Attached files

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EX-95 - EXHIBIT 95 - Cleco Corporate Holdings LLCcnl-63015xq2ex95.htm
EX-32.4 - EXHIBIT 32.4 - Cleco Corporate Holdings LLCcnl-63015xq2ex324.htm
EX-32.3 - EXHIBIT 32.3 - Cleco Corporate Holdings LLCcnl-63015xq2ex323.htm
EX-10.1 - EXHIBIT 10.1 - Cleco Corporate Holdings LLCcnl-63015xq2ex101.htm
EX-12.A - EXHIBIT 12(A) - Cleco Corporate Holdings LLCcnl-63015xq2ex12a.htm
EX-31.3 - EXHIBIT 31.3 - Cleco Corporate Holdings LLCcnl-63015xq2ex313.htm
EX-12.B - EXHIBIT 12(B) - Cleco Corporate Holdings LLCcnl-63015xq2ex12b.htm
EX-32.2 - EXHIBIT 32.2 - Cleco Corporate Holdings LLCcnl-63015xq2ex322.htm
EX-31.1 - EXHIBIT 31.1 - Cleco Corporate Holdings LLCcnl-63015xq2ex311.htm
EX-31.4 - EXHIBIT 31.4 - Cleco Corporate Holdings LLCcnl-63015xq2ex314.htm
EX-31.2 - EXHIBIT 31.2 - Cleco Corporate Holdings LLCcnl-63015xq2ex312.htm
EX-32.1 - EXHIBIT 32.1 - Cleco Corporate Holdings LLCcnl-63015xq2ex321.htm
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q
 
x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
Or
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

Commission file number 1-15759
CLECO CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-1445282
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 

Commission file number 1-05663
CLECO POWER LLC
(Exact name of registrant as specified in its charter)
Louisiana
(State or other jurisdiction of incorporation or organization)
72-0244480
(I.R.S. Employer Identification No.)
 
 
2030 Donahue Ferry Road, Pineville, Louisiana
(Address of principal executive offices)
71360-5226
(Zip Code)
 
 
Registrant’s telephone number, including area code: (318) 484-7400
 
Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes x  No ¨
 
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes x  No ¨
 
Indicate by check mark whether Cleco Corporation is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):  
Large accelerated filer x          Accelerated filer ¨          Non-accelerated filer ¨  (Do not check if a smaller reporting company)          Smaller reporting company ¨
 
Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer ¨          Accelerated filer ¨          Non-accelerated filer x  (Do not check if a smaller reporting company)          Smaller reporting company ¨
 
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act)  Yes ¨    No x

Number of shares outstanding of each of Cleco Corporation’s classes of Common Stock, as of the latest practicable date.
Registrant
Description of Class
Shares Outstanding July 20, 2015
 
 
 
Cleco Corporation
Common Stock, $1.00 Par Value
60,480,978

Cleco Power LLC, a wholly owned subsidiary of Cleco Corporation, meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.
 



CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

This Combined Quarterly Report on Form 10-Q is separately filed by Cleco Corporation and Cleco Power. Information in this filing relating to Cleco Power is filed by Cleco Corporation and separately by Cleco Power on its own behalf. Cleco Power makes no representation as to information relating to Cleco Corporation (except as it may relate to Cleco Power) or any other affiliate or subsidiary of Cleco Corporation.
This report should be read in its entirety as it pertains to each respective Registrant. The Notes to the Unaudited Condensed Consolidated Financial Statements are combined.
 

2


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

GLOSSARY OF TERMS
References in this filing, including all items in Parts I and II, to “Cleco” mean Cleco Corporation and its subsidiaries, including Cleco Power, and references to “Cleco Power” mean Cleco Power LLC and its subsidiaries, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below.
ABBREVIATION OR ACRONYM
DEFINITION
401(k) Plan
Cleco Power 401(k) Savings and Investment Plan
ABR
Alternate Base Rate which is the greater of the prime rate, the federal funds effective rate plus 0.50%, or the LIBOR plus 1.0%
Acadia
Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1
Cleco Power’s 580-MW, combined cycle, natural gas-fired power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2
Entergy Louisiana’s 580-MW, combined cycle, natural gas-fired power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power 
AFUDC
Allowance for Funds Used During Construction
Amended Lignite Mining Agreement
Amended and restated lignite mining agreement effective December 29, 2009
AMI
Advanced Metering Infrastructure
AOCI
Accumulated Other Comprehensive Income (Loss)
ARO
Asset Retirement Obligation
ARRA
American Recovery and Reinvestment Act of 2009, an economic stimulus package passed by Congress in February 2009
Attala
Attala Transmission LLC, a wholly owned subsidiary of Cleco Corporation
CCR
Coal combustion by-products or residual
CERCLA
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980
Cleco Katrina/Rita
Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power
Cleco Partners
Cleco Partners L.P., a Delaware limited partnership that prior to the closing of the Merger will be owned by a consortium of investors, including funds or investment vehicles managed by Macquarie Infrastructure and Real Assets, British Columbia Investment Management Corporation, John Hancock Financial, and other infrastructure investors.
Coughlin
Cleco Power’s 775-MW, combined-cycle, natural gas-fired power plant located in St. Landry, Louisiana. Coughlin was transferred to Cleco Power on March 15, 2014.
CSAPR
The Cross-State Air Pollution Rule
DHLC
Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands
Diversified Lands LLC, a wholly owned subsidiary of Cleco Corporation
Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law on July 21, 2010
Dolet Hills
A 650-MW lignite/natural gas generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of Dolet Hills.
EAC
Environmental Adjustment Clause
EGU
Electric Generating Unit
Entergy Gulf States
Entergy Gulf States Louisiana, L.L.C.
Entergy Louisiana
Entergy Louisiana, LLC
Entergy Mississippi
Entergy Mississippi, Inc.
EPA
U.S. Environmental Protection Agency
ESPP
Cleco Corporation Employee Stock Purchase Plan
Evangeline
Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC
Fuel Adjustment Clause
FASB
Financial Accounting Standards Board
FCC
Federal Communications Commission
FERC
Federal Energy Regulatory Commission
FTR
Financial Transmission Right
FRP
Formula Rate Plan
GAAP
Generally Accepted Accounting Principles in the U.S.
GO Zone
Gulf Opportunity Zone Act of 2005 (Public Law 109-135)
Interconnection Agreement
One of two Interconnection and Real Estate Agreements, one between Attala and Entergy Mississippi, and the other between Perryville and Entergy Louisiana
IRS
Internal Revenue Service
kWh
Kilowatt-hour(s)
LIBOR
London Inter-Bank Offer Rate
LMP
Locational Marginal Price
LPSC
Louisiana Public Service Commission
LTICP
Cleco Corporation Long-Term Incentive Compensation Plan
Madison Unit 3
A 600-MW solid-fuel generating unit at Cleco Power’s plant site in Boyce, Louisiana
MATS
Mercury and Air Toxics Standards


3


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

ABBREVIATION OR ACRONYM
DEFINITION
Merger
Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement
Merger Agreement
Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation
Merger Sub
Cleco Merger Sub, Inc., a Louisiana corporation and an indirect wholly-owned subsidiary of Cleco Partners
Midstream
Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Corporation
MISO
Midcontinent Independent System Operator, Inc.
Moody’s
Moody’s Investors Service, a credit rating agency
MW
Megawatt(s)
MWh
Megawatt-hour(s)
NERC
North American Electric Reliability Corporation
NMTC
New Markets Tax Credit
NMTC Fund
USB NMTC Fund 2008-1 LLC was formed to invest in projects qualifying for New Markets Tax Credits and Solar Projects
NOx
Nitrogen oxides
Oxbow
Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO
Perryville
Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Corporation
PPA
Power Purchase Agreement
PRP
Potentially Responsible Party
Registrant(s)
Cleco Corporation and/or Cleco Power
Rodemacher Unit 2
A 523-MW coal/natural gas generating unit at Cleco Power’s plant site in Boyce, Louisiana. Cleco Power has a 30% ownership interest in the capacity of Rodemacher Unit 2.
ROE
Return on Equity
RTO
Regional Transmission Organization
S&P
Standard & Poor’s Ratings Services, a credit rating agency
SEC
Securities and Exchange Commission
SERP
Cleco Corporation Supplemental Executive Retirement Plan
SO2
Sulfur dioxide
Support Group
Cleco Support Group LLC, a wholly owned subsidiary of Cleco Corporation
SWEPCO
Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc.
VaR
Value-at-Risk
VIE
Variable Interest Entity


4


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Combined Quarterly Report on Form 10-Q includes “forward-looking statements” about future events, circumstances, and results. All statements other than statements of historical fact included in this Combined Quarterly Report are forward-looking statements, including, without limitation, results of the Merger; future capital expenditures; projections, including with respect to base revenue; business strategies; goals, beliefs, plans and objectives; competitive strengths; market developments; development and operation of facilities; growth in sales volume; meeting capacity requirements; expansion of service to existing customers and service to new customers; future environmental regulations and remediation liabilities; electric customer credits; and the anticipated outcome of various regulatory and legal proceedings. Although the Registrants believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from the Registrants’ expectations. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements, the following list identifies some of the factors that could cause the Registrants’ actual results to differ materially from those contemplated in any of the Registrants’ forward-looking statements:

certain risks and uncertainties associated with the merger of an indirect, wholly-owned subsidiary of Cleco Partners with and into Cleco Corporation including, without limitation:
the occurrence of any event, change, or other circumstance that could give rise to the termination of the Merger Agreement or could otherwise cause the failure of the Merger to close;
the failure to obtain regulatory approvals required for the Merger, or required regulatory approvals delaying the Merger or causing the parties to abandon the Merger;
the failure to obtain any financing necessary to complete the Merger;
risks related to disruption of management’s attention from Cleco’s ongoing business operations due to the Merger;
the outcome of any legal proceeding, regulatory proceeding, or enforcement matter that may be instituted against Cleco and others relating to the Merger;
the risk that the pendency of the Merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the pendency of the Merger;
the effect of the Merger on Cleco’s relationships with its customers, operating results, and business;
the amount of the costs, fees, expenses, and charges related to the Merger;
the receipt of an unsolicited offer from another party to acquire assets or capital stock of Cleco Corporation that could interfere with the Merger; and
future regulatory or legislative actions that could adversely affect Cleco’s participation in the Merger.
 
regulatory factors such as changes in rate-setting practices or policies, the unpredictability in political actions of governmental regulatory bodies, adverse regulatory ratemaking actions, recovery of investments made under traditional regulation, recovery of storm restoration costs, the frequency and timing of rate increases or decreases, the impact that rate cases or requests for extensions of an FRP may have on operating decisions of Cleco Power, the results of periodic NERC and LPSC audits, participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to more suppliers, and compliance with the Electric Reliability Organization reliability standards for bulk power systems by Cleco Power,
factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other storms or severe drought conditions; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs, fuel supply costs, or availability constraints due to higher demand, shortages, transportation problems, or other developments; fuel mix of Cleco’s generation facilities; decreased customer load; environmental incidents and compliance costs; and power transmission system constraints,
reliance on third parties for determination of Cleco Power’s commitments and obligations to markets for generation resources and reliance on third-party transmission services,
global and domestic economic conditions, including the ability of customers to continue paying utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, changes in commodity prices, and inflation rates, 
the ability of the Dolet Hills lignite reserve to provide sufficient fuel to the Dolet Hills Power Station until at least 2036,
Cleco Power’s ability to maintain its right to sell wholesale generation at market-based rates within its control area, 
Cleco Power’s dependence on energy from sources other than its facilities and future sources of such additional energy,
reliability of Cleco Power’s generating facilities,
the imposition of energy efficiency requirements or increased conservation efforts of customers,
the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of certain generating units, increase costs, or reduce customer demand for electricity,
the ability of Cleco Power to recover from its customers the costs of compliance with environmental laws and regulations,
financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight, 


5


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

changing market conditions and a variety of other factors associated with physical energy, financial transactions, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,
legal, environmental, and regulatory delays and other obstacles associated with acquisitions, reorganizations, investments in joint ventures, or other capital projects,
costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,
the availability and use of alternative sources of energy and technologies, such as wind, solar, and distributed generation,
changes in federal, state, or local laws (including tax laws), changes in tax rates, disallowances of tax positions, or changes in other regulating policies that may result in a change to tax benefits or expenses,
Cleco Corporation’s holding company structure and its dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations and pay dividends on its common stock,
acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters, 

 
nonperformance by and creditworthiness of the guarantor counterparty of the NMTC Fund, 
credit ratings of Cleco Corporation and Cleco Power, 
ability to remain in compliance with debt covenants,
availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and
employee work force factors, including work stoppages, aging workforce, and changes in key executives.

For more discussion of these factors and other factors that could cause actual results to differ materially from those
contemplated in the Registrants’ forward-looking statements,
please read “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2014.
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.



6


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

PART I — FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Corporation
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco Corporation’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2014. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”

7


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Statements of Income (Unaudited)
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2015

 
2014

Operating revenue
 
 
 
Electric operations
$
276,661

 
$
316,997

Other operations
15,803

 
14,568

Gross operating revenue
292,464

 
331,565

Electric customer credits
(3,390
)
 
(22,495
)
Operating revenue, net
289,074

 
309,070

Operating expenses
 

 
 

Fuel used for electric generation
84,011

 
56,696

Power purchased for utility customers
34,132

 
81,393

Other operations
31,436

 
28,727

Maintenance
21,436

 
26,245

Depreciation
36,468

 
37,570

Taxes other than income taxes
12,117

 
11,567

Merger transaction costs
(410
)
 
365

Gain on sale of assets

 
(214
)
Total operating expenses
219,190

 
242,349

Operating income
69,884

 
66,721

Interest income
90

 
350

Allowance for equity funds used during construction
460

 
2,029

Other income
764

 
2,495

Other expense
(695
)
 
(369
)
Interest charges
 

 
 

Interest charges, including amortization of debt expense, premium, and discount, net
20,040

 
20,635

Allowance for borrowed funds used during construction
(130
)
 
(570
)
Total interest charges
19,910

 
20,065

Income before income taxes
50,593

 
51,161

Federal and state income tax expense
20,359

 
14,528

Net income applicable to common stock
$
30,234

 
$
36,633

 
 
 
 
Average number of basic common shares outstanding
60,480,684

 
60,359,949

Average number of diluted common shares outstanding
60,800,806

 
60,626,135

Basic earnings per share
 
 
 

Net income applicable to common stock
$
0.50

 
$
0.61

Diluted earnings per share
 

 
 

Net income applicable to common stock
$
0.50

 
$
0.60

Dividends declared per share of common stock
$
0.40

 
$
0.40

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

 
 


8


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Net income
$
30,234

 
$
36,633

Other comprehensive income, net of tax:
 

 
 

Postretirement benefits gain (net of tax expense of $411 in 2015 and $274 in 2014)
656

 
438

Net gain on cash flow hedges (net of tax expense of $33 in 2015 and 2014)
53

 
53

Total other comprehensive income, net of tax
709

 
491

Comprehensive income, net of tax
$
30,943

 
$
37,124

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

 
 




9


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2015

 
2014

Operating revenue
 
 
 
Electric operations
$
554,175

 
$
586,756

Other operations
33,535

 
29,381

Gross operating revenue
587,710

 
616,137

Electric customer credits
(3,179
)
 
(22,681
)
Operating revenue, net
584,531

 
593,456

Operating expenses
 

 
 

Fuel used for electric generation
172,136

 
115,743

Power purchased for utility customers
78,213

 
134,117

Other operations
59,995

 
55,716

Maintenance
40,518

 
58,615

Depreciation
73,746

 
79,311

Taxes other than income taxes
25,589

 
25,674

Merger transaction costs
1,730

 
365

Gain on sale of assets

 
(145
)
Total operating expenses
451,927

 
469,396

Operating income
132,604

 
124,060

Interest income
388

 
952

Allowance for equity funds used during construction
1,537

 
3,660

Other income
1,409

 
3,466

Other expense
(1,063
)
 
(1,041
)
Interest charges
 

 
 

Interest charges, including amortization of debt expense, premium, and discount, net
40,483

 
41,393

Allowance for borrowed funds used during construction
(451
)
 
(1,059
)
Total interest charges
40,032

 
40,334

Income before income taxes
94,843

 
90,763

Federal and state income tax expense
37,687

 
28,206

Net income applicable to common stock
$
57,156

 
$
62,557

 
 
 
 
Average number of basic common shares outstanding
60,470,989

 
60,424,591

Average number of diluted common shares outstanding
60,776,735

 
60,678,026

Basic earnings per share
 

 
 

Net income applicable to common stock
$
0.95

 
$
1.04

Diluted earnings per share
 

 
 

Net income applicable to common stock
$
0.94

 
$
1.03

Dividends declared per share of common stock
$
0.80

 
$
0.7625

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

 
 



10


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Net income
$
57,156

 
$
62,557

Other comprehensive income, net of tax:
 

 
 

Postretirement benefits gain (net of tax expense of $792 in 2015 and $802 in 2014)
1,265

 
1,282

Net gain on cash flow hedges (net of tax expense of $66 in 2015 and 2014)
106

 
106

Total other comprehensive income, net of tax
1,371

 
1,388

Comprehensive income, net of tax
$
58,527

 
$
63,945

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

 
 




11


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
22,429

 
$
44,423

Restricted cash and cash equivalents
8,342

 
8,986

Customer accounts receivable (less allowance for doubtful accounts of $1,218 in 2015 and $922 in 2014)
49,442

 
41,500

Other accounts receivable
20,319

 
28,098

Unbilled revenue
43,341

 
38,475

Fuel inventory, at average cost
56,921

 
64,747

Material and supplies inventory, at average cost
73,977

 
71,124

Energy risk management assets
22,480

 
10,776

Accumulated deferred federal and state income taxes, net
66,386

 
76,785

Accumulated deferred fuel
9,087

 
21,554

Cash surrender value of company-/trust-owned life insurance policies
72,845

 
71,167

Prepayments
8,978

 
10,284

Regulatory assets
15,002

 
12,212

Other current assets
1,262

 
473

Total current assets
470,811

 
500,604

Property, plant, and equipment
 

 
 

Property, plant, and equipment
4,548,451

 
4,508,960

Accumulated depreciation
(1,489,864
)
 
(1,442,960
)
Net property, plant, and equipment
3,058,587

 
3,066,000

Construction work in progress
118,364

 
99,458

Total property, plant, and equipment, net
3,176,951

 
3,165,458

Equity investment in investees
15,380

 
14,540

Prepayments
4,965

 
4,891

Restricted cash and cash equivalents
15,815

 
15,130

Regulatory assets - deferred taxes, net
236,742

 
234,370

Regulatory assets
295,280

 
311,867

Net investment in direct financing lease
13,482

 
13,498

Intangible asset
83,048

 
90,642

Tax credit fund investment, net
6,336

 
7,251

Other deferred charges
23,204

 
20,822

Total assets
$
4,342,014

 
$
4,379,073

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

 
 

 
 
 
 
(Continued on next page)
 
 
 

12


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Liabilities and shareholders’ equity
 
 
 
Liabilities
 
 
 
Current liabilities
 
 
 
Long-term debt due within one year
$
43,847

 
$
18,272

Accounts payable
96,316

 
127,268

Customer deposits
54,587

 
53,411

Provision for rate refund
5,444

 
2,264

Taxes payable
20,345

 
2,197

Interest accrued
9,863

 
8,669

Energy risk management liabilities
506

 
827

Regulatory liabilities - other
624

 
312

Deferred compensation
10,389

 
11,374

Other current liabilities
14,273

 
13,176

Total current liabilities
256,194

 
237,770

Long-term liabilities and deferred credits
 

 
 

Accumulated deferred federal and state income taxes, net
946,334

 
918,858

Accumulated deferred investment tax credits
3,703

 
4,161

Postretirement benefit obligations
202,484

 
197,623

Regulatory liabilities - other

 
312

Restricted storm reserve
15,544

 
14,916

Other deferred credits
23,373

 
28,510

Total long-term liabilities and deferred credits
1,191,438

 
1,164,380

Long-term debt, net
1,255,042

 
1,349,653

Total liabilities
2,702,674

 
2,751,803

Commitments and Contingencies (Note 11)


 


Shareholders’ equity
 

 
 

Common shareholders’ equity
 
 
 

Common stock, $1 par value, authorized 100,000,000 shares, issued 61,058,918 and 61,051,286 shares and outstanding 60,480,978 and 60,421,467 shares at June 30, 2015, and December 31, 2014, respectively
61,059

 
61,051

Premium on common stock
415,617

 
415,482

Retained earnings
1,217,183

 
1,208,712

Treasury stock, at cost, 577,940 and 629,819 shares at June 30, 2015, and December 31, 2014, respectively
(23,225
)
 
(25,310
)
Accumulated other comprehensive loss
(31,294
)
 
(32,665
)
Total shareholders’ equity
1,639,340

 
1,627,270

Total liabilities and shareholders’ equity
$
4,342,014

 
$
4,379,073

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

 
 




13


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Operating activities
 
 
 
Net income
$
57,156

 
$
62,557

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
76,951

 
85,264

Unearned compensation expense
3,341

 
3,569

Allowance for equity funds used during construction
(1,537
)
 
(3,660
)
Net deferred income taxes
33,367

 
23,685

Deferred fuel costs
7,251

 
(25,971
)
Cash surrender value of company-/trust-owned life insurance
(366
)
 
(3,011
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(8,062
)
 
(17,232
)
Unbilled revenue
(4,866
)
 
(16,195
)
Fuel, materials and supplies inventory
4,973

 
(6,785
)
Prepayments
1,295

 
2,313

Accounts payable
(27,652
)
 
19,909

Customer deposits
6,104

 
8,017

Postretirement benefit obligations
6,878

 
4,486

Regulatory assets and liabilities, net
8,764

 
(4,491
)
Other deferred accounts
(7,872
)
 
(14,815
)
Taxes accrued
16,959

 
1,777

Interest accrued
1,112

 
3,522

Other operating
671

 
2,213

Net cash provided by operating activities
174,467

 
125,152

Investing activities
 
 
 
Additions to property, plant, and equipment
(78,180
)
 
(113,175
)
Allowance for equity funds used during construction
1,537

 
3,660

Return of investment in company-owned life insurance

 
1,303

Premiums paid on company-/trust-owned life insurance
(1,375
)
 
(1,635
)
Equity investment in investees
(840
)
 

Return of equity investment in tax credit fund
1,172

 
1,062

Contributions to tax credit fund
(923
)
 
(22,364
)
Transfer of cash to restricted accounts, net
(41
)
 
(9,557
)
Sale of restricted investments

 
11,138

Maturity of restricted investments

 
1,458

Other investing
459

 
414

Net cash used in investing activities
(78,191
)
 
(127,696
)
Financing activities
 
 
 
Draws on credit facility
62,000

 
139,000

Payments on credit facility
(87,000
)
 
(74,000
)
Repayment of long-term debt
(43,053
)
 
(7,581
)
Repurchase of common stock

 
(12,449
)
Dividends paid on common stock
(48,869
)
 
(46,608
)
Other financing
(1,348
)
 
(1,237
)
Net cash used in financing activities
(118,270
)
 
(2,875
)
Net decrease in cash and cash equivalents
(21,994
)
 
(5,419
)
Cash and cash equivalents at beginning of period
44,423

 
28,656

Cash and cash equivalents at end of period
$
22,429

 
$
23,237

Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
36,751

 
$
36,343

Income taxes paid, net
$
306

 
$
14,219

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
7,674

 
$
21,556

Decreases in property, plant, and equipment
$
227

 
$

Issuance of common stock – ESPP
$

 
$
148

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

 
 


14


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO CORPORATION
 
Condensed Consolidated Statements of Changes in Common Shareholders’ Equity (Unaudited)
 
COMMON STOCK
 
 
TREASURY STOCK
 
 
PREMIUM
ON COMMON
STOCK

 
RETAINED
EARNINGS

 
AOCI

 
TOTAL SHAREHOLDERS’
EQUITY

(THOUSANDS, EXCEPT SHARE AMOUNTS)
SHARES

 
AMOUNT

 
SHARES

 
COST

 
 
 
 
Balances, Dec. 31, 2014
61,051,286

 
$
61,051

 
(629,819
)
 
$
(25,310
)
 
$
415,482

 
$
1,208,712

 
$
(32,665
)
 
$
1,627,270

Common stock issued for compensatory plans
7,632

 
8

 
51,879

 
2,085

 
135

 

 

 
2,228

Dividends on common stock, $0.80 per share

 

 

 

 

 
(48,685
)
 

 
(48,685
)
Net income

 

 

 

 

 
57,156

 

 
57,156

Other comprehensive income, net of tax

 

 

 

 

 

 
1,371

 
1,371

Balances, June 30, 2015
61,058,918

 
$
61,059

 
(577,940
)
 
$
(23,225
)
 
$
415,617

 
$
1,217,183

 
$
(31,294
)
 
$
1,639,340

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

 
 

 
 




15


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Power
These unaudited Condensed Consolidated Financial Statements should be read in conjunction with Cleco Power’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2014. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”


16


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Income (Unaudited)
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Operating revenue
 
 
 
Electric operations
$
276,661

 
$
316,997

Other operations
15,283

 
14,027

Affiliate revenue
331

 
330

Gross operating revenue
292,275

 
331,354

Electric customer credits
(3,390
)
 
(22,495
)
Operating revenue, net
288,885

 
308,859

Operating expenses
 

 
 

Fuel used for electric generation
84,011

 
56,696

Power purchased for utility customers
34,132

 
81,393

Other operations
31,650

 
29,146

Maintenance
21,230

 
26,203

Depreciation
36,126

 
37,295

Taxes other than income taxes
11,493

 
11,094

Total operating expenses
218,642

 
241,827

Operating income
70,243

 
67,032

Interest income
48

 
350

Allowance for equity funds used during construction
460

 
2,029

Other income
846

 
389

Other expense
(474
)
 
(432
)
Interest charges
 

 
 

Interest charges, including amortization of debt expense, premium, and discount, net
19,531

 
21,209

Allowance for borrowed funds used during construction
(130
)
 
(570
)
Total interest charges
19,401

 
20,639

Income before income taxes
51,722

 
48,729

Federal and state income tax expense
19,909

 
16,071

Net income
$
31,813

 
$
32,658

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

 
 


17


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE THREE MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Net income
$
31,813

 
$
32,658

Other comprehensive income, net of tax:
 

 
 

Postretirement benefits gain (net of tax expense of $180 in 2015 and $138 in 2014)
288

 
222

Net gain on cash flow hedges (net of tax expense of $33 in 2015 and 2014)
53

 
53

Total other comprehensive income, net of tax
341

 
275

Comprehensive income, net of tax
$
32,154

 
$
32,933

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

 
 


18


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
 
 
 
Condensed Consolidated Statements of Income (Unaudited)
 
 
 
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Operating revenue
 
 
 
Electric operations
$
554,175

 
$
586,756

Other operations
32,495

 
28,299

Affiliate revenue
665

 
665

Gross operating revenue
587,335

 
615,720

Electric customer credits
(3,179
)
 
(22,681
)
Operating revenue, net
584,156

 
593,039

Operating expenses
 

 
 

Fuel used for electric generation
172,136

 
115,743

Power purchased for utility customers
78,213

 
139,584

Other operations
60,130

 
54,462

Maintenance
40,175

 
56,460

Depreciation
73,109

 
77,498

Taxes other than income taxes
24,479

 
24,069

Total operating expenses
448,242

 
467,816

Operating income
135,914

 
125,223

Interest income
304

 
951

Allowance for equity funds used during construction
1,537

 
3,660

Other income
1,297

 
752

Other expense
(1,062
)
 
(941
)
Interest charges
 

 
 

Interest charges, including amortization of debt expense, premium, and discount, net
39,755

 
41,458

Allowance for borrowed funds used during construction
(451
)
 
(1,059
)
Total interest charges
39,304

 
40,399

Income before income taxes
98,686

 
89,246

Federal and state income tax expense
38,268

 
30,281

Net income
$
60,418

 
$
58,965

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

 
 





19


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Net income
$
60,418

 
$
58,965

Other comprehensive income, net of tax:
 

 
 

Postretirement benefits gain (net of tax expense of $126 in 2015 and $467 in 2014)
201

 
747

Net gain on cash flow hedges (net of tax expense of $66 in 2015 and 2014)
106

 
106

Total other comprehensive income, net of tax
307

 
853

Comprehensive income, net of tax
$
60,725

 
$
59,818

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

 
 




20


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Assets
 
 
 
Utility plant and equipment
 
 
 
Property, plant, and equipment
$
4,534,234

 
$
4,495,490

Accumulated depreciation
(1,479,472
)
 
(1,433,206
)
Net property, plant, and equipment
3,054,762

 
3,062,284

Construction work in progress
116,177

 
96,702

Total utility plant, net
3,170,939

 
3,158,986

Current assets
 

 
 

Cash and cash equivalents
20,063

 
39,162

Restricted cash and cash equivalents
8,342

 
8,986

Customer accounts receivable (less allowance for doubtful accounts of $1,218 in 2015 and $922 in 2014)
49,442

 
41,500

Accounts receivable - affiliate
23,575

 
23,621

Other accounts receivable
20,315

 
27,949

Unbilled revenue
43,341

 
38,475

Fuel inventory, at average cost
56,921

 
64,747

Material and supplies inventory, at average cost
73,977

 
71,124

Energy risk management assets
22,480

 
10,776

Accumulated deferred federal and state income taxes, net
6,363

 
6,725

Accumulated deferred fuel
9,087

 
21,554

Cash surrender value of company-owned life insurance policies
19,845

 
19,678

Prepayments
8,077

 
7,283

Regulatory assets
15,002

 
12,212

Other current assets
1,121

 
368

Total current assets
377,951

 
394,160

Equity investment in investee
15,372

 
14,532

Prepayments
4,965

 
4,891

Restricted cash and cash equivalents
15,794

 
15,109

Regulatory assets - deferred taxes, net
236,742

 
234,370

Regulatory assets
295,280

 
311,867

Intangible asset
83,048

 
90,642

Other deferred charges
21,214

 
18,429

Total assets
$
4,221,305

 
$
4,242,986

The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
(Continued on next page)
 
 
 

21


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
 
 
 
Condensed Consolidated Balance Sheets (Unaudited)
 
 
 
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Liabilities and member’s equity
 

 
 

Member’s equity
$
1,546,583

 
$
1,545,858

Long-term debt, net
1,203,042

 
1,292,653

Total capitalization
2,749,625

 
2,838,511

Current liabilities
 

 
 

Long-term debt due within one year
43,847

 
18,272

Accounts payable
91,379

 
116,925

Accounts payable - affiliate
6,781

 
7,760

Customer deposits
54,587

 
53,411

Provision for rate refund
5,444

 
2,264

Taxes payable
22,064

 
3,115

Interest accrued
10,324

 
9,224

Energy risk management liabilities
506

 
827

Regulatory liabilities - other
624

 
312

Other current liabilities
11,003

 
9,380

Total current liabilities
246,559

 
221,490

Commitments and Contingencies (Note 11)


 


Long-term liabilities and deferred credits
 

 
 

Accumulated deferred federal and state income taxes, net
1,039,395

 
1,001,332

Accumulated deferred investment tax credits
3,703

 
4,161

Postretirement benefit obligations
143,947

 
135,825

Regulatory liabilities - other

 
312

Restricted storm reserve
15,544

 
14,916

Other deferred credits
22,532

 
26,439

Total long-term liabilities and deferred credits
1,225,121

 
1,182,985

Total liabilities and member’s equity
$
4,221,305

 
$
4,242,986

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

 
 





22


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
FOR THE SIX MONTHS ENDED JUNE 30,
 
(THOUSANDS)
2015

 
2014

Operating activities
 
 
 
Net income
$
60,418

 
$
58,965

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
75,591

 
82,139

Allowance for equity funds used during construction
(1,537
)
 
(3,660
)
Net deferred income taxes
34,583

 
31,493

Deferred fuel costs
7,251

 
(25,971
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(8,204
)
 
(17,048
)
Accounts and notes receivable, affiliate
5,857

 
393

Unbilled revenue
(4,866
)
 
(16,195
)
Fuel, materials and supplies inventory
4,973

 
(6,752
)
Prepayments
(867
)
 
2,339

Accounts payable
(22,311
)
 
25,861

Accounts and notes payable, affiliate
(2,619
)
 
(2,626
)
Customer deposits
6,104

 
8,017

Postretirement benefit obligations
3,533

 
2,548

Regulatory assets and liabilities, net
8,764

 
(4,491
)
Other deferred accounts
(6,409
)
 
(10,404
)
Taxes accrued
18,949

 
(3,072
)
Interest accrued
1,099

 
1,210

Other operating
1,888

 
2,123

Net cash provided by operating activities
182,197

 
124,869

Investing activities
 
 
 
Additions to property, plant, and equipment
(78,010
)
 
(112,627
)
Allowance for equity funds used during construction
1,537

 
3,660

Return of investment in company-owned life insurance

 
1,303

Equity investment in investees
(840
)
 

Transfer of cash to restricted accounts, net
(41
)
 
(9,557
)
Sale of restricted investments

 
11,138

Maturity of restricted investments

 
1,458

Other investing
459

 
412

Net cash used in investing activities
(76,895
)
 
(104,213
)
Financing activities
 

 
 

Draws on credit facility
20,000

 
112,000

Payments on credit facility
(40,000
)
 
(57,000
)
Repayment of long-term debt
(43,053
)
 
(7,581
)
Distributions to parent
(60,000
)
 
(70,000
)
Other financing
(1,348
)
 
(1,232
)
Net cash used in financing activities
(124,401
)
 
(23,813
)
Net decrease in cash and cash equivalents
(19,099
)
 
(3,157
)
Cash and cash equivalents at beginning of period
39,162

 
21,055

Cash and cash equivalents at end of period
$
20,063

 
$
17,898

Supplementary cash flow information
 
 
 
Interest paid, net of amount capitalized
$
36,394

 
$
36,337

Income taxes paid, net
$
565

 
$
255

Supplementary non-cash investing and financing activities
 
 
 
Accrued additions to property, plant, and equipment
$
7,639

 
$
21,480

Decreases in property, plant, and equipment
$
227

 
$

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

 
$
176,244

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

 
 


23


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

CLECO POWER
 
Condensed Consolidated Statements of Changes in Member's Equity (Unaudited)
(THOUSANDS)
MEMBER’S
EQUITY

 
AOCI

 
TOTAL MEMBER’S
EQUITY

Balances, Dec. 31, 2014
$
1,563,146

 
$
(17,288
)
 
$
1,545,858

Other comprehensive income, net of tax

 
307

 
307

Distributions to parent
(60,000
)
 

 
(60,000
)
Net income
60,418

 

 
60,418

Balances, June 30, 2015
$
1,563,564

 
$
(16,981
)
 
$
1,546,583

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

 
 

 
 




24


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

Index to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements of Registrants
 
 
 
Note 1
Summary of Significant Accounting Policies
Cleco Corporation and Cleco Power
Note 2
Recent Authoritative Guidance
Cleco Corporation and Cleco Power
Note 3
Regulatory Assets and Liabilities
Cleco Corporation and Cleco Power
Note 4
Fair Value Accounting
Cleco Corporation and Cleco Power
Note 5
Debt
Cleco Corporation and Cleco Power
Note 6
Pension Plan and Employee Benefits
Cleco Corporation and Cleco Power
Note 7
Income Taxes
Cleco Corporation and Cleco Power
Note 8
Disclosures about Segments
Cleco Corporation
Note 9
Electric Customer Credits
Cleco Corporation and Cleco Power
Note 10
Variable Interest Entities
Cleco Corporation and Cleco Power
Note 11
Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees
Cleco Corporation and Cleco Power
Note 12
Affiliate Transactions
Cleco Corporation and Cleco Power
Note 13
Accumulated Other Comprehensive Loss
Cleco Corporation and Cleco Power
Note 14
Coughlin Transfer
Cleco Corporation and Cleco Power
Note 15
Agreement and Plan of Merger
Cleco Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements of Cleco include the accounts of Cleco and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.

Basis of Presentation
The Condensed Consolidated Financial Statements of Cleco Corporation and Cleco Power have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these Condensed Consolidated Financial Statements do not include all of the information and notes required by GAAP for annual financial statements. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements. Because the interim Condensed Consolidated Financial Statements and the accompanying notes do not include all of the information and notes required by GAAP for annual financial statements, the Condensed Consolidated Financial Statements and other information included in this quarterly report should be read in conjunction with the Consolidated Financial Statements and accompanying notes in the Registrants’ Combined Annual Report on Form 10-K for the year ended December 31, 2014.
These Condensed Consolidated Financial Statements, in the opinion of management, reflect all normal recurring adjustments that are necessary to fairly present the financial position and results of operations of Cleco. Amounts reported in Cleco’s interim financial statements are not necessarily indicative of amounts expected for the annual periods due to the effects of seasonal temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, discrete income tax items, and other factors.
 
In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. For information on recent authoritative guidance and its effect on financial results, see Note 2 — “Recent Authoritative Guidance.”

Unbilled Revenue
Cleco Power accrues estimated revenue monthly for energy used by customers but not yet billed. The monthly estimated unbilled revenue amounts are recorded as unbilled revenue and a receivable. During the third quarter of 2014, Cleco Power began using actual customer energy consumption data available from its installation of AMI to calculate unbilled revenues.

Property, Plant, and Equipment
Property, plant, and equipment consists primarily of regulated utility generation and energy transmission and distribution assets. Regulated assets, utilized primarily for retail operations and electric transmission and distribution, are stated at the cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. Jointly owned assets are reflected in property, plant, and equipment at Cleco Power’s share of the cost to construct or purchase the assets.
Cleco’s property, plant, and equipment consisted of:
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Regulated utility plants
$
4,534,234

 
$
4,495,490

Other
14,217

 
13,470

Total property, plant, and equipment
4,548,451

 
4,508,960

Accumulated depreciation
(1,489,864
)
 
(1,442,960
)
Net property, plant, and equipment
$
3,058,587

 
$
3,066,000



25


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

Restricted Cash and Cash Equivalents
Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes. Cleco’s restricted cash and cash equivalents consisted of:
(THOUSANDS)
AT JUNE 30, 2015

 
AT DEC. 31, 2014

Current:
 
 
 
Cleco Katrina/Rita’s storm recovery bonds
$
8,342


$
8,986

Non-current:
 
 
 
Diversified Lands’ mitigation escrow
21

 
21

Cleco Power’s future storm restoration costs
15,542

 
14,915

Cleco Power’s building renovation escrow
252

 
194

Non-current total
15,815

 
15,130

Total restricted cash and cash equivalents
$
24,157

 
$
24,116


Cleco Katrina/Rita has the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash is collected, it is restricted for payment of administration fees, interest, and principal on storm recovery bonds. During the six months ended June 30, 2015, Cleco Katrina/Rita collected $10.1 million net of administration fees. In March 2015, Cleco Katrina/Rita used $8.1 million for a scheduled storm recovery bond principal payment and $2.6 million for related interest.

Fair Value Measurements and Disclosures
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power are required to disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes under GAAP. For more information about fair value levels, see Note 4 — “Fair Value Accounting.”

Risk Management
Market risk inherent in Cleco’s market risk-sensitive instruments and positions includes potential changes in value arising from changes in interest rates and the commodity market prices of power, FTRs, and natural gas in the industry on different energy exchanges. Cleco’s Energy Market Risk Management Policy authorizes the use of various derivative instruments, including exchange traded futures and option contracts, forward purchase and sales contracts, and swap transactions to reduce exposure to fluctuations in the price of power, FTRs, and natural gas. Cleco applies the authoritative guidance as it relates to derivatives and hedging to determine whether the market risk-sensitive instruments and positions are required to be marked-to-market. With the exception of FTRs, Cleco Power’s market risk-sensitive instruments and positions qualify for the normal-purchase, normal-sale exception to mark-to-market accounting because Cleco Power takes physical delivery and the instruments and positions are used to satisfy customer requirements.
Cleco Power may also enter into risk mitigating positions that would not meet the requirements of a normal-purchase, normal-sale transaction in order to attempt to mitigate the volatility in customer fuel costs. These positions are marked-to-market with the resulting gain or loss recorded on Cleco and
 
Cleco Power’s Condensed Consolidated Balance Sheets as a component of energy risk management assets or liabilities. Such gain or loss is deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. When these positions close, actual gains or losses are included in the FAC and reflected on customers’ bills as a component of the fuel cost adjustment. There were no open natural gas positions at June 30, 2015, or December 31, 2014. In June 2015, the LPSC approved a long-term natural gas hedging pilot program that requires Cleco Power to establish a proposal for a long-term natural gas procurement program that will be designed to provide gas price stability for a minimum of five years. This proposal is required to be submitted to the LPSC by June 30, 2018.
Cleco Power purchases the majority of its FTRs in annual auctions facilitated by MISO during the second quarter of each year and may also purchase additional FTRs in monthly auctions facilitated by MISO. FTRs are derivative instruments which represent economic hedges of future congestion charges that will be incurred in serving Cleco Power’s customer load. FTRs are not designated as hedging instruments for accounting purposes. Cleco Power initially records FTRs at their estimated fair value and subsequently adjusts the carrying value to their estimated fair value at the end of each accounting period based on the most recent MISO FTR auction prices. Unrealized gains or losses on FTRs held by Cleco Power are included in Accumulated deferred fuel on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets. Realized gains or losses on settled FTRs are recorded in Electric operations or Power purchased for utility customers on Cleco and Cleco Power’s Condensed Consolidated Statements of Income. At June 30, 2015, Cleco and Cleco Power’s Condensed Consolidated Balance Sheets reflected the fair value of open FTR positions of $22.5 million in Energy risk management assets and $0.5 million in Energy risk management liabilities, compared to $10.8 million in Energy risk management assets and $0.8 million in Energy risk management liabilities at December 31, 2014. For more information on FTRs, see Note 4 — “Fair Value Accounting — Derivatives and Hedging — Commodity Contracts.”
Cleco and Cleco Power maintain a master netting agreement policy and monitor credit risk exposure through review of counterparty credit quality, counterparty credit exposure, and counterparty concentration levels. Cleco manages these risks by establishing appropriate credit and concentration limits on transactions with counterparties and by requiring contractual guarantees, cash deposits, or letters of credit from counterparties or their affiliates, as deemed necessary. Cleco Power has agreements in place with counterparties that authorize the netting of financial buys and sells and contract payments to mitigate credit risk for transactions entered into for risk management purposes.
Cleco may enter into contracts to mitigate the volatility in interest rate risk. These contracts include, but are not limited to, interest rate swaps and treasury rate locks.

Accounting for MISO Transactions
Cleco Power participates in MISO’s Energy and Operating Reserve market where hourly sales and purchases are netted. If the hourly activity nets to sales, the result is reported in Electric operations on Cleco and Cleco Power’s Condensed Consolidated Statements of Income. If the hourly activity nets to purchases, the result is reported in Power purchased for


26


CLECO CORPORATION
 
 
CLECO POWER
 
2015 2ND QUARTER FORM 10-Q

utility customers on Cleco and Cleco Power’s Condensed Consolidated Statements of Income.

 
Earnings per Average Common Share
The following tables show the calculation of basic and diluted earnings per share:

 
 
 
 
 
 

 
FOR THE THREE MONTHS ENDED JUNE 30,
 
 
 

 
 

 
2015

 
 

 
 

 
2014

(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
INCOME

 
SHARES

 
PER SHARE
AMOUNT

 
INCOME

 
SHARES

 
PER SHARE
AMOUNT

Basic net income applicable to common stock
$
30,234

 
60,480,684

 
$
0.50

 
$
36,633

 
60,359,949

 
$
0.61

Effect of dilutive securities
 
 
 
 
 
 
 

 
 

 
 

Add: restricted stock (LTICP)
 
 
320,122

 
 
 
 

 
266,186

 
 

Diluted net income applicable to common stock
$
30,234

 
60,800,806

 
$
0.50

 
$
36,633

 
60,626,135

 
$
0.60

 
 
 
 
 
 

 
FOR THE SIX MONTHS ENDED JUNE 30,
 
 
 

 
 

 
2015

 
 

 
 

 
2014

(THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
INCOME

 
SHARES

 
PER SHARE
AMOUNT

 
INCOME

 
SHARES

 
PER SHARE
AMOUNT

Basic net income applicable to common stock
$
57,156

 
60,470,989

 
$
0.95

 
$
62,557

 
60,424,591

 
$
1.04

Effect of dilutive securities
 
 
 
 
 
 
 

 
 

 
 

Add: restricted stock (LTICP)
 
 
305,746

 
 
 
 

 
253,435

 
 

Diluted net income applicable to common stock
$
57,156

 
60,776,735

 
$
0.94

 
$
62,557

 
60,678,026

 
$
1.03


Stock-Based Compensation
At June 30, 2015, Cleco had two stock-based compensation plans: the ESPP and the LTICP. In accordance with the Merger Agreement, the ESPP has been suspended and will be cancelled upon the completion of the Merger.
Pursuant to the LTICP, options or restricted shares of stock, also known as non-vested stock, common stock equivalents, and stock appreciation rights may be granted to certain officers, key employees, or directors of Cleco Corporation and its subsidiaries. During the six months ended June 30, 2015, Cleco granted 90,050 shares of non-vested stock to certain officers and key employees of Cleco Corporation and its subsidiaries pursuant to the LTICP. Upon
 
the completion of the Merger, all unvested shares outstanding under the LTICP that were granted prior to January 1, 2015, will vest at target and be paid out in cash to plan participants in accordance with the terms of the Merger Agreement. Unvested shares that were granted in 2015 will be prorated to the target amount and be paid out in cash to plan participants in accordance with the terms of the Merger Agreement. For more information about the Merger, see Note 15 — “Agreement and Plan of Merger.”