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FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004
Or

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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Commission file number 1-15759

CLECO CORPORATION
(Exact name of registrant as specified in its charter)

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Commission file number 0-01272

CLECO POWER LLC
(Exact name of registrant as specified in its charter)

    The aggregate market value of the Cleco Corporation voting stock held by non-affiliates was $789,494,234 as of the last business day of the Registrant's most recently completed second fiscal quarter, based on a price of $17.98 per common share, the closing price of Cleco Corporation's common stock as reported on the New York Stock Exchange on such date.  Cleco Corporation's Cumulative Preferred Stock is not listed on any national securities exchange, nor are prices for the Cumulative Preferred Stock quoted on any national automated quotation system; therefore, its market value is not readily determinable and is not included in the foregoing amount.

    As of February 1, 2005, there were 49,254,122 shares outstanding of Cleco Corporation's Common Stock, par value $1.00 per share.  As of February 1, 2005, all of Cleco Power's Membership Interests were owned by Cleco Corporation.

DOCUMENTS INCORPORATED BY REFERENCE

    This combined Form 10-K is separately filed by Cleco Corporation and Cleco Power.  Information in this filing relating to Cleco Power is filed by Cleco Corporation and separately by Cleco Power on its own behalf.  Cleco Power makes no representation as to information relating to Cleco Corporation (except as it may relate to Cleco Power) or any other affiliate or subsidiary of Cleco Corporation.

    This report should be read in its entirety as it pertains to each respective Registrant.  The Notes to the Financial Statements for the Registrants are combined.

TABLE OF CONTENTS

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

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This report includes "forward-looking statements" about future events, circumstances, and results.  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 to differ materially from those contemplated in any of the Registrants' forward-looking statements:

• Factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage; unscheduled generation outages; unusual maintenance or repairs; unanticipated changes to fuel costs, cost of and reliance on natural gas as a component of Cleco's generation fuel mix and their impact on competition and franchises, fuel supply costs or availability constraints due to higher demand, shortages, transportation problems or other developments; environmental incidents; or power transmission system constraints;

• Completing the pending sale of the Perryville facility;

• Outcome of the bankruptcy process of Perryville and PEH;

• Resolution of damage claims asserted against the Mirant Debtors in their bankruptcy proceedings as a result of the rejection of the Perryville Tolling Agreement;

• Nonperformance by and creditworthiness of counterparties under tolling, power purchase, and energy service agreements, or the restructuring of those agreements, including possible termination;

• Action by Calpine or its affiliates with respect to the Calpine Tolling Agreements, including, without limitation, reduction of payments under the Calpine Tolling Agreements, unwinding of Calpine's interest in Acadia, termination of the Calpine Tolling Agreements or litigation against Cleco, resulting from CES's dispute with Acadia under the Calpine Tolling Agreements;

• Increased competition in power markets, including effects of industry restructuring or deregulation, transmission system operation or administration, transmission reliability standards, retail wheeling, wholesale competition, retail competition, or cogeneration;
  Regulatory factors such as unanticipated changes in rate-setting policies, recovery of investments made under traditional regulation, the frequency and timing of rate increases, the results of periodic fuel audits, the results of the RFP and IRP processes, the formation of RTOs and the implementation of Standard Market Design (which is intended to enhance wholesale energy competition);

• Cleco's ability to develop and execute on a point of view regarding prices of electricity, natural gas, and other energy-related commodities;

• Financial or regulatory accounting principles or policies imposed by the FASB, the SEC, the Public Company Accounting Oversight Board, the FERC, the LPSC or similar entities with regulatory or accounting oversight;

• Economic conditions, including inflation rates and monetary fluctuations, and related growth in Cleco's service area;

• Credit ratings of Cleco Corporation, Cleco Power, and Evangeline;

• Changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks;

• Acts of terrorism;

• Availability or cost of capital resulting from changes in Cleco's business or financial condition, interest rates, and securities ratings or market perceptions of the electric utility industry and energy-related industries;

• Employee work force factors, including work stoppages and changes in key executives;

• Legal, environmental, and regulatory delays and other obstacles associated with mergers, acquisitions, capital projects, reorganizations, or investments in joint ventures;

• Costs and other effects of legal and administrative proceedings, settlements, investigations, claims and other matters; and"

• Changes in federal, state, or local legislative requirements, such as changes in tax laws or rates, regulating policies or environmental laws and regulations.

    All subsequent written and oral forward-looking statements attributable to the Registrants or persons acting on their behalf are expressly qualified in their entirety by the factors identified above.

    The Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.

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Cleco Corporation was incorporated on October 30, 1998, under the laws of the State of Louisiana.  Cleco Corporation holds investments in several subsidiaries, including Cleco Power and Midstream, which are its operating business segments.  Cleco Corporation, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to Section 3(a)(1) of PUHCA.

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.  Cleco Power is an electric utility regulated by the LPSC and the FERC, among other regulators, which determine the rates Cleco Power can charge its customers.  Cleco Power serves approximately 265,000 customers in 103 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 a merchant energy subsidiary that owns and operates merchant generation stations and invests in joint ventures that own and operate merchant generation stations.  On January 28, 2004, Perryville entered into an agreement to sell its 718-MW power plant to Entergy Louisiana.  As part of the sales process, Perryville and PEH filed voluntary petitions in the Perryville and PEH Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy Code.  Perryville and PEH are debtors and debtors in possession, and are continuing to operate their business under the U.S. Bankruptcy Code.  For additional information on the bankruptcy filings and the pending sale of the Perryville facility, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - - Perryville."  In June 2004, management decided to sell substantially all of the assets of Cleco Energy and discontinue Cleco Energy's natural gas marketing, pipeline, and production operations after the sale.  On September 15, 2004, Cleco Energy completed the sale of its oil and gas production properties, and on November 16, 2004, completed the sale of its natural gas pipeline and marketing operations.  For additional information on the discontinued operations and sale of Cleco Energy's assets, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

At December 31, 2004, Cleco employed 1,165 people.  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 is located at http://www.cleco.com.  Cleco Corporation'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 after those reports or filings are electronically filed with or furnished to the SEC.  Cleco's corporate governance guidelines, code of business conduct and ethics and the charters of its board of directors' audit, compensation, executive, nominating/governance and qualified legal compliance committees are available on its website and available in print to any shareholder upon request.  Cleco's filings also can be obtained at the SEC's Public Reference Room at 450 Fifth Street NW, Washington, DC 20549.  Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.  Cleco's electronically filed reports also can be obtained on the SEC's Internet site located at http://www.sec.gov.  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.

At December 31, 2004, Cleco Power employed 843 people.  Cleco Power's mailing address is P.O. Box 5000, Pineville, Louisiana, 71361-5000, and its telephone number is (318) 484-7400.

Cleco Power meets the conditions specified in General Instructions I(1)(a) and (b) to Form 10-K and therefore is permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies.  Accordingly, Cleco Power has omitted from this Report the information called for by Item 4 (Submission of Matters to a Vote of Security Holders) of Part I of Form 10-K, the following Part II items of Form 10-K:  Item 6 (Selected Financial Data) and Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations); and the following Part III items of Form 10-K:  Item 10 (Directors and Executive Officers), Item 11 (Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), and Item 13 (Certain Relationships and Related Transactions).

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Cleco Power

Segment Financial Information

Financial results of the Cleco Power segment for years 2004, 2003, and 2002 are presented below.
 

Certain Factors Affecting Cleco Power

As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors influencing the electric utility industry in general.  These factors include, among others, an increasingly competitive business environment, the cost of compliance with environmental regulations, and changes in the federal and state regulation of generation, transmission, and the 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 - Franchises" and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Market Restructuring."  For a discussion of significant 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 - Results of Operations - Cleco Power - Significant Factors Affecting Cleco Power."

Power Generation

Cleco Power operates and either owns or has an ownership interest in three steam electric generating stations and one gas turbine.  As of December 31, 2004, 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:
 

⁽¹⁾  When oil is used on a standby basis, capacity may be reduced.

⁽²⁾  Represents Cleco Power's 30% ownership interest in the capacity of Rodemacher Unit 2, a 523-MW generating unit.

⁽³⁾  Represents Cleco Power's 50% ownership interest in the capacity of Dolet Hills Unit 1, a 650-MW generating unit.

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

Fuel and Purchased Power

Changes in fuel and purchased power expenses reflect fluctuations in types and pricing of 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.

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

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Power Purchases

When the market price of power is more economical than self-generation of power or when Cleco Power needs power to supplement its own electric generation, and when transmission capacity is available, Cleco Power purchases power from energy marketing companies or neighboring utilities.  These purchases are made from the wholesale power market in the form of generation capacity and/or energy.  Portions of Cleco Power's capacity and power purchases through 2004 were made at fixed prices, and the remainder made approximately at prevailing market prices.

The following table sets forth the average cost and amounts of power purchased by Cleco Power on the wholesale market.

During 2004, 53.7% of Cleco Power's energy requirements were met with purchased power, up from 50.4% in 2003.  The primary factors causing the increase in power purchases in 2004 as compared to 2003 were the lower price of purchased power compared to the incremental cost of Cleco Power's generation of power, higher customer demand, and additional power requirements to fulfill energy management services contracts that commenced in May 2003.  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."

During 2004, Cleco Power obtained approximately 35% of its annual capacity from power contracts with Williams and Dynegy.  These contracts expired on December 31, 2004 except for 100 MW of capacity that expires in December 2005 under the contract with Williams.  In addition, Cleco's wholesale contract to purchase 81 MW of capacity from the City of Ruston expired in May 2004.  In May 2004, Cleco Power signed a one-year contract to purchase 500 MW of capacity from CES starting in January 2005.  The contract was approved and certified by the LPSC in November 2004.  This CES short-term power contract will be primarily sourced from Acadia, which is located in Cleco Power's control area, and is expected to minimize transmission risk.  Cleco Power also has a long-term contract under which it purchases 20 MW of power from the Sabine River Authority, which operates a hydroelectric generating plant.  In addition, Cleco Power has a wholesale power contract with the City of Natchitoches for 54 MW of capacity that expires in December 2009.

Management expects to meet its native load demand in 2005 with Cleco Power's own generation capacity and the contracts with Williams and CES.  Beyond 2005, Cleco Power continues to evaluate longer term capacity requirements through its IRP team (as discussed below) and a long-term RFP issued in August 2004.  A one-year alternate solicitation for up to 645 MW to meet 2006 requirements was issued in January 2005.  The bids from this solicitation will be assessed both as separate alternatives to the long-term RFP and in combination with the RFP.  Cleco Power expects the evaluation and selection timeline for the 2006 solicitation to parallel that of the 2004 RFP.

During 2003, Cleco Power created an IRP team to evaluate generation supply options.  IRP is a process to evaluate resources in order to provide reliable and flexible generation services to electric customers at the lowest reasonable cost.  A full range of options is being analyzed including power purchases, fuel conversion, repowering projects, asset acquisitions, additional transmission infrastructure, cogeneration, plant retirements, and mothballing of existing assets.  The process considers operational and economical features, such as construction, operating and fuel costs, fuel diversity, reliability, ease of dispatch, environmental impact, and other factors of risk.  The IRP team has developed a framework for evaluating proposed options to optimize service for Cleco's customers' needs and reduce and stabilize their fuel cost without sacrificing reliability.  Any viable generation alternative must then be validated through an LPSC-sanctioned solicitation RFP process.  For additional information on Cleco Power's RFPs, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Cleco Power - Significant Factors Affecting Cleco Power - Fuel and purchased power 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 at times, constraints limit the amount of purchased power it can deliver into and/or through its system.  The power contracts described above may be affected by these transmission constraints.

Natural Gas Supply

During 2004, Cleco Power purchased a total of 17,271,000 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.
 

Cleco Power owns the natural gas pipelines and interconnections at its Rodemacher and Teche power stations.  This allows it to access various natural gas supply markets, which helps to maintain a more economical fuel supply for Cleco Power's customers.

Natural gas was available without interruption throughout 2004.  Cleco Power expects to continue to meet its natural gas

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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.  Large industrial 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, prices may increase rapidly in response to temporary supply interruptions.  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 from Kennecott Energy Company (Kennecott).  In July 2004, Cleco Power entered into a new two-year agreement with Kennecott that established fixed pricing through December 31, 2006, for the majority of Cleco Power's coal needs.  Cleco Power will purchase additional coal from other suppliers in 2005.  Coal is transported to Rodemacher Unit 2 under a long-term contract which expires in December 2005.  Terms for transporting coal beyond 2005 are currently under negotiation.  Cleco Power leases railcars to transport its coal under two long-term leases.  One of the railcar leases expires in March 2017 and the other expires in March 2021.

Cleco Power uses lignite for generation at the Dolet Hills power station.  Substantially all of the lignite used to fuel Dolet Hills is obtained under two long-term agreements.  Cleco Power and SWEPCO, each a 50% owner of Dolet Hills, have 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 annual renewals through 2011 with Dolet Hills Lignite Company, LLC (DHLC), a wholly owned subsidiary of SWEPCO, for the mining and delivery of such lignite reserves.  These reserves are expected to provide a substantial portion of the Dolet Hills' unit's fuel requirements throughout the life of the contract with DHLC.

Additionally, Cleco Power and SWEPCO have entered into an agreement which expires in 2011 with Red River Mining Company to purchase lignite.  Cleco Power's minimum annual purchase requirement of lignite under this agreement is 550,000 tons.  The 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.  Generally, the lignite price under the DHLC mining agreement equals the cost of production (subject to certain adjustments).  For information regarding deferred mining costs and obligations associated with the DHLC mining agreement see, Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 3 - Regulatory Assets and Liabilities - Deferred Mining Costs" and Note 16 - "Litigation and Other Commitments and Contingencies - Off-Balance Sheet Commitments."

The continuous supply of coal and lignite may be subject to interruption due to adverse weather conditions or other factors that may disrupt mining operations or transportation.  At December 31, 2004, Cleco Power's coal inventory at Rodemacher Unit 2 was approximately 177,000 tons (about an 81-day supply), and Cleco Power's lignite inventory at Dolet Hills was approximately 121,000 tons (about a 20-day supply).

Oil Supply

Cleco Power stores fuel oil as an alternative fuel source at Rodemacher and Teche power stations.  The Rodemacher power station has storage capacity for an approximate 95-day supply and the Teche power station has storage capacity for an approximate 28-day supply.  However, in accordance with Cleco Power's current fuel oil inventory practices, Cleco Power had approximately a 70-day total supply of fuel oil stored at these generating stations at December 31, 2004.  During 2004, approximately 4.9 million gallons of fuel oil were burned, producing 69,000 MWh of energy.
 

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."

Cleco Power's 2004 and 2003 system peak demand both occurred in August and were 1,940 MW and 1,990 MW, respectively.  Sales and system peak demand are affected by weather and are highest during the summer air-conditioning and winter heating seasons.  In 2004, Cleco Power experienced relatively normal summer and winter weather patterns.  For additional information on the effects of weather on demand, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Cleco Power - Significant Factors Affecting Cleco Power - Revenue is primarily affected by the following factors."  For information on the financial effects of seasonal demand on Cleco Power's quarterly operating results, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 28 - Miscellaneous Financial Information (Unaudited)."

In 2004, Cleco Power met the capacity margin requirements of 12% established by the SPP.  Capacity margin is the net capacity resources (either owned or purchased) less native load demand divided by net capacity resources.  Each year, members of the SPP submit forecasted native load demand and the forecasted mix of net capacity resources to meet this demand.  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 2004 was 19.9%, while in 2003 it was 17.1%.  Cleco Power anticipates a 13.1% capacity margin for 2005 with expectations that its power purchase contracts with Williams and CES

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 will allow it to meet capacity reserve margin requirements in 2005.  For additional information on Cleco Power's power contracts and its evaluation of other supply options, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Generation RFP."

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 - Results of Operations - Cleco Power" 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 - Results of Operations - Cleco Power's Results of Operations - Year ended December 31, 2004, Compared to Year ended December 31, 2003," and "- Financial Condition - Cash Generation and Cash Requirements - Cleco Power Construction."

Midstream

Financial results of the Midstream segment for years 2004, 2003, and 2002 are presented below.
 

As of December 31, 2004, Midstream wholly and directly owned seven limited liability companies that operated mainly in Louisiana and Texas:

• Evangeline, which owns and operates a 775-MW combined-cycle natural gas-fired power plant.

• APH, which owns 50% of Acadia, a 1,160-MW combined-cycle natural gas-fired power plant.

• PEH, which owns 100% of Perryville, a 718-MW natural gas-fired power plant consisting of a 156-MW simple-cycle unit and a 562-MW combined-cycle unit.  For additional information on the pending sale of Perryville, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

• Generation Services, which offers power station operations and maintenance services.  Its main customers are Evangeline and Perryville.

• CLE Intrastate, which owns a natural gas interconnection that allows Evangeline to access the natural gas supply market.

• Marketing & Trading, which provided energy management services prior to May 2003.

• Cleco Energy, which managed natural gas pipelines, natural gas production, and natural gas procurement in Texas and Louisiana prior to the sale of substantially all of its assets in 2004.  For additional information on the sale of Cleco Energy's assets, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

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

Midstream competes against regional and national companies that own and operate merchant power stations.  Prior to the sale of Cleco Energy's assets, Cleco Energy competed against regional gas transportation and gas marketing companies.  Prior to May 2003, Marketing & Trading competed against regional energy management and marketing companies.

Evangeline's capacity is dedicated to one customer, Williams, which is the counterparty to the Evangeline Tolling Agreement.  Acadia's capacity also is dedicated to one customer, CES, which is the counterparty to the Calpine Tolling Agreements.  Prior to a restructuring of the tolling arrangement at Acadia that occurred in May 2003, Acadia's capacity was dedicated to CES and Aquila Energy.  Each tolling agreement gives the tolling counterparty the right to own, dispatch and market all of the electric generation capacity of the respective facility.  The Calpine Tolling Agreements expire in 2022, and the Evangeline Tolling Agreement expires in 2020.  Under each tolling agreement, the tolling counterparty is responsible for providing its own natural gas to the facility and pays Evangeline and Acadia a fixed fee and a variable fee for operating and maintaining the facility.  For information

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concerning an ongoing dispute with CES under the Calpine Tolling Agreements, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - CES."

Prior to September 15, 2003, Perryville's capacity was dedicated to one customer, MAEM, which was the counterparty to the Perryville Tolling Agreement.  However, on August 29, 2003, in connection with Mirant's Chapter 11 bankruptcy filing, MAEM rejected the Perryville Tolling Agreement effective September 15, 2003, and no longer has rights and obligations under the agreement.  Perryville has asserted damage claims in the bankruptcy process against the Mirant Debtors as a result of the rejection of the Perryville Tolling Agreement.  On January 28, 2004, Perryville entered into an agreement to sell its 718-MW power plant to Entergy Louisiana and entered into a power purchase agreement with Entergy Services.  To facilitate an orderly sales process, Perryville and PEH filed voluntary petitions in the Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy Code.  For additional information on the above tolling agreements and related transactions, risks and uncertainties, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - - Midstream - Significant Factors Affecting Midstream - Revenue is primarily affected by the following factors," and "- Financial Condition - Liquidity and Capital Resources - General Considerations and Credit-Related Risks."  For additional information on the rejection of the Perryville Tolling Agreement, the pending sale of Perryville and the related bankruptcy, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - - Note 26 - Perryville."

Prior to the sale of Cleco Energy's assets, Cleco Energy's revenue was driven primarily by natural gas throughput on its pipelines and the demand for natural gas, which in turn was influenced by the weather and the number of power stations, industrial plants, and commercial and residential customers who used natural gas within its region.

CLE Intrastate's revenue is generated primarily from a monthly reservation fee paid by Evangeline for access to the Columbia Gulf interconnect and from a transportation fee that varies depending on the amount of gas transported through the interconnect for use by Evangeline.

Prior to May 2003, Marketing & Trading primarily provided energy management services to several municipalities and, prior to the fourth quarter of 2002, marketed and traded wholesale natural gas and power.  In 2002, Cleco assessed its speculative trading strategy and determined, in light of market conditions and other factors, that Marketing & Trading would discontinue speculative trading activities.  As of September 4, 2003, Marketing & Trading had closed all forward trading positions.

At December 31, 2004, Midstream and its subsidiaries employed 50 people: 46 within Generation Services, three at Midstream, and one at Cleco Energy.

For additional information on Midstream's operations, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Midstream," and "- Financial Condition - Cash Generation and Cash Requirements - Midstream Construction and Investment in Subsidiaries."

Discontinued Operations and Dispositions

In June 2004, management decided to sell substantially all of Cleco Energy's assets and discontinue Cleco Energy's natural gas marketing, pipeline, and production operations after the sale.  On September 15, 2004, Cleco Energy completed the sale of its oil and gas production properties and on November 16, 2004, completed the sale of its natural gas pipeline and marketing operations.  For additional information on the discontinued operations and sale of Cleco Energy's assets, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - - Discontinued Operations and Dispositions."

Rates

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

Cleco Power's electric rates include a fuel and purchased power cost adjustment clause that enables it to adjust rates for monthly fluctuations in the cost of fuel and purchased power.  Revenue from certain off-system sales to other utilities and energy marketing companies are 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.  In July 2004, Cleco Power reached a settlement with the LPSC on a periodic fuel audit covering 2001 and 2002.  For additional information on this fuel audit and the related settlement, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - Fuel Audit."

Cleco Power's current rate stabilization plan with the LPSC, which governs its regulatory return on equity, expires in September 2005.  For additional information on Cleco Power's retail rates, including Cleco Power's rate stabilization plan, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Retail Rates of Cleco Power."

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Franchises

Cleco Power operates under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state regulation.  These franchises are for fixed terms, which may vary from 10 years to 50 years or more.  In the past, Cleco Power has been substantially successful in the timely renewal of franchises as each reached the end of its term.

Cleco Power's franchise with the town of Franklinton, and its approximately 1,850 customers, was up for renewal in April 2003.  Franklinton elected not to renew its franchise agreement with Cleco Power, electing to take service from another provider.  As a result, a ten-year franchise was granted to a competing cooperative in December 2003.  Cleco Power expects to continue to serve these customers until there is an equitable transfer of the distribution assets.  Cleco Power and the new provider could not agree on the valuation of the distribution assets, which created the need for an independent assessment.  On February 23, 2005, the LPSC reviewed an independent third party appraisal of these assets and, by vote, ordered that the distribution system's fair market value was $2.3 million.  Cleco Power is now in the process of closing the sale and transferring service to the new provider.  At December 31, 2004, a review for potential impairment of these assets was performed.  Impairment charges were not recognized on these assets because the expected sales price was above the carrying value.  Cleco Power's next municipal franchise expires in 2008.

The LPSC is evaluating how franchise fees are billed by utilities.  Cleco Power historically has included franchise fees in its cost of service in establishing base rates.  The LPSC has informally considered whether these franchise fees should be billed as separate line items only to the municipal customers affected, rather than included in base rates.  Management does not believe this billing issue will adversely affect Cleco Power.

A number of parishes have attempted in recent years to impose franchise fees on retail revenue earned within the unincorporated areas Cleco Power serves.  If the parishes are ultimately successful, Cleco Power believes that the new franchise tax paid to the parishes would be passed on to the affected customers and would not increase tax expense, based on current and proposed LPSC regulations.

Competing power cooperatives are actively attempting to gain dual franchises in several municipalities.  A dual franchise arrangement would allow the existing and new power provider to compete for new customers; however, existing customers would have to remain with the current provider.  These attempts have been unsuccessful to date.  The granting of a municipal franchise to a competing electric utility would not reduce current Cleco Power earnings, since existing customers would not have an option to change electric service providers under existing LPSC regulations, but could reduce future customer and load growth.

Industry Developments

For information on industry developments, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters - Market Restructuring."

Wholesale Electric Competition

For a discussion of wholesale electric competition, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Wholesale Electric Markets."

Retail Electric Competition

For a discussion of retail electric competition, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Market Restructuring - Retail Electric Markets."

Legislative and Regulatory Changes and Matters

Various federal and state legislative and regulatory bodies are considering a number of issues that could shape the future of the electric utility industry.  Such issues include, among others:

• deregulation of retail electricity sales;

• the ability of electric utilities to recover stranded costs;

• the repeal or modification of PUHCA;

• the repeal or modification of PURPA;

• the unbundling of vertically integrated electric utility companies into separate business segments or companies (e.g., generation, transmission, distribution, and retail energy service);

• the role of electric utilities, independent power producers and competitive bidding in the purchase, construction and operation of new generating capacity;

• the pricing of transmission service on an electric utility's transmission system;

• FERC's assessment of market power and utilities' ability to buy generation assets;

• mandatory transmission reliability standards;

• the authority of the FERC to exercise power of eminent domain;

• increasing requirements for renewable energy sources;

• comprehensive multi-emissions environmental legislation; and

• the organization of and participation in RTOs.

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

For information on certain regulatory matters and regulatory accounting affecting Cleco, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Regulatory Matters."

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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 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 2004, Cleco's capital expenditures related to environmental compliance were $1.0 million at Cleco Power and Evangeline.  Expenditures related to environmental compliance are estimated to total $2.0 million in 2005.  The following table lists capital expenditures for environmental matters by subsidiary.
 

Air Quality

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

The federal Clean Air Act established a regulatory program to address the effects of acid rain and imposed restrictions on SO₂ emissions from certain generating units.  The Clean Air Act requires that certain generating stations, such as those owned by Cleco Power and Midstream, must hold a regulatory "allowance" for each ton of SO₂ emitted beginning in the year 2000.  The EPA is required to allocate a set number of allowances to each affected unit based on its historic emissions.  As of December 31, 2004, Cleco Power and Midstream had sufficient allowances for 2004 operations and expect to have sufficient allowances for 2005 operations.

The Clean Air Act 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, which are partially owned by Cleco Power.  Under this rule, Rodemacher Unit 2 and Dolet Hills would have had to meet this new emission rate by January 1, 2000.  The rule also allowed an "early elect" option to 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 have been in compliance with the NOx early election limits since their inception and are expected to continue to be in compliance in 2005 without undergoing significant capital improvements.  Significant future reductions in NOx emission limits may require modification of burners or other capital improvements at one or both of the units.

NOx emissions from the Evangeline, Perryville, and Acadia generating units fall well within EPA limits, as these units use a combination of natural gas as a fuel, modern turbine technology, and selective catalytic reduction technology that reduces NOx emissions to minimal levels.

In January 2004, the EPA issued proposed rules regulating mercury emissions from electric utility boilers.  The proposed rules offer two possible approaches for the new regulations - a unit specific Maximum Achievable Control Technology (MACT) approach or a cap-and-trade program for mercury emission reductions.  The regulations are expected to be finalized in March 2005 (subject to further extensions) and compliance requirements could be required as early as December 2007.  Because the regulations have not been finalized, the impact to Cleco can not be determined at this time.

On December 17, 2003, the EPA proposed the Interstate Air Quality Rule, which obligates states to address the interstate transport of pollutants.  The EPA has proposed to require certain upwind states, including Louisiana, to revise their State Implementation Plans to reduce SO₂ and NOx.  The first phase of emissions reductions would be implemented by 2010, with the second phase by 2015.  A supplemental proposal renamed this proposed rule, the Clean Air Interstate Rule (CAIR).  This supplemental notice of proposed rulemaking contained further discussions on establishing state level emission budgets, state reporting requirements and State Implementation Plan approvability, proposed model cap-and-trade rules, and a more thorough discussion of how CAIR interacts with the existing Clean Air Act.  The EPA intends to produce final rules by March 2005.

Multi-pollutant legislation currently is pending in Congress.  Cleco supports the concept of a comprehensive national strategy to reduce emissions of multiple pollutants from electric utilities.  Cleco will continue to monitor the development of new legislative and regulatory requirements and their potential impacts.  While it is unknown at this time what the final outcome of these regulations 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.

In June 2004, Cleco received a Notice of Corrected Violation associated with the initial inspection by the LDEQ of Perryville's Risk Management Plan.  The two issues noted by the LDEQ inspector were corrected at the time of the inspection, and no further action by the LDEQ is anticipated.

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In February 2005, Cleco Power received notices that the EPA is investigating the Rodemacher and Dolet Hills power plants through requests for data as authorized by Section 114 of the Clean Air Act.  The apparent purpose of the investigation is to determine whether Cleco Power has complied with applicable EPA NSR and New Source Performance Standards (NSPS) requirements in connection with capital expenditures, modifications, or operational changes Cleco Power has made at these facilities.  Regulated by the EPA, NSR requires electric utilities to undergo pre-construction review for environmental controls if new generating units are built and also applies if existing units are modified by making "non-routine" physical or operational changes that result in a significant increase in emissions of a regulated pollutant.  NSPS are federal standards adopted by the EPA to regulate air emissions by many types of industrial facilities.  The standards are intended to promote use of the best air pollution control technologies.  Cleco Power's response to the initial data request is expected to be completed by May 2005.  It is unknown at this time when the EPA will take further action, if any, as a result of the information to be provided by Cleco Power and if any such action would have a material adverse impact on the Registrants' financial condition, results of operations, or cash flows.

Water Quality

Cleco has received from the EPA and LDEQ permits required under the Clean Water Act for water discharges from its six generating stations.  Water 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 National Pollutant Discharge Elimination System (NPDES) program and issues a single Louisiana Pollution Discharge Elimination System (LPDES) permit in lieu of the separate federal and state permits.  As older NPDES permits are renewed, they will become LPDES permits.  Cleco Power's Teche power plant permit renewal was issued by the LDEQ on December 29, 2004.  Currently, Cleco Power's Rodemacher power plant's LPDES permit is pending before the LDEQ and is expected to be issued by mid-2005.

The federal Clean Water Act 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.  In October 1999, the EPA received a federal court order to develop and implement Total Maximum Daily Loading (TMDL) for all impacted streams in Louisiana.  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.  In April 2005, the EPA is expected to re-issue a draft mercury TMDL for Louisiana's coastal bays and gulf waters which may impact Cleco's generating facilities.  Cleco continues to monitor the development of TMDL limitations and assess any potential impacts to its operations.

Another new regulatory program, Section 316(b) of the Clean Water Act, which deals with minimizing adverse environmental impacts to all aquatic species due to water intake structures, may require some capital improvements to several of Cleco's generating stations.  The regulations were published in February 2004 and only apply to existing facilities.  These regulations establish requirements applicable to the location, design, construction, and capacity of cooling water intake structures.  Cleco anticipates that any new requirements will be established as the facilities go through the LPDES permit renewal process and will be established on a site-specific basis.  LDEQ implementation of this regulation is in the initial development stages, so capital and operating costs for implementing these regulations are not known at the present time.

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 from its generating stations.  Cleco is in the process of renewing the solid waste permits for the Rodemacher and Dolet Hills solid waste units and upgrading them according to the Solid Waste Regulations.  These upgrades are expected to be minor in nature and not result in substantial costs to Cleco.

Hazardous Waste Generation

Cleco produces certain wastes that are classified as hazardous at its six generating stations and at other locations.  The Hazardous Waste Division of the LDEQ regulates these wastes and has issued identification numbers to the sites where such wastes are generated.  Cleco does not treat, store long-term, 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.

Toxic Substances Control Act (TSCA)

Section 6(e) of TSCA directs the EPA to regulate the marketing, disposal, manufacturing, processing, distribution in commerce, and use of polychlorinated biphenyls (PCBs).  Cleco continues to operate dielectric equipment containing PCBs under TSCA.  Once the equipment reaches the end of its usefulness, the EPA regulations mandate handling and disposal of the equipment and fluids containing PCBs.  Within these regulations, the handling and disposal is only allowed through EPA approved and permitted facilities.

In October 2003, the Texas Commission on Environmental Quality notified Cleco Power that it had been identified as a PRP for the SESCO facility in San Angelo, Texas.  The facility operated as a transformer repair and scrapping facility from the 1930s until 2003, and both soil and groundwater contamination exist at the site and in surrounding areas.  Based on its then-available information, Cleco Power accrued a minimal amount for its potential liability for the site in November 2003.  In September 2004, Cleco Power received documentation indicating that it may have sent a greater number of transformers to SESCO for repair, refurbishing and/or recycling than

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previously believed.  The investigation of SESCO's historical records is still ongoing.  The results of the continued investigation could show that Cleco Power's dealings with SESCO were more extensive than current documentation indicates.  Additional investigations are being conducted by a group of PRPs to determine what additional remediation activities are required at the site and to identify all PRPs.  It is likely that Cleco Power together with other PRPs will be required to contribute to the past and future cost of the investigation and remediation of the site.  The ultimate cost of remediation of the site, Cleco Power's share of such cost, and the timing of any accrual that Cleco Power may be required to make in connection with this matter cannot be estimated at this time.  However, management believes that the outcome of the site remediation will not have a material adverse impact on the Registrants' financial condition, results of operations, or cash flows.

Toxics Release Inventory

The Toxics Release Inventory (TRI) is a part of the Emergency Planning and Community Right to Know Act administered by the EPA.  The TRI requires an annual report from 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 and 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 following the reporting year-end.  Cleco has submitted timely TRI reports on its activities, and the TRI rankings are available to the public.  The rankings do not result in any federal or state penalties and, in management's estimation, 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 currently is taking steps, such as increasing the recycling of fly ash at Dolet Hills, to protect the environment and to protect against possible negative public perceptions of Cleco as a result of the TRI.

Electric and Magnetic Fields

The possibility that exposure to electric and magnetic fields (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 some public attention.  Cleco Power funds scientific research on EMFs through various organizations.  To date, there are no 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.

Customers

No customer accounted for 10% or more of Cleco's consolidated revenue or Cleco Power's revenue in 2004, 2003, or 2002.  Additional information regarding Cleco's sales and revenues is set forth in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations."

Construction and Financing

For information on Cleco's construction program, financing and related matters, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition - Cash Generation and Cash Requirements."

All of Cleco Power's electric generating stations and all other electric operating properties are located in the state of Louisiana.  Cleco Power considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes.  For information on Cleco Power's generating facilities, see Item 1, "Business - Operations - Cleco Power - Power Generation."

Electric Generating Stations

As of December 31, 2004, Cleco Power either owned or had an ownership interest in three steam electric generating stations and one gas turbine with a combined electric net generating capacity of 1,359 MW.  For additional information on Cleco Power's generating facilities, see Item 1, "Business - - Operations - Cleco Power - Power Generation."

Electric Substations

As of December 31, 2004, Cleco Power owned 70 active transmission substations and 222 active distribution substations.

Electric Lines

As of December 31, 2004, Cleco Power's transmission system consisted of approximately 67 circuit miles of 500 kiloVolt (kV) lines; 461 circuit miles of 230 kV lines; 661 circuit miles of 138 kV lines; and 21 circuit miles of 69 kV lines.  Cleco Power's distribution system consisted of approximately 3,347 circuit miles of 34.5 kV lines and 7,855 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 general-purpose facilities.

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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 are 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.

Midstream considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes.  For information on Midstream's generating facilities, see Item 1, "Business - - Operations - Midstream."

Electric Generation

As of December 31, 2004, 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 Item 1, "Business - Operations - Midstream."  For information on Perryville's pending sale and the bankruptcy filings to facilitate this sale, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

Title

Midstream's assets are owned in fee, including Midstream's portion of Acadia.  Evangeline and Perryville are subject to liens securing obligations under Indentures of Mortgage, which do not impair the use of such properties in the operation of their businesses.  The bankruptcy filings by Perryville and PEH caused Perryville to be in default of the Indenture of Mortgage. 

For information on legal proceedings affecting Cleco, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - Securities Litigation," "- Other Litigation," "- Fuel Audit," "- Gas Put Options and Gas Transportation Charge," and "- SESCO"," Note 19 - "Review of Trading Activities," Note 26 - "Perryville - Mirant Bankruptcy and MAEM's Rejection of the Perryville Tolling Agreement," "- Perryville Tolling Agreement Administrative Expense and Damage Claims," "- Perryville Bankruptcy," "- Perryville's Senior Loan Agreement," "- Perryville's Subordinated Loan Agreement" and "- Pending Sale of the Perryville Facility."

For information on legal proceedings affecting Cleco Power, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - Other Litigation," "- Fuel Audit," "- Gas Put Options and Gas Transportation Charge," "- SESCO," and Note 19 - "Review of Trading Activities."

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There were no matters submitted to a vote of security holders of Cleco during the fourth quarter of 2004.

The information called for by Item 4 with respect to Cleco Power is omitted pursuant to General Instruction I(2)(c) to Form 10-K (Omission of Information by Certain Wholly Owned Subsidiaries).

Executive Officers of the Registrants

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, 2004, 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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On January 28, 2004, Perryville entered into an agreement to sell its 718-MW power plant to Entergy Louisiana.  As part of the sales process, Perryville and PEH filed voluntary petitions in the Perryville and PEH Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy Code.  Mr. Eppler, Ms. Samil, Mr. Charlton, Mr. Murray and Mr. Fontenot are or have been managers of Perryville and/or PEH within the two years preceding the voluntary bankruptcy filing.  For more information regarding the pending sale of the Perryville facility and the related bankruptcy filing, see Part II, Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

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Cleco Corporation's common stock is listed for trading on the New York Stock Exchange (NYSE).  For information on the high and low sales prices for Cleco Corporation's common stock as reported on the NYSE Composite Tape and dividends paid per share during each calendar quarter of 2004 and 2003, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 28 - Miscellaneous Financial Information (Unaudited)."  During the quarter ended December 31, 2004, none of Cleco Corporation's equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 was purchased by or on behalf of Cleco Corporation or any of its "affiliated purchasers," as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934.  For information on Cleco Corporation's common stock repurchase program, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 7 - Common Stock - Common Stock Repurchase Program."

Subject to the prior rights of the holders of the respective series of Cleco Corporation's preferred stock, such dividends as determined by the Board of Directors of Cleco Corporation may be declared and paid on the common stock from time to time out of funds legally available.  The provisions of Cleco Corporation'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 Corporation.  The most restrictive covenant requires Cleco Corporation's total indebtedness to be less than or equal to 65% of total capitalization.  At December 31, 2004, approximately $217.7 million of retained earnings were unrestricted.  On January 28, 2005, Cleco Corporation's Board of Directors declared a quarterly dividend of $0.225 per share payable on February 15, 2005, to common shareholders of record on February 7, 2005.

As of February 28, 2005, there were 8,283 holders of record of Cleco Corporation's common stock, and the closing price of Cleco Corporation's common stock as reported on the NYSE Composite Tape was $20.29 per share.

There is no market for Cleco Power's membership interests.  All of Cleco Power's outstanding membership interests are owned by Cleco Corporation.  Distributions on Cleco Power's membership interests are paid when and if declared by Cleco Power's Board of Managers.  Cleco Power's current credit agreement contains restrictions on its ability to pay cash distributions on its membership interests.  Any future distributions also may be restricted by any credit or loan agreements that Cleco Power may enter into from time to time.

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 Cleco Power's total indebtedness to be less than or equal to 65% of total capitalization.  At December 31, 2004, approximately $232.4 million of member's equity were unrestricted.

The following table shows the distributions paid by Cleco Power to Cleco Corporation during 2002, 2003, and 2004:

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The information set forth below should be read in conjunction with the Consolidated Financial Statements and the related Notes in Item 8, "Financial Statements and Supplementary Data."

In accordance with FIN 46R, Cleco was required to deconsolidate Evangeline from its consolidated financial statements and begin reporting its investment in Evangeline on the equity method of accounting.  As a result, effective March 31, 2004, the assets and liabilities of Evangeline no longer are reported on Cleco Corporation's Consolidated Balance Sheet, but instead are represented by one line item corresponding to Cleco's equity investment in Evangeline.  Effective April 1, 2004, Evangeline revenue and expenses are netted and reported as equity income from investees on Cleco Corporation's Consolidated Statements of Operations.  For additional information on FIN 46R and the deconsolidation of Evangeline, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 13 - - Equity Investment in Investees" and Note 29 - "Variable Interest Entities."

The deconsolidation of Perryville and PEH from Cleco in connection with their bankruptcy filings affected Midstream's earnings for 2004 compared to 2003, since no income or loss was recognized in Midstream's consolidated financial statements subsequent to the bankruptcy filing on January 28, 2004.  For additional information on Perryville, see Item 8, Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

Five-Year Selected Financial Data (Unaudited)

The information called for by Item 6 with respect to Cleco Power is omitted pursuant to General Instruction I(2)(a) to Form 10-K (Omission of Information by Certain Wholly Owned Subsidiaries).

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Cleco is a regional energy services holding company that conducts substantially all of its business operations through its two principal operating business segments:

• Cleco Power, an integrated electric utility services subsidiary regulated by the LPSC and the FERC, among other regulators, which also engages in energy management activities, and

• Midstream, a merchant energy subsidiary that owns and operates merchant generation stations and invests in joint ventures that own and operate merchant generation stations.

While Cleco Power has always been Cleco's core business and primary source of revenue, Cleco began to expand its merchant energy business in the late 1990s.  As of December 31, 2004, Cleco owned all or part of three merchant generation facilities with a net capacity of 2,073 MW.  In connection with building the facilities, the subsidiaries of Cleco that owned the respective facilities entered into long-term tolling agreements.  With the downturn in the wholesale energy market, Cleco pulled back from its plans to continue expanding its merchant energy business and has focused on maximizing the value of its merchant energy assets.  During 2003, Cleco was successful in restructuring the Acadia Tolling Agreements to eliminate a parental guarantee and credit risk associated with the Aquila Energy counterparty, and to increase the amount of credit support that could be drawn on in case of a default by the remaining tolling agreement counterparty, CES.  In addition, in January 2004, Cleco signed an agreement to sell the Perryville facility.  To facilitate an orderly sales process, Perryville and PEH filed voluntary petitions for bankruptcy protection in January 2004.  As a result of these bankruptcy filings, Perryville and PEH were prospectively deconsolidated from Cleco.

While management believes that Cleco remains a fundamentally strong company, Cleco continues to face the following near-term challenges:

• resolving Cleco Power's long-term capacity needs,

• renewing, extending, or replacing Cleco Power's rate plan,

• assessing ongoing credit condition of Acadia and Evangeline Tolling Agreement counterparties,

• completing the sale of the Perryville facility and resolving the damage claims asserted against the Mirant Debtors in their bankruptcy proceedings as a result of the rejection of the Perryville Tolling Agreement, and

• resolving the ongoing dispute with CES under the Calpine Tolling Agreements.

Cleco Power is evaluating a range of generation supply options for 2006 and beyond, including sources of long-term power purchases, acquiring additional generation facilities, self-build proposals, and reconfiguring certain of its existing generation facilities.  Cleco Power may not be able to obtain purchased power or generation facilities on terms comparable to those in its current power purchase agreements.  In addition, recovery of any additional amounts it may pay under new power purchase agreements, in obtaining new generation facilities, in reconfiguring existing generation facilities or otherwise as a result of the expiration of its existing power purchase agreements would require LPSC approval.  Such additional amounts could be substantial.  For additional information on Cleco Power's IRP process and its current solicitations to identify existing or new generation resources, see "- Financial Condition - Regulatory Matters - Generation RFP."

Cleco Power's current rate stabilization plan expires in September 2005.  Cleco Power currently has ongoing both short- and long-term generation supply RFPs that will have a direct impact on Cleco Power's decision to seek an extension of the rate stabilization plan.  Based on the timeline for the RFPs, management anticipates making such a decision by June 2005 or earlier.  Possible rate stabilization plan options include seeking a short-term extension, combining an extension request with a generation certificate of public convenience and necessity application, seeking a new rate case, or allowing the current plan to expire and continue under current rates until the LPSC orders a review of Cleco Power's rates.

Cleco's merchant energy business is heavily dependent on the performance of the Acadia and Evangeline tolling agreements.  The credit ratings of the parent companies of the tolling agreement counterparties, The Williams Companies, Inc. and Calpine, which provide guarantees of their affiliates' performance obligations, are below investment grade.  Failure of the counterparties to perform under their respective tolling agreements likely would have a material adverse impact on Cleco's financial condition, results of operations, and cash flows.

In a series of written notices commencing in May 2004, CES notified Acadia that it was invoking certain rights regarding dispute resolution under the Calpine Tolling Agreements and claimed that Acadia's refusal to conduct a capacity test was a default under the Calpine Tolling Agreements.  For additional information on the ongoing dispute with CES under the Calpine Tolling Agreements, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - CES."

Deconsolidation of Evangeline

In accordance with FIN 46R, Cleco was required to deconsolidate Evangeline from its consolidated financial statements and begin reporting its investment in Evangeline on the equity method of accounting.  As a result, effective March 31, 2004, the assets and liabilities of Evangeline no longer are reported on Cleco Corporation's Consolidated Balance Sheet, but instead are represented by one line item corresponding to Cleco's equity investment in Evangeline.  Effective April 1, 2004, Evangeline revenue and expenses are netted and reported as equity income from investees on Cleco Corporation's Consolidated

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Statements of Operations.  For additional information on FIN 46R and the deconsolidation of Evangeline, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 13 - Equity Investment in Investees" and Note 29 - "Variable Interest Entities."

Discontinued Operations and Dispositions

In June 2004, management decided to sell substantially all of Cleco Energy's assets and discontinue Cleco Energy's natural gas marketing, pipeline, and production operations after the sale.  On September 15, 2004, Cleco Energy completed the sale of its oil and gas production properties and on November 16, 2004, completed the sale of its natural gas pipeline and marketing operations.  Prior to the sale of Cleco Energy's assets, and in accordance with SFAS No. 144, the property, plant and equipment of Cleco Energy were classified as held for sale on Cleco Corporation's Consolidated Balance Sheet, and the related operations were classified as discontinued on Cleco Corporation's Consolidated Statement of Operations.  For additional information on SFAS No. 144 and the discontinued operations and sale of Cleco Energy's assets, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

Reclassifications

Certain reclassifications have been made to the 2003 and 2002 consolidated financial statements to conform them to the presentation used in the 2004 consolidated financial statements.  These reclassifications had no effect on net income applicable to common stock or total common shareholders' equity.

Affiliate Transactions

Cleco affiliates have in place service agreements with each other to provide access to professional services and goods offered by affiliates.  For information on affiliate goods and services, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 25 - - Affiliate Transactions."

Cleco Consolidated Results of Operations -
Year ended December 31, 2004, Compared to
Year ended December 31, 2003

Consolidated net income applicable to common stock in 2004 was $64.0 million, significantly above the $36.8 million loss recorded in 2003.  The increase of $100.8 million was primarily due to increased earnings at Midstream resulting from the $148.0 million impairment charges recorded at Perryville in 2003.  The increase was partially offset by reduced earnings at Cleco Power.

Operating revenue, net decreased $57.6 million, or 7.2%, in 2004 compared to 2003, largely as a result of the change in the reporting of tolling operations revenue at Evangeline beginning in the second quarter of 2004 in accordance with FIN 46R and the bankruptcy filings of the Mirant Debtors, MAEM's rejection of the Perryville Tolling Agreement, the subsequent bankruptcy filings of Perryville and PEH, and their subsequent deconsolidation from Cleco's consolidated results.  Also contributing to the decrease in operating revenue, net were the effects of the settlement of Cleco Power's 2001-2002 fuel audit.  Partially offsetting these decreases were higher base and fuel cost recovery revenue at Cleco Power in 2004.

Operating expenses decreased $170.3 million, or 20.9%, in 2004 compared to 2003 primarily due to the $148.0 million impairment charges recorded at Perryville in 2003 and the effects of the deconsolidation of Perryville, PEH, and Evangeline from Cleco's consolidated results.  Partially offsetting these decreases were higher net recoverable fuel and power purchased expenses at Cleco Power in 2004.

Equity income from investees increased $15.9 million, or 50.2%, in 2004 compared to 2003, primarily due to the change in reporting for Evangeline effective April 1, 2004 in accordance with FIN 46R, partially offset by decreased equity earnings at Acadia.  Interest charges decreased $18.6 million, or 26.3%, compared to 2003, primarily due to the effects of the deconsolidation of Perryville, PEH, and Evangeline from Cleco's consolidated results.

Results of operations for Cleco Power and Midstream are more fully described below.

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Significant 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 rates fluctuate since they facilitate 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 2005.  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; however, the LPSC may compel a rate proceeding as part of any scenario.  Cleco Power currently has ongoing both short- and long-term generation supply RFPs that will have a direct impact on Cleco Power's decision to seek an extension of the rate stabilization plan.  Based on the timeline for the RFPs, management anticipates making such a decision by June 2005 or earlier.  Possible rate stabilization plan options include seeking a short-term extension, combining an extension request with a generation certificate of public convenience and necessity application, seeking a new rate case, or allowing the current plan to expire and continue under current rates until the LPSC orders a review of Cleco Power's rates.

Cleco Power's residential customers' demand for electricity largely is affected by weather.  Weather generally is measured in cooling degree-days and heating degree-days.  A cooling degree-day is an indication of the likelihood that a consumer will use air conditioning, while a heating degree-day is an indication of the likelihood that a consumer will use heating.  An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days, because alternative heating sources are more available.  Normal heating degree-days and cooling degree-days are calculated for a month by separately calculating the average actual heating and cooling degree-days for that month over a period of 30 years.

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

Kilowatt-hour sales to retail electric customers have grown an average of 2.1% annually over the last five years and are expected to grow from 0.5% to 2.0% per year during the next five years.  The growth of future sales will depend upon factors such as weather conditions, natural gas prices, 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:

• deregulation;

• retail wheeling (the transmission of power directly to a retail customer, as opposed to transmission via the interconnected transmission facilities of one or more intermediate facilities);

• possible transfer of transmission facilities to an RTO;

• other legislative and regulatory changes;

• cost of power impacted by the price of natural gas;

• retention of large industrial customers and municipal franchises;

• changes in electric rates compared to customers' ability to pay; and

• access to transmission systems.

For additional primary areas subject to potential energy legislation that could affect Cleco, see "- Financial Condition - - Wholesale Electric Markets."

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

Changes in fuel and purchased power expenses reflect fluctuations in types and pricing of 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.  In comparison to other regional suppliers, Cleco Power depends more on natural gas.  Cleco Power's reliance on natural gas as a component of its fuel mix could impact future earnings as a result of retail competition, wholesale competition, and if retail choice emerges. 

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.  Approximately 94% of Cleco Power's total fuel cost is regulated by the LPSC, while the remainder is regulated by the FERC.  Recovery of fuel adjustment clause costs is subject to refund until monthly approval is received from the LPSC; however, all amounts are subject to a periodic fuel audit by the LPSC.  A fuel audit is required to be performed not less than every other year.  Cleco Power anticipates the next fuel audit to cover 2003 and 2004; however, any future audit could include prior periods with the exception of January 2001 through December 2002, which were periods covered in Cleco Power's recent fuel audit.

Cleco Power obtains coal and lignite through long-term contracts and through the spot market.  Natural gas is purchased under short-term contracts and through the spot market.  Cleco Power also obtains capacity from power contracts.  If the counterparties under Cleco Power's power purchase

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agreements were to fail to provide power to Cleco Power in accordance with those agreements, Cleco Power would have to obtain replacement power at then prevailing market prices to meet its customers' demands.  The power market can be volatile, and the prices at which Cleco Power would obtain replacement power could be higher than the prices Cleco Power pays under the power purchase agreements.  The LPSC may not allow Cleco Power to recover, through an increase in its rates or through fuel adjustment costs, part or all of any additional amounts Cleco Power may pay in order to obtain replacement power.  If this occurred, Cleco Power's financial condition and results of operations could be materially adversely affected.  In May 2004, Cleco Power signed a one-year contract to purchase 500 MW of capacity from CES starting in January 2005.  In addition, Cleco Power has a 100 MW contract with Williams expiring in December 2005.  Cleco Power continues to evaluate longer term capacity requirements through its IRP team and a long-term RFP issued in August 2004.  For additional information on the IRP process, see Part 1, Item 1, "Business - Operations - Cleco Power - Fuel and Purchased Power - Power Purchases" and for information on Cleco Power's RFPs, see "- Financial Condition - Regulatory Matters - Generation RFP."  In addition to the power obtained under these contracts, Cleco Power purchases power from energy marketing companies and neighboring utilities 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 or other existing power agreements.  However, transmission capacity must be available to transport this purchased power to Cleco Power's system.  During 2004, 53.7% of Cleco Power's energy requirements were met with purchased power, up from 50.4% in 2003 and 45.4% in 2002.  The primary factors causing Cleco Power's purchased power to increase over these periods were the price of purchased power compared to the incremental cost of Cleco Power's generation of power, higher customer demand, and additional power required to fulfill energy management services contracts.

In future years, depending on the outcome of the IRP process, 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 at times constraints limit the amount of purchased power it can deliver into and/or through its system.  The power contracts described above may be affected by these transmission constraints.

Other expenses are primarily affected by the following factors:

The majority of other expenses includes 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 energy delivery and customer service.  Maintenance expenses associated with Cleco Power's plants generally depend upon their physical characteristics, as well as the effectiveness of their preventive maintenance programs.  Depreciation expense primarily is 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 generally are affected by payroll taxes and ad valorem taxes.

Cleco Power's Results of Operations -
Year ended December 31, 2004,
Compared to Year ended December 31, 2003

Cleco Power's net income applicable to member's equity for 2004 decreased $4.8 million or 8.4%, compared to 2003.  Contributing factors include:

• higher customer refund credits,

• higher other operations expense,

• higher depreciation expense, and

• lower other income.

These were partially offset by:

• favorable fuel surcharge adjustments,

• higher base revenue from customer sales,

• lower maintenance expense,

• lower other expense, and

• higher interest income.

The aggregation of fuel cost recovery revenue, fuel used for electric generation-recoverable, and power purchased for utility customers-recoverable, as shown in the following chart significantly increased in 2004 compared to the same period in 2003.  However, changes in these items do not significantly impact net income, since fluctuations in fuel-related costs generally are recovered through fuel cost recovery revenue via Cleco Power's fuel cost adjustment process.

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The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period.  Cleco Power uses temperature data collected by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.

Base

Base revenue during 2004 increased $6.1 million, or 1.9%, compared to the same period in 2003.  The increase was primarily due to higher volumes of retail and wholesale customer kWh sales, a renegotiated contract for additional ancillary services with a municipal customer, favorable fuel surcharge adjustments that were included in the Fuel Adjustment Clause Report filed by Cleco Power in June 2004, and energy management service fees from contracts that commenced in May 2003.  Partially offsetting these increases in base revenue was the expiration of a contract with a municipal customer.

In June 2004, Cleco Power began serving a new industrial customer.  The new service increased 2004 base revenue by $0.1 million and is projected to increase future base revenue, contingent upon contract retention, by approximately $0.8 million.

In September 2004, Cleco Power executed a new wholesale agreement to begin providing load-following service to a new wholesale customer by committing generation to follow the moment-by-moment changes in the wholesale customer's load.  The service is dependent upon the customer reserving firm transmission.  This customer is projected to increase 2005 base revenue by approximately $0.7 million.

Additionally, during the first quarter of 2005 Cleco Power is expected to begin providing service to an expansion of a current customer's operation, as well as service to two new industrial customers.  During the third quarter of 2005, Cleco Power is expected to begin providing service to another new industrial customer.  The expansion and new services are projected to increase 2005 base revenue by approximately $1.7 million and future base revenue, contingent upon contract retention, by approximately $2.9 million.

During the first quarter of 2006, Cleco Power is expected to begin providing service to an expansion of an existing customer, and in the second quarter of 2006, Cleco Power is expected to begin providing service to another new industrial customer.  The expansion and the new customer are expected to increase 2006 base revenue by approximately $1.0 million and future base revenue, contingent upon contract retention, by $1.2 million.

Fuel Cost Recovery

Fuel cost recovery revenue billed to customers during 2004 compared to the same period in 2003 increased $36.1 million, or 9.9%, primarily due to fuel costs from energy management contracts that commenced in May 2003, higher cost and volumes of purchased power, and the reversal of estimates previously recorded in conjunction with issues covered by the LPSC fuel audit settlement.  Partially offsetting these increases in fuel cost recovery revenue was the reclassification of certain revenues from a municipal customer.  For information on Cleco Power's ability to recover fuel and purchased power costs, see "- Significant Factors Affecting Cleco Power - Fuel and purchased power are primarily affected by the following factors," above.

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Electric Customer Credits

Electric customer credits during 2004 increased $19.3 million compared to the same period in 2003.  This increase in electric customer credits is primarily a result of the settlement of Cleco Power's 2001-2002 fuel audit and higher accruals for the current rate stabilization plan filing period.  For additional information on the accrual for electric customer credits, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 12 - Accrual of Electric Customer Credits."

Operating Expenses

Operating expenses increased $32.5 million, or 5.5%, in 2004 compared to the same period of 2003.  Fuel used for electric generation decreased $9.8 million, or 6.1%, primarily as a result of lower volumes of fuel used for electric generation.  Also contributing to the decrease in fuel used for electric generation was the settlement of Cleco Power's 2001-2002 fuel audit and favorable surcharge adjustments that were included in the Fuel Adjustment Clause Report filed by Cleco Power in June 2004.  Power purchased for utility customers increased $39.9 million, or 19.8%, largely due to an increase in the average per unit cost and volumes of purchased power.  Increased volumes of power purchased were largely attributable to higher customer demand and additional amounts required to fulfill energy management services contracts that commenced in May 2003.  Fuel used for electric generation and power purchased for utility customers generally are influenced by natural gas prices.  However, other factors such as unscheduled outages, unusual maintenance or repairs, or other developments may affect fuel used for electric generation and power purchased for utility customers.  Non-recoverable fuel and power purchased decreased $3.2 million, or 10.3%, in 2004 as compared to 2003, primarily as a result of lower capacity payments during 2004.  Other operations expense increased $11.2 million, or 17.9%, primarily due to the 2003 reversal of incentive compensation benefits resulting from the failure to meet target performance measures, higher consulting and audit fees, predominantly from testing required by Section 404 of the Sarbanes-Oxley Act of 2002, higher property and liability insurance costs, higher economic development incentives, and adjustments related to generating facility joint billing costs.  These increases in other operations expense were partially offset by lower pension and retirement benefit costs.  Maintenance expenses during 2004 decreased $8.2 million, or 18.4%, compared to 2003 primarily due to decreased expenditures for Cleco Power's transmission and distribution reliability initiative, production activities, and restoration efforts associated with Tropical Storm Bill, which were incurred during 2003.  Partially offsetting this decrease was additional generating station and transmission substation maintenance work performed during 2004.  Depreciation expense increased $2.6 million, or 4.9%, in 2004 as compared to 2003 largely as a result of normal recurring additions to fixed assets.

On December 16, 2004, FASB issued SFAS No. 123(R) which provides expensing and disclosure requirements for stock-based compensation.  For information on the anticipated effects of potential additional operating expenses from this recent accounting standard, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 2 - Summary of Significant Accounting Policies - Recent Accounting Standards."

Interest Income

Interest income increased $2.2 million, or 166.7%, during 2004 compared to 2003, primarily due to additional interest recorded on under-recovered fuel costs that were included as surcharge adjustments in Cleco Power's Fuel Adjustment Clause Report filed in June 2004 and increased earnings from temporary investments.

Other Income

Other income decreased $2.4 million, or 52.0%, during 2004 compared to 2003, primarily due to less work performed by Cleco Power for Acadia during 2004.  The income from the work performed for Acadia was offset by an equal amount of expenses as shown in "- Other Expense" below.  Partially offsetting this decrease was increased income related to work performed for other utilities by Cleco Power employees for the restoration of power in Gulf Coast states after Hurricanes Charley, Frances and Ivan in 2004.

Other Expense

Other expense decreased $2.4 million, or 31.3%, during 2004 compared to 2003, primarily due to the absence of expenses related to work performed by Cleco Power for Acadia in 2004 and decreased charitable donations.  This decrease was partially offset by legal fees associated with the settlement of Cleco Power's 2001-2002 fuel audit and expenses related to work performed for other utilities by Cleco Power employees for the restoration of power in Gulf Coast states after Hurricanes Charley, Frances and Ivan in 2004.

Income Taxes

Income tax expense in 2004 decreased $2.2 million, or 7.2%, compared to 2003.  Cleco Power's effective income tax rate increased from 34.4% to 34.7% in 2004 compared to 2003 as a result of an increase in state income taxes relating to a loss carryforward that was utilized during 2003.  State income taxes also increased due to disallowed federal income tax deductions for years to which losses were carried back and federal tax refunds were received.  The effective rate increase was offset by the release of contingency reserves related to a favorable state tax settlement.  Effective tax rates also were affected by the relative size of pre-tax income to these items.  Pre-tax income during 2004 decreased $7.0 million compared to 2003.  For information about assumptions and estimates underlying Cleco Power's accounting for the effect of income taxes, see "- Critical Accounting Policies."

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Significant Factors Affecting Midstream

Revenue is primarily affected by the following factors:

Midstream's revenue is derived predominantly from its tolling agreements related to its generating facilities.  Revenue from tolling contracts generally is affected by the availability and efficiency of the facility and the level at which it operates.  A facility's availability can be protected by providing replacement power to the tolling counterparties.  Each tolling agreement gives a tolling counterparty the right to own, dispatch, and market all of the electric generation capacity of the respective facility.  Each tolling counterparty is responsible for providing its own natural gas to the respective facility.  Earnings from jointly owned power plant operations are derived from an equity investment and they are reflected in equity income from investees.

Prior to April 1, 2004, tolling revenue was partially derived from a 775-MW combined-cycle, natural gas-fired power plant through the Evangeline Tolling Agreement.  Effective April 1, 2004, revenue from Evangeline is no longer reported as tolling operations revenue, but instead is reflected in equity income from investees.  Prior to September 15, 2003, tolling revenue also was derived from a 718-MW, natural gas-fired power plant through the Perryville Tolling Agreement.  For more information on the reporting of tolling operations revenue at Evangeline in accordance with FIN 46R and on the termination of the Perryville Tolling Agreement, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 29 - Variable Interest Entities and Note 26 - Perryville."  Through an investment in Acadia, equity earnings also are derived from a 1,160-MW combined-cycle, natural gas-fired power plant.  Acadia's output currently is sold through the Calpine Tolling Agreements.  Prior to May 2003, Acadia's output was sold through two separate tolling agreements:  one through the Aquila Tolling Agreement and the other through one of the Calpine Tolling Agreements.  In May 2003, Acadia terminated its 580-MW 20-year tolling agreement with Aquila Energy and entered into a replacement contract with CES.  For more information on the termination of the Aquila Tolling Agreement and the replacement CES agreement, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 13 - Equity Investment in Investees."  For additional information on Acadia, Evangeline, Perryville, and the tolling agreements related to these facilities, see "- Financial Condition - - Liquidity and Capital Resources."  Revenue from energy operations was, prior to May 2003, derived from energy management services and, prior to the fourth quarter of 2002, derived from marketing and trading wholesale natural gas and power.

Evangeline and Acadia have certain performance obligations under their respective tolling agreements.  Failure to perform could expose each facility to possible adverse financial penalties.  Performance requirements include, but are not limited to, maintaining plant performance characteristics such as heat rate and demonstrated generation capacity at specified levels and maintaining specified availability levels with a combination of plant availability and replacement power.  Obligations under the respective tolling agreements include, but are not limited to, maintaining various types of insurance at specified levels, maintaining power and natural gas metering equipment, and paying scheduled interest and principal payments on debt.  In addition to the performance obligations by Evangeline and Acadia, there are various guarantees and commitments required by Cleco Corporation.  For additional information on commitments by Cleco Corporation, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - Off-Balance Sheet Commitments" and Note 22 - "Disclosures About Guarantees."

If Evangeline and Acadia fail to operate within specified requirements, the respective facilities may purchase replacement power on the open market and provide it to the tolling counterparties in order to meet contractual performance specifications.  Providing replacement power maintains availability levels but exposes Evangeline and Acadia to power commodity price volatility and transmission constraints.  If availability targets under the tolling agreements are not met and economical purchased power and transmission are not available, Evangeline and Acadia's financial condition and results of operations could be materially adversely affected.

Under the Evangeline Tolling Agreement, Williams pays Evangeline a fixed fee and a variable fee for operating and maintaining the facility.  The Evangeline Tolling Agreement is accounted for as an operating lease.  For additional information on Cleco's operating leases, see "- Critical Accounting Policies - Midstream" and Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 14 - Operating Leases."  Evangeline Tolling Agreement revenue correlates with the seasonal usage of the plant.  Evangeline's 2004 revenue was recognized in the following manner:

• 17% in the first quarter,

• 20% in the second quarter,

• 46% in the third quarter, and

• 17% in the fourth quarter.

Revenue for 2005 under the Evangeline Tolling Agreement, which is reflected in equity income from investees, is anticipated to be recognized in a similar manner.  For additional information on recognition of revenue from the Evangeline Tolling Agreement, see "- Critical Accounting Policies - Midstream" and Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 2 - Summary of Significant Accounting Policies - Revenue and Fuel Costs - Tolling Revenue."

Under the Calpine Tolling Agreements, CES pays Acadia a fixed fee and a variable fee for operating and maintaining the facility.  Under each of these tolling agreements, equity investment earnings from the tolling agreements are recognized evenly throughout the year.  For additional information on the termination of the Aquila Tolling Agreement, the replacement

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CES agreement, and the ongoing dispute with CES under the Calpine Tolling Agreements, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 13 - - Equity Investment in Investees and Note 16 - Litigation and Other Commitments and Contingencies - CES."

The parent companies of Cleco's remaining tolling counterparties are The Williams Companies, Inc. and Calpine.  Each of these entities has issued guarantees of the payment obligations of the respective tolling counterparties under the tolling agreements.  Calpine also issued letters of credit totaling $40.0 million which provide additional credit support in the event CES does not fulfill its obligations under the Calpine Tolling Agreements.  Calpine letters of credit totaling $25.0 million expire by the end of 2006.  The credit ratings of these parent companies are below investment grade.  Failure by Williams or CES to perform under their respective tolling agreements could adversely impact Cleco's results of operations, financial condition, and cash flows.

The following list discusses some possible adverse consequences if either Williams or CES, Cleco's remaining tolling counterparties, should fail to perform their obligations under their respective tolling agreements, or if Cleco Corporation or its affiliates are not in compliance with loan agreements or bond indentures:

• Cleco's financial condition, results of operations, and cash flows may be adversely affected by the failure of counterparties to pay amounts due and may not be consistent with historical and projected results.

• Cleco may not be able to enter into replacement agreements on terms as favorable as existing agreements, or at all.

• Cleco would be required to test any long-lived generation asset for impairment if the tolling counterparty defaulted under the related tolling agreement.  If it was determined that an impairment existed, the asset would be written down to its fair market value, which could materially adversely affect Cleco's results of operations and financial condition.  For more information on long-lived assets, see "- Critical Accounting Policies."

• Possible acceleration of Cleco's project-level debt, in particular under provisions of the bonds issued by Evangeline, the bondholders have the right to demand the entire outstanding principal amount ($197.8 million at December 31, 2004) plus accrued interest to be immediately due and payable upon a default under the Evangeline Tolling Agreement by Williams.  Cleco is not aware of any such default by Williams at this time.  If the bondholders were to exercise this right, Cleco might, among other things, refinance the bonds, pay off the bonds with other borrowings or the proceeds of issuances of additional debt, or cause Evangeline to seek protection under federal bankruptcy laws.  In addition, the trustee of the bonds could foreclose on the mortgage and assume ownership of the plant.  Any alternative financing would likely be on less favorable terms than the existing terms.  The bonds issued by Evangeline are nonrecourse to Cleco Corporation.

The outstanding amount ($127.6 million at December 31, 2004) due under the Senior Loan Agreement related to the Perryville facility was deemed accelerated upon the bank-ruptcy filings by Perryville and PEH.  As a result of the commencement of such bankruptcy cases and by virtue of the automatic stay under the U.S. Bankruptcy Code, the lenders' ability to exercise their remedies under the Senior Loan Agreement, including, but not limited to, their ability to fore-close on the mortgage or assume ownership of the Perryville facility, are significantly limited and would require approval of the Perryville and PEH Bankruptcy Court.  For additional information on the Senior Loan Agreement and bankruptcy filings, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

Expenses are primarily affected by the following factors:

Midstream's expenses include impairments of long-lived assets, depreciation, maintenance, and other operations expenses.  The impairment charges relate to triggering events as defined by SFAS No. 144.  Depreciation expense is 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.  Maintenance expenses generally depend on the physical characteristics of the facility, the frequency and duration of the facility's operations, and the effectiveness of preventive maintenance.  Other operating expenses mainly relate to administrative expenses and employee benefits.

Midstream's Results of Operations -
Year ended December 31, 2004,
Compared to Year ended December 31, 2003

Midstream's net income applicable to member's equity for 2004 was $17.9 million, significantly above the $85.3 million loss recorded in 2003.  Factors affecting Midstream during 2004 are described below.

Perryville

On January 28, 2004, Perryville reached an agreement to sell its 718-MW power plant to Entergy Louisiana and entered into the Power Purchase Agreement to sell the output of the Perryville facility to Entergy Services.  To facilitate an orderly sales process, Perryville and PEH filed voluntary petitions in the Perryville and PEH Bankruptcy Court for protection under Chapter 11 of the U.S. Bankruptcy Code.  The sale of the Perryville facility is subject to various regulatory approvals and to Entergy Louisiana's ability to recover all of its costs of acquiring the Perryville power plant through base rates, fuel adjustment charges or other such rates or regulatory treatment as deemed solely acceptable to Entergy Louisiana.  The sale is expected to be completed by the third quarter of 2005.  For additional information on the Sale Agreement, Power Purchase Agreement, and bankruptcy filings, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - Perryville."

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The deconsolidation of Perryville and PEH from Cleco in connection with their bankruptcy filings affected Midstream's earnings for 2004 compared to 2003, since no income or loss was recognized in Midstream's consolidated financial statements subsequent to the bankruptcy filing on January 28, 2004.  Consequently, the chart below does not reflect operating results for Perryville and PEH after January 28, 2004, as compared to 2003.  For additional information on Perryville, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 26 - - Perryville."

Evangeline

In accordance with FIN 46R, Cleco was required to deconsolidate Evangeline from its consolidated financial statements and begin reporting its investment in Evangeline on the equity method of accounting.  As a result, effective March 31, 2004, the assets and liabilities of Evangeline no longer are reported on Cleco Corporation's Consolidated Balance Sheet but instead are represented by one line item corresponding to Cleco's equity investment in Evangeline.  Effective April 1, 2004, Evangeline revenue and expenses are netted and reported on one line item as equity income from investees on Cleco Corporation's Consolidated Statements of Operations.  Consequently, the chart below reflects net operating results for Evangeline for the second, third, and fourth quarters of 2004 on the equity income from investees' line as compared to being reported on various line items for 2003.  For additional information on FIN 46R and the deconsolidation of Evangeline, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 29 - - Variable Interest Entities."

Cleco Energy

In June 2004, management decided to sell substantially all of Cleco Energy's assets and discontinue Cleco Energy's natural gas marketing, pipeline, and production operations after the sale.  On September 15, 2004, Cleco Energy completed the sale of its oil and gas production properties and on November 16, 2004, completed the sale of its natural gas pipeline and marketing operations.  Prior to the sale of Cleco Energy's assets and in accordance with SFAS No. 144, the property, plant and equipment of Cleco Energy was classified as held for sale on Cleco Corporation's Consolidated Balance Sheet, and the related operations were classified as discontinued on Cleco Corporation's Consolidated Statements of Operations.  Consequently, the net operating results for Cleco Energy for 2004 and 2003 are reported as discontinued operations in the chart below.  For additional information on SFAS No. 144 and the discontinued operations and sale of Cleco Energy's assets, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

Tolling Operations

Tolling operations revenue decreased $88.5 million, or 89.6%, in 2004 compared to 2003, largely as a result of the bankruptcy filings of the Mirant Debtors, MAEM's rejection of the Perryville Tolling Agreement, the subsequent bankruptcy filings of Perryville and PEH, and their subsequent deconsolidation from Cleco's consolidated results.  In addition, Cleco's accounting for Evangeline on the equity method in accordance with FIN 46R also reduced tolling operations revenue.

Energy Trading, Net

Energy trading, net increased $2.8 million in 2004 compared to 2003.  The increase was due to the discontinuation of Midstream's speculative trading activities in late 2002 as well as amounts required to be paid in 2003 to Cleco Power under the Consent Agreement.

Affiliate Revenue

Affiliate revenue increased $4.5 million in 2004 compared to 2003.  The increase was primarily due to affiliate transactions with Perryville, PEH, and Evangeline that no longer are eliminated as a result of those companies' deconsolidation from Cleco.

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Operating Expenses

Operating expenses decreased $204.2 million, or 93.1%, in 2004 compared to 2003, primarily due to the $148.0 million impairment charges recorded at Perryville during 2003.  In addition, operating expenses also decreased as a result of the deconsolidation of Perryville, PEH, and Evangeline from Cleco's consolidated results.

Equity Income from Investees

Equity income from investees increased $15.9 million, or 50.2%, for 2004 compared to 2003.  The increase was largely due to a $19.9 million increase at Evangeline as a result of the change in reporting for Evangeline effective April 1, 2004, in accordance with FIN 46R.  In addition, earnings at Evangeline increased compared to 2003 as a result of the reassessment of the useful life of the facility's combustion turbine parts and the expensing of prepaid costs under its long-term maintenance agreement with the turbine manufacturer in 2003.  This increase was partially offset by a $4.0 million decrease in equity earnings at APH as a result of lower revenues and higher expenses at Acadia.  Revenue at Acadia was lower as a result of lower tolling agreement capacity payments (largely offset by priority earnings) and outages that occurred during 2004.  Expenses were higher due to higher availability penalties, replacement power costs, and increased maintenance expenses at the facility.  For additional information on Evangeline and Acadia, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 13 - Equity Investment in Investees."

Other Expense

Other expense decreased $0.8 million, or 95.5%, during 2004 compared to 2003, primarily due to the 2003 payment of a $0.8 million civil penalty agreed to in the Consent Agreement.  For additional information on the Consent Agreement, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 24 - - FERC Settlement."

Interest Charges

Interest charges decreased $21.0 million, or 54.2%, during 2004 compared to 2003, primarily due to the repayment of Midstream's credit facility during the first quarter of 2004 and the deconsolidation of Perryville, PEH, and Evangeline from Cleco's consolidated results.

Income Taxes

Income tax expense increased $61.3 million during 2004 compared to the same period of 2003.  Midstream's effective income tax rate increased from 38.1% to 40.3% during 2004 compared to 2003 largely as a result of a 2003 non-tax deductible civil penalty of $0.8 million paid to FERC in accordance with the Consent Agreement and a 2004 increase in the accrual of tax contingency reserves.  Effective tax rates also were affected by the relative size of pre-tax income to these items.  Pre-tax income during 2004 increased $159.3 million compared to the same period of 2003.  For information about the assumptions and estimates underlying Midstream's accounting for the effect of income taxes, see - "Critical Accounting Policies."

Discontinued Operations, Net of Tax

Discontinued operations, net of tax increased $5.2 million during 2004 compared to 2003, primarily due to an impairment charge recorded at Cleco Energy during 2003 and a gain on disposal from the sale of Cleco Energy's natural gas pipeline and marketing operations on November 16, 2004.  Partially offsetting these increases were lower gas margins and a loss on disposal from the sale of Cleco Energy's oil and gas production properties on September 15, 2004.  For additional information on the discontinued operations and sale of Cleco Energy's assets, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 17 - Discontinued Operations and Dispositions."

Cleco Consolidated Results of Operations -
Year ended December 31, 2003,
Compared to Year ended December 31, 2002

Consolidated net loss applicable to common stock in 2003 was $36.8 million, significantly below the $70.0 million income earned in 2002.  The decrease of $106.8 million was principally due to $148.0 million of impairment charges recorded at Midstream during 2003.  Also contributing to the decrease were higher interest expense and higher corporate legal and consulting fees associated with the FERC and LPSC investigations of certain trading activities.  On July 25, 2003, the FERC approved a settlement resolving its investigation of Cleco's energy marketing and trading practices, a review of which was initially disclosed in November 2002.  The settlement included penalties and remedies that resulted in a $0.9 million decrease in consolidated pre-tax net income.  For information on the trading activities, the investigations, and the settlement of the FERC's investigation, see Item 8 - "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 16 - Litigation and Other Commitments and Contingencies - Fuel Audit," and "- Gas Put Options and Gas Transportation Charge," - Note 19 - "Review of Trading Activities," and Note 24 - "FERC Settlement."

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Operating revenue, net increased $110.9 million, or 16.0%, in 2003 compared to 2002, largely as a result of higher base, fuel cost recovery, and transmission revenues from utility customer sales, and higher tolling revenue from commencement of full commercial operation of the Perryville facility in the third quarter of 2002.  Partially offsetting these increases were lower trading margins and lower other operations revenue.

Operating expenses increased $284.9 million, or 53.7%, in 2003 compared to 2002, primarily due to the $148.0 million impairments of long-lived assets at Perryville.  Also contributing to this increase were higher prices for natural gas purchased for fuel generation, increased depreciation expense at Perryville and Evangeline, and increased other operations and maintenance expenses at Perryville, Evangeline, and Cleco Power.  These increases in operating expenses were partially offset by the absence in 2003 of organizational restructuring expenses recognized in 2002.

Equity income from investees increased $15.4 million, or 95.3%, in 2003 compared to 2002, primarily as a result of the commencement of full commercial operation of the Acadia facility in August 2002.  Interest charges increased $10.7 million, or 17.8%, compared to 2002, primarily due to the cessation of capitalizing interest-related expenses associated with the Perryville facility and Acadia once these facilities commenced commercial operation and higher interest rates.

Results of operations for Cleco Power and Midstream are more fully described below.

Cleco Power's Results of Operations -
Year ended December 31, 2003,
Compared to Year ended December 31, 2002

Cleco Power's net income applicable to member's equity for 2003 decreased $2.6 million, or 4.3%, compared to 2002.  Contributing factors include:

• higher capacity payments,

• higher maintenance expense, and

• higher depreciation expense.

These were partially offset by:

• higher base revenue from customer sales and energy management services,

• lower losses from energy trading,

• higher transmission revenue,

• lower electric customer credits, and

• the absence of an organizational restructuring charge in 2003.

The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period.  Cleco Power uses temperature data collected by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.

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Base

Base revenue during 2003 increased $6.6 million, or 2.2%, compared to the same period in 2002.  The increase was
primarily due to slightly higher volumes of retail and wholesale customer kWh sales.  Base revenue also increased approximately $1.1 million as a result of energy management services contracts that commenced in May 2003.

Fuel Cost Recovery

Fuel cost recovery revenue billed to customers during 2003 compared to the same period in 2002 increased $101.3 million, or 38.6%, primarily as a result of an increase of 37.2% in the average per unit cost of power purchased from the energy market in 2003 compared to 2002 and a 25.6% increase in the average per unit cost of fuel used for electric generation.  The increase in fuel used for electric generation is primarily the result of higher natural gas prices.  The increase in the per unit cost of purchased power was influenced by higher natural gas prices, as well as other market factors.  For information on Cleco Power's ability to recover fuel and purchase power costs, see "- Significant Factors Affecting Cleco Power - Fuel and purchased power are primarily affected by the following factors."

Electric Customer Credits

Electric customer credits during 2003 decreased $1.3 million, or 46.1%, compared to the same period in 2002.  This decrease in electric customer credits is a result of the revised estimate of the accruals for the rate refund based on actual results for the 12-month period ended September 30, 2003.  The potential refunds are based on results for each 12-month period ended September 30.  For additional information on the accrual for electric customer credits, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 12 - Accrual of Electric Customer Credits."

Energy Trading, Net

Decreases in power and gas volumes from 2002 to 2003 were directly related to the discontinuation of speculative trading activities in the fourth quarter of 2002.  Most of Cleco Power's exposure to the market was mitigated in the summer of 2002 by transactions entered into specifically to offset open positions.  Volumes and associated revenue were affected by these positions during 2003.

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

Energy trading, net increased $1.4 million in 2003 compared to the same period in 2002.  This increase was primarily a result of amounts required to be paid to Cleco Power pursuant to the Consent Agreement and a negative adjustment for premiums on certain gas put options recorded in the third quarter of 2002.  In addition, Cleco Power's efforts to mitigate most of its exposure to the market following the discontinuation of speculative trading activities in the fourth quarter of 2002 and volatility in power and natural gas prices contributed to the fluctuations between each period.  For additional information on the Consent Agreement and FERC settlement, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 24 - FERC Settlement."

Operating Expenses

Operating expenses increased $114.8 million, or 24.0%, in 2003 compared to the same period of 2002.  Fuel used for electric generation increased $25.3 million, or 18.6%, primarily due to an increase in the average per unit equivalent cost of fuel from $25.17 per MWh in 2002 to $32.30 per MWh in 2003.  Power purchased for utility customers increased $73.8 million, or 57.7%, largely due to an increase in the average per unit cost and volumes of purchased power.  The increase in power purchased for utility customers was partially offset by a $1.1 million decrease resulting from payments received under the Consent Agreement.  For additional information on the Consent Agreement and the FERC settlement, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 24 - - FERC Settlement."  Non-recoverable fuel and power purchased increased $5.8 million, or 22.6%, primarily as a result of higher capacity payments made during 2003.  Increases in fuel used for electric generation and power purchased for utility customers both were influenced significantly by higher natural gas prices.  As a result, total system cost increased from $26.22 per MWh in 2002 to $35.04 per MWh in 2003.  Maintenance expense during 2003 increased $16.4 million, or 58.1%, compared to 2002.  The primary reasons for this increase were higher maintenance expenses from Cleco Power's transmission and distribution reliability initiative, production activities, restoration efforts associated with Tropical Storm Bill, and the amortization of deferred expenses related to Hurricane Lili and Tropical Storm Isidore.  Depreciation expense increased $1.9 million, or 3.5%, as a result of normal recurring additions to fixed assets.  Restructuring charge decreased $8.4 million during 2003 compared to 2002 as a result of the absence of an organizational restructuring in 2003.  The restructuring charge credit of $0.3 million for the year ended December 31, 2003, represents adjustments made during 2003 to 2002 original estimated amounts.  For additional information on the restructuring charge, see Item 8, "Financial Statements and Supplementary Data - Notes to the Financial Statements - Note 20 - - Restructuring Charge."

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Other Expense

Other expense increased $3.7 million, or 88.6%, during 2003 compared to 2002, primarily due to increased donations, increased community project involvement, and payments made to community action agencies to assist low-income customers.  Also contributing to the increase in other expenses were higher expenses related to work performed by Cleco Power employees for the restoration of power along the east coast after Hurricane Isabel in 2003.

Income Taxes

Income tax expense in 2003 decreased $2.3 million, or 7.2%, compared to 2002.  The decrease was primarily due to lower taxable income compared to the same period of 2002.  For information about assumptions and estimates underlying Cleco Power's accounting for the effect of income taxes, see - "Critical Accounting Policies."

Midstream's Results of Operations -
Year ended December 31, 2003,
Compared to Year ended December 31, 2002

Midstream's net loss applicable to member's equity for 2003 was $85.3 million, significantly below the $14.7 million earned in 2002.  Contributing factors include:

• impairments of long-lived assets,

• lower margins from energy trading,

• lower other operations revenue,

• higher other operations expense,

• higher maintenance expense,

• higher depreciation expense, and

• higher interest charges.

These were partially offset by:

• higher tolling revenue,

• the absence of an organizational restructuring charge in 2003, and

• higher equity income from investees.