of regulatory assets, net of regulatory liabilities, for deferred taxes because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would fund these amounts when Cleco Power pays the additional taxes.  These amounts occur over th e lives of relatively long-lived assets, up to 30 years or more.  At December 31, 2002, Cleco Power also has recorded deferred mining costs, storm restoration costs, and interest costs of $8.3 million, $7.0 million, and $10.5 million, respectively.  The deferred storm restoration costs, deferred mining costs, and the deferred interest costs are presented in the line item entitled "Other Deferred Charges" on Cleco Power's Balance Sheets.  For information on deferred mining costs, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters - Lignite Deferral" on pages 44-45 of the 2002 Annual Report to Shareholders, which is filed as Exhibit 13 to this Report and incorporated herein by reference.  A discussion of storm restoration costs and deferred interest costs follows in this Note.  Under the current regulatory and competitive environment, Cleco Power believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or increased competition, Cleco Power's ability to recover these regulatory assets would not be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco Power would be required to write-off or write-down such assets.

Storm Restoration Costs

          During the fourth quarter of 2002, Cleco Power incurred $27.5 million of storm restoration costs, primarily to replace utility poles and conductors damaged by Tropical Storm Isidore and Hurricane Lili.  According to an agreement with the LPSC, approximately $7.0 million of these restoration costs were deferred and recorded as a regulatory asset, for recovery over the six-year period beginning January 1, 2003.

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          Cleco Power's "Other Deferred Charges" include additional deferred capital construction financing costs authorized by the LPSC.  At December 31, 2002, these costs totaled $9.3 million and are being recovered over the estimated lives of the respective assets constructed.

Property, Plant and Equipment

          Property, plant and equipment consist primarily of regulated generation and energy transmission assets.  Tangible regulated assets, utilized primarily for retail operations and electric transmission and distribution, are stated at the cost of construction - which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction.  Intangible regulated utility assets, such as software and franchise costs, are stated at the cost of construction or acquisition.

          Cleco Power's cost of improvements to property, plant and equipment is capitalized.  Expenditures for repairs are expensed.  Upon retirement or disposition, the cost of depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation and are recovered via a return on the cost of plant included in the rate base.  Annual depreciation provisions expressed as a percentage of average depreciable property were 3.28% for 2002, 3.27% for 2001, and 3.27% for 2000.

          Depreciation on property, plant and equipment is calculated primarily on a straight-line basis over the useful lives of the assets, as follows:

          Property, plant and equipment consists of: