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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20222023
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
__________________
Commission file number 1-15759
CLECO CORPORATE HOLDINGS LLC
(Exact name of registrant as specified in its charter) | | | | | | | | |
| Louisiana | | 72-1445282 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (318) 484-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
__________________
Commission file number 1-05663
CLECO POWER LLC
(Exact name of registrant as specified in its charter) | | | | | | | | |
| Louisiana | | 72-0244480 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (318) 484-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Cleco Power LLC, a wholly owned subsidiary of Cleco Corporate Holdings LLC, meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.
Indicate by check mark if Cleco Corporate Holdings LLC is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if Cleco Power LLC is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if Cleco Corporate Holdings LLC is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o
Indicate by check mark if Cleco Power LLC is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes x No o
Indicate by check mark whether Cleco Corporate Holdings LLC: (1) has 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 Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether Cleco Power LLC: (1) has 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 Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes o No x
Indicate by check mark whether the Registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files). Yes x No o
Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the RegistrantCleco Corporate Holdings LLC has elected not to use the extended transition period for complying with any new or revise accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrantCleco Corporate Holdings LLC has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the RegistrantCleco Power LLC has elected not to use the extended transition period for complying with any new or revise accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether Cleco Power LLC has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrantRegistrants included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’sRegistrants’ executive officers during the relevant recovery period pursuant to § 240.10D-1(b). o
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No x
Cleco Corporate Holdings LLC has no common stock outstanding. All of the outstanding equity of Cleco Corporate Holdings LLC is held by Cleco Group LLC, a wholly owned subsidiary of Cleco Partners L.P.
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
This Combined Annual Report on Form 10-K (this “Annual Report on Form 10-K”) is separately filed by Cleco Corporate Holdings LLC and Cleco Power LLC. Information in this filing relating to Cleco Power LLC is filed by Cleco Corporate Holdings LLC and separately by Cleco Power LLC on its own behalf. Cleco Power LLC makes no representation as to information relating to Cleco Corporate Holdings LLC (except as it may relate to Cleco Power LLC) or any other affiliate or subsidiary of Cleco Corporate Holdings LLC.
This Annual Report on Form 10-K should be read in its entirety as it pertains to each respective Registrant. The Notes to the Financial Statements for the Registrants and certain other sections of this Annual Report on Form 10-K are combined.
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
References in Part III, Item 11 in this filing to “the Company” mean Cleco Corporate Holdings LLC, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this filing, including all items in Parts I, II, III, and IV are defined below:
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| ABBREVIATION OR ACRONYM | DEFINITION |
| 2016 Merger | Merger of Merger Sub with and into Cleco Corporation pursuant to the terms of the Merger Agreement which was completed on April 13, 2016 |
| 2016 Merger Commitments | Cleco Partners’, Cleco Group’s, Cleco Holdings’, and Cleco Power’s 77 commitments to the LPSC as defined in Docket No. U-33434 |
| 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 LIBORSOFR plus 1.0% |
| Acadia | Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.2014 |
| Acadia Unit 1 | Cleco Power’s 580-MW, natural gas-fired, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana |
| Acadia Unit 2 | Entergy Louisiana’s 580-MW, natural gas-fired, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power |
| ACE | Affordable Clean Energy |
| ADIT | Accumulated Deferred Income Tax |
| 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 |
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| BCI | British Columbia Investment Management Corporation |
| Big Cajun II | Cleco Cajun’s generating facility located in New Roads, Louisiana consisting of Unit 1, Unit 2, and Unit 3. Cleco Cajun has a 58% ownership interest in the capacity of Unit 3.3 |
| Big Cajun II, Unit 1 | A 580-MW coal-fired, steam generating unit at Cleco Cajun’s plant site in New Roads, Louisiana.Louisiana |
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| Brame Energy Center | A facility consisting of Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 |
| CAA | Clean Air Act |
| CARES Act | Coronavirus Aid, Relief, and Economic Security Act of March 2020
| CCR | Coal combustion by-products or residual |
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| CECL | Current Expected Credit Losses
| CEO | Chief Executive Officer |
| CFO | Chief Financial Officer |
| CIP | Critical Infrastructure Protection |
| Cleco | Cleco Holdings and its subsidiaries |
| Cleco Cajun | Cleco Cajun LLC, a wholly owned subsidiary of Cleco Holdings, and its subsidiaries |
Cleco Cajun TransactionAcquisition | The transaction between Cleco Cajun and NRG Energy in which Cleco Cajun acquired all the membership interest in South Central Generating, which closed on February 4, 2019, pursuant to the Cleco Cajun Acquisition Purchase and Sale Agreement, which includes the Cottonwood Sale Leaseback |
| Cleco Cajun Acquisition Purchase and Sale Agreement | Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, South Central Generating, and Cleco Cajun |
| Cleco Cajun Divestiture | The sale of the Cleco Cajun Sale Group in which the Cleco Cajun Sellers entered into the Cleco Cajun Divestiture Purchase and Sale Agreement with the Cleco Cajun Purchasers |
| Cleco Cajun Divestiture Purchase and Sale Agreement | Purchase and Sale Agreement, dated as of November 22, 2023, by and among the Cleco Cajun Purchasers and the Cleco Cajun Sellers |
| Cleco Cajun Purchasers | Big Pelican LLC and Pelican South Central LLC, affiliates of Atlas Capital Resources IV LP |
| Cleco Cajun Sale Group | Cleco Cajun’s unregulated utility business for which the Cleco Cajun Sellers entered into the Cleco Cajun Divestiture Purchase and Sale Agreement with the Cleco Cajun Purchasers |
| Cleco Cajun Sellers | Cleco Cajun and South Central Generating |
| Cleco Corporation | Pre-2016 Merger entity that was converted to a limited liability company and changed its name to Cleco Corporate Holdings LLC on April 13, 2016 |
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| Cleco Group | Cleco Group LLC, a wholly owned subsidiary of Cleco Partners |
| Cleco Holdings | Cleco Corporate Holdings LLC, a wholly owned subsidiary of Cleco Group |
| Cleco Katrina/Rita | Cleco Katrina/Rita Hurricane Recovery Funding LLC, a wholly owned subsidiary of Cleco Power. Cleco Katrina Rita Hurricane Recovery Funding LLC was dissolved effective January 5, 2023.2023 |
| Cleco Partners | Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by MAM, BCI, John Hancock Financial, and other infrastructure investors |
| Cleco Power | Cleco Power LLC and its subsidiaries, a wholly owned subsidiary of Cleco Holdings |
| Cleco Securitization I | Cleco Securitization I LLC, a special-purpose, wholly owned subsidiary of Cleco Power |
CO2 | Carbon dioxide |
| Como 1 | Como 1, L.P., currently known as Cleco Partners |
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
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| ABBREVIATION OR ACRONYM | DEFINITION |
| Consent Decree | The Consent Decree, entered March 5, 2013, in Civil Action No. 09-100-JJB-DLD, U.S. District Court for the Middle District of Louisiana, by and among the EPA, the LDEQ, and Louisiana Generating relating to Big Cajun II, Unit 1 located in New Roads, Louisiana |
| Cottonwood Energy | Cottonwood Energy Company LP, a wholly owned subsidiary of Cleco Cajun. Prior to the closing of the Cleco Cajun TransactionAcquisition on February 4, 2019, Cottonwood Energy was an indirect subsidiary of South Central Generating.Generating |
| Cottonwood Plant | Cleco Cajun’s 1,263-MW, natural-gas-fired, combined cycle generating station located in Deweyville, Texas |
| Cottonwood Sale Leaseback | A lease agreement executed and delivered between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy pursuant to which NRG Energy will lease back the Cottonwood Plant and will operate it until no later than May 2025.2025 |
| Coughlin | Cleco Power’s 775-MW, combined-cyclenatural gas-fired, combined cycle power plant located in St. Landry, Louisiana |
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
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ABBREVIATION OR ACRONYM | DEFINITION |
| COVID-19 | Coronavirus disease 2019, including any variant thereof, and the related global outbreak that was subsequently declared a pandemic by WHOthe World Health Organization in March 2020 |
| CPP | Clean Power Plan |
| CSAPR | Cross-State Air Pollution Rule |
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| DHLC | Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO |
| Diversified Lands | Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings |
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| Dolet Hills | A facility consisting of Dolet Hills Power Station, the Dolet Hills mine, and the Oxbow mine |
| Dolet Hills Power Station | A 650-MW lignite-fired, steam generating unit at Cleco Power’s plant site in Mansfield, Louisiana. Cleco Power has a 50% ownership interest in the capacity of the Dolet Hills Power Station. The Dolet Hills Power Station was retired on December 31, 2021.2021 |
| EAC | Environmental Adjustment Clause |
| EAF | Equivalent Availability Factor |
| EBITDA | Earnings before interest, income taxes, depreciation, and amortization |
| EGU | Electric Generating Unit |
| EFORd | Equivalent Forced Outage Rate on demand |
| EMT | Executive Management Team |
| Entergy Gulf States | Entergy Gulf States Louisiana, LLC |
| Entergy Louisiana | Entergy Louisiana, LLC |
| EPA | U.S. Environmental Protection Agency |
| ERO | Electric Reliability Organization |
| ESG | Environmental, Social, and Governance |
| Evangeline | Cleco Evangeline LLC, a wholly owned subsidiary of Midstream. Cleco Evangeline LLC was dissolved effective July 29, 2021.2021 |
| FAC | Fuel Adjustment Clause |
| FASB | Financial Accounting Standards Board |
| FEED | Front End Engineering Design |
| FERC | Federal Energy Regulatory Commission |
| Fitch | Fitch Ratings, a credit rating agency |
| FTR | Financial Transmission Right |
| FRP | Formula Rate Plan |
| GAAP | Generally Accepted Accounting Principles in the U.S. |
| GHG | Greenhouse gas |
| GO Zone | Gulf Opportunity Zone Act of 2005 (Public Law 109-135) |
| IRA of 2022 | Federal tax legislation commonly referred to as the Inflation Reduction Act of 2022 |
| IRC | Internal Revenue Code |
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| IRS | Internal Revenue Service |
| ISO | Independent System Operator |
| kWh | Kilowatt-hour(s) |
| LCFC | Lost Contribution to Fixed Cost |
| LDEQ | Louisiana Department of Environmental Quality |
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| LIBOR | London Interbank Offered Rate |
| LMP | Locational Marginal Price |
| Louisiana Generating | Louisiana Generating, LLC, a wholly owned subsidiary of South Central Generating |
| LPSC | Louisiana Public Service Commission |
| LTIP | Long-Term Incentive Plan |
| LTSA | Long-Term Parts and Service Agreement between Cottonwood Energy and a third party, dated January 19, 2001, that Cleco Cajun assumed as a result of the Cleco Cajun TransactionAcquisition to provide maintenance services related to the Cottonwood Plant |
| Madison Unit 3 | A 641-MW petroleum coke/coal-fired, steam generating unit at Cleco Power’s plant site in Boyce, Louisiana |
| MAM | Macquarie Asset Management |
| MATS | Mercury and Air Toxics Standards |
| Merger Agreement | Agreement and Plan of Merger, dated as of October 17, 2014, by and among Cleco Partners, Merger Sub, and Cleco Corporation relating to the 2016 Merger |
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
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| ABBREVIATION OR ACRONYM | DEFINITION |
| Merger Sub | Cleco MergerSub Inc., previously an indirect wholly owned subsidiary of Cleco Partners that was merged with and into Cleco Corporation, with Cleco Corporation surviving the 2016 Merger, and Cleco Corporation converting to a limited liability company and changing its name to Cleco Holdings |
| Midstream | Cleco Midstream Resources LLC, a wholly owned subsidiary of Cleco Holdings |
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| MISO | Midcontinent Independent System Operator, Inc. |
| MMBtu | One million British thermal units |
| Moody’s | Moody’s Investors Service, a credit rating agency |
| MW | Megawatt(s) |
| MWh | Megawatt-hour(s) |
| N/A | Not Applicable |
| NAAQS | National Ambient Air Quality Standards |
| NERC | North American Electric Reliability Corporation |
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
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ABBREVIATION OR ACRONYM | DEFINITION |
| NMTC | New Markets Tax Credit |
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| Not Meaningful | A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000% |
NO2 | Nitrogen dioxide |
NOx | Nitrogen oxide |
| NRG Energy | NRG Energy, Inc. |
| NRG South Central | NRG South Central Generating LLC |
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| NSPS | New Source Performance Standards |
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| Other Benefits | Includes medical, dental, vision, and life insurance for Cleco’s retirees |
| Oxbow | Oxbow Lignite Company, LLC, 50% owned by Cleco Power and 50% owned by SWEPCO |
| Paris Agreement | The Paris Agreement, often referred to as the Paris Accords or the Paris Climate Accords, is an international treaty on climate change, adopted in 2015. It covers climate change mitigation, adaptation, and finance.finance |
| PCB | Polychlorinated biphenyl |
| Perryville | Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings. Perryville Energy Partners, L.L.C. was dissolved effective September 8, 2021.2021 |
| ppb | Parts per billion |
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| Project Diamond Vault | Cleco Power's project to construct a carbon capture and sequestration facility at the Brame Energy Center |
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Purchase and Sale Agreement | Purchase and Sale Agreement, dated as of February 6, 2018, by and among NRG Energy, South Central Generating, and Cleco Cajun |
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| Registrant(s) | Cleco Holdings and/or Cleco Power |
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| Rodemacher Unit 2 | A 523-MW coal-fired, steam generating unit at Cleco Power’s plant site in Boyce, Louisiana. Cleco Power has a 30% ownership interest in the capacity of Rodemacher Unit 2.2 |
| ROE | Return on Equity |
| ROIC | Return on Invested Capital |
| ROU | Right of Use |
| RTO | Regional Transmission Organization |
| S&P | S&P Global Ratings, a division of S&P Global Inc, a credit rating agency |
| SAIDI | System Average Interruption Duration Index |
| SEC | U.S. Securities and Exchange Commission |
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| SERC | SERC Reliability Corporation |
| SERP | Supplemental Executive Retirement Plan |
| SIP | State Implementation Plan |
SO2 | Sulfur dioxide |
| SOFR | Secured Overnight Financing Rate as administered by the Federal Reserve Bank of New York |
| South Central Generating | South Central Generating LLC, formerly NRG South Central Generating LLC, a wholly owned subsidiary of Cleco Cajun |
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| START | Strategic Alignment and Real-Time Transformation
| STIP | Short-Term Incentive Plan |
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| Storm Recovery Property | Storm Recovery Property as defined in the financing order issued by the LPSC in April 2022, which includes the right to impose, bill, charge, collect, and receive unamortized storm recovery costs from Cleco Power’s retail customers.customers |
| Support Group | Cleco Support Group LLC, a wholly owned subsidiary of Cleco Holdings |
| SWEPCO | Southwestern Electric Power Company, an electric utility subsidiary of American Electric Power Company, Inc. |
| TCJA | Federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 |
| Teche Unit 3 | A 359-MW natural gas-fired, steam generating unit at Cleco Power’s plant site in Baldwin, Louisiana |
| WHO | World Health Organization
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
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| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
This Annual Report on Form 10-K includes forward-looking statements. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements, including, without limitation, future capital expenditures; business strategies; goals, beliefs, plans, and objectives; competitive strengths; market developments; development and operation of facilities; growth in sales volume; meeting capacity requirements; expansion of service to existing customers and service to new customers; future environmental regulations and remediation liabilities; electric customer credits; and the anticipated outcome of various regulatory and legal proceedings. Although the Registrants believe that the expectations reflected in such forward-looking statements are reasonable, such forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from the Registrants’ expectations. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements in this Annual Report on Form 10-K, 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:
•resolution of pending, upcoming, or future rate cases and related litigation, formula rate proceedings, and related negotiations, as well as delays in cost recovery resulting from these proceedings,
•the ability to close the Cleco Cajun Divestiture according to the terms of the Cleco Cajun Divestiture Purchase and Sale Agreement in the expected time frame or at all,
•changes in environmental laws, regulations, decisions and policies, including present and potential environmental remediation costs, restrictions on greenhouse gasGHG emissions, possible effects on Cleco’s generation resources, or prohibitions or restrictions on new or existing services, and Cleco’s compliance with these matters,
•state and federal regulatory decisions or related judicial decisions disallowing or delaying recovery of capital investments, operating costs, commodity costs, and the ordering of refunds to customers and discretion over allowed return on investment,
•the loss of regulatory accounting treatment, which could result in the write-off of regulatory assets and the loss of regulatory deferral and recovery mechanisms,
•economic, regulatory, or workforce impacts related to pandemics, epidemics, or other outbreaks,
•economic impacts related to conflicts and hostilities, including the current armed conflict in Ukraine and the Middle East,
•the possibility of stranded costs with respect to assets that may be retired as a result of new climate legislation or regulations, technological advances, a shift in demand, or legal action, and Cleco Power’s ability to recover stranded costs associated with these events,
•changes in climate and weather conditions, including natural disasters such as wind and ice storms, hurricanes, floods, droughts, and droughts,wildfires, and Cleco Power’s ability to recover restoration and stranded costs associated with these events,
•the ability of Cleco’s customers to pay their utility bills on time due to costs related to risingvolatile fuel prices, severe weather recoveries, or the costs of other events that are passed through to Cleco Power’s customers,
•economic conditions in Cleco’s service areas, including inflation and the economy’s effects on customer demand for and payment of utility services,
•Cleco’s ability to recontract existing power purchase agreements or secure future power purchase agreements with wholesale customers,
•mechanical breakdowns or other incidents that could impair assets and disrupt operations of any of Cleco’s generation facilities, transmission and distribution systems, or other operations and may require Cleco to purchase replacement power or incur costs to repair the facilities,
•growth or decline of Cleco’s customer base, or decline in existing services, including the loss of key suppliers for fuel, materials, or services, or other disruptions to the supply chain,
•wholesale and retail competition, including alternative energy sources, growth in customer-owned power resource technologies that displace utility-supplied energy or that may be sold back to the utility, and alternative energy suppliers and delivery arrangements,
•blackouts or disruptions of interconnected transmission systems (the regional power grid),
•terrorist attacks, cyberattacks, or other malicious acts that may damage or disrupt operating or information technology systems,
•changes in technology costs that impede Cleco’s ability to effectively implement new information systems or to operate and maintain current production technology,
•changes in Cleco’s strategic business plans and/or key initiatives, which could be affected by any of the factors discussed herein,
•the impact of Cleco’s credit ratings, changes in interest rates, other capital market conditions, and global market conditions on financing through the issuance of debt and/or equity securities,
•the ability of Cleco to raise capital or secure funding, such as debt financing, private equity investment, tax credits, U.S. Department of Energy grants or loans, or partnerships, to execute its renewables and electrification initiatives,
•changes to federal income tax laws, regulations, and interpretive guidance, including the IRA of 2022,
•failure to meet expectations and report progress on ESG initiatives and GHG targets, as well as the increased focus on and activism related to ESG, which could limit Cleco’s access to capital and/or financing,
•declining energy demand related to customer energy efficiency, conservation measures, technological advancements, or increased distributed generation, or changes in customers’ operating or business models,
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
•industry and geographic concentrations of Cleco’s counterparties, suppliers, and customers,
•volatility and illiquidity in wholesale energy markets,
•default or nonperformance on the part of any parties from whom Cleco purchases and/or sells capacity, energy, or fuel, or with whom Cleco enters into derivative contracts,
•Cleco Holdings’ and Cleco Power’s ability to remain in compliance with their respective debt covenants,
•the outcome of legal and regulatory proceedings and other contingencies,
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
•changes in actuarial assumptions, interest rates, and the actual return on plan assets for Cleco’s pension and other postretirement benefit plans,
•insufficient insurance coverage, more restrictive coverage terms, increasing insurance cost, and Cleco’s ability to obtain insurance,
•Cleco’s ability to remain in compliance with the commitments made to the LPSC in connection with the Cleco Cajun TransactionAcquisition and the 2016 Merger,
•Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations, and
•workforce factors, including aging workforce, changes in key members of management, availability of workers in a variety of skill areas, and Cleco’s ability to attract, recruit, and retain qualified employees.
For more discussion of these factors and other factors that could cause actual results to differ materially from those
contemplated in the Registrants’ forward-looking statements,
see Part I, Item 1A, “Risk Factors” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Comparison of the Years Ended December 31, 2022,2023, and 20212022 — Cleco Power — Significant Factors Affecting Cleco Power” in this Annual Report on Form 10-K.
All subsequent written and oral forward-looking statements attributable to the Registrants, or persons acting on their
behalf, are expressly qualified in their entirety by the factors identified above.
Any forward-looking statement is considered only as of the date of this Annual Report on Form 10-K and, except as required by law, the Registrants undertake no obligation to update any forward-looking statements, whether as a result of changes in actual results, changes in assumptions, or other factors affecting such statements.
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Cleco Holdings is a public utility holding company that holds investments in several subsidiaries, including Cleco Power and Cleco Cajun. Cleco Holdings, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to provisions of the Public Utility Holding Company Act of 2005. Cleco Holdings’ predecessor was incorporated on October 30, 1998, under the laws of the state of Louisiana. In 2016, Cleco Holdings became a direct, wholly owned subsidiary of Cleco Group and an indirect, wholly owned subsidiary of Cleco Partners.
Cleco Power is a regulated electric utility engaged principally in the generation, transmission, distribution, and sale of electricity within Louisiana. Cleco Power owns nine generating units with a total rated capacity of 3,035 MW and serves approximately 293,000295,000 customers in Louisiana through its retail business. Additionally, Cleco Power supplies wholesale power in Louisiana and Mississippi.Louisiana. Cleco Power was organized as a limited liability company under the laws of the state of Louisiana on December 12, 2000. Cleco Power’s predecessor was incorporated on January 2, 1935, under the laws of the state of Louisiana.
Cleco Cajun, organized as a limited liability company on December 28, 2017, under the laws of the state of Louisiana, is an unregulated electric utility that owns 14 generating units with a total rated capacity of 3,379 MW and supplies wholesale contracts servingpower and capacity in Louisiana. On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. As a mixture of wholesale customers, which consists of electric cooperatives, a municipal body, a utility,result, the Cleco Cajun Sale Group is presented as discontinued operations, and a non-profit corporation.the financial information for historical periods provided in this Annual Report on Form 10-K have been recast to reflect this presentation. For more information, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — “Discontinued Operations.”
Cleco’s and Cleco Power’s mailing address is P.O. Box 5000, Pineville, Louisiana 71361-5000, and its telephone number is (318) 484-7400. Cleco’s website is located at https://www.cleco.com. Cleco’s and Cleco Power’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the SEC are available, free of charge, through Cleco’s website after those reports or filings are filed electronically with or furnished to the SEC. Cleco’s electronically filed reports can also be obtained on the SEC’s website located at https://www.sec.gov. Cleco’s Governance Guidelines, Code of Conduct for Financial Managers, Ethics Guide, Conflicts of Interest and Related Policies, and the charters of its Boards of Managers’ Audit, Leadership Development and Compensation, Business Planning and Budget Review, Governance and Public Affairs, and Asset Management committeesCommittees are available on its website and available in print upon request. Information on Cleco’s website or any other website is not incorporated by reference into this
Annual Report on Form 10-K and does not constitute a part of this Annual Report on Form 10-K.
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 Annual Report on Form 10-K the information called for by the following Part II item of Form 10-K: 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, Executive Officers, and Corporate Governance of the Registrants), 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, and Director Independence).
Cleco’s key human capital management objectives are to attract, retain, and develop top talent while providing a diverse, inclusive, healthy, and safe workplace. Cleco’s programs are designed to create a high-performing, diverse workforce; reward and support employees through competitive pay and benefits, as well as safety and wellness programs; enhance culture through efforts aimed at making the workplace more engaging and inclusive; facilitate programs that build connections between employees and communities; and evolve and invest in technology, tools, and resources to enable employees at work.
As of December 31, 2022,2023, Cleco employed 1,3301,365 employees, of whom 1,0801,108 were professional, technical and craft employees, 127131 were field management, and 123126 were corporate management. At December 31, 2022,2023, Cleco Power employed 779794 employees, of whom 666680 were professional, technical and craft employees, 8382 were field management, and 3032 were corporate management. All of these employees were full-time. Approximately 9% of Cleco’s employees are covered by collective bargaining agreements. Cleco has not experienced strikes or work stoppages and believes it has good relations with its employees.
Diversity and Inclusion
Cleco believes that diverse teams working in an inclusive environment are the primary drivers of better employee engagement, increased innovation, and higher customer satisfaction. With greater workplace diversity and inclusion, Cleco seeks to create the conditions for high performing teams to do their best work. Cleco’s efforts have been focused in three areas: making observable changes in leadership diversity and inclusion behaviors; Employee Resource Group (ERG) advisory;behaviors and strengthening an inclusive culture. The following are some of Cleco’s diversity and inclusion achievements related to such focus areas:
•Cleco’s Chief Human Resources and Diversity Officer was named an IDEAL (Inclusive, Diverse, Equitable, Accessible, and Learning) Black Woman Leader by Icarus Consulting LLC in February 2022 and was also named a Top 100 Human Resources Professional in April 2022 by the Energy Diversity and Inclusion Council,
•empoweredcontinued empowerment of the Cleco Diversity and Inclusion Culture Council as a group of leaders to leverage diversity and inclusion to help make Cleco’s business stronger,
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| CLECO POWER | | 2023 FORM 10-K |
•committed to the pledge for CEO Action for Diversity & Inclusion to communicate a commitment to diversity and inclusion actions,
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CLECO POWER | | 2022 FORM 10-K |
•completed implicit bias awareness training with 100% participationcontinued to increase awareness of implicit bias and enhance the ability to manage diverse work teams in an inclusive work environment,
•increased diversity and inclusion communications internally and externally, specifically as it relates to ESG. Internally, a live, virtual panel of Cleco executives spoke about managing a multi-generational workforce. Externally, Cleco continues to celebrate diversity in the communities in which it serves,
•ERG continued to engage employees and allies in providing their perspective on thoughts and issues to drive exposure and development, and
•continued to fund the Power of a Promise Scholarship to educate and employ underrepresented minorities and females in the central Louisiana area as well as sponsor the Diversity Scholars Program.area.
Health, Safety, and Wellness
The success of Cleco’s business is fundamentally connected to the well-being of its employees. Accordingly, Cleco is committed to the health, safety, and wellness of its employees.
Cleco has a strong safety culture and continues to develop programs to ensure its employees are safe at work and away from work. Cleco strives to improve its safety culture in an effort to be a “world class”world-class safety organization with top decile performance compared to peer companies with the goal of reaching a target of zero for injuries and accidents. To accomplish this goal, Cleco continues to implement several safety initiatives throughout the organization aimed at both leading and lagging indicators in an effort to reduce the number and severity of safety incidents. Cleco utilizes employee-led safety teams throughout the company to drive the safety initiatives and provide feedback to senior management. In addition to Occupational Safety and Health Administration mandated safety training, employees receive human performance and energy wheel (hazard identification) training, designed to improve total organization performance.
Cleco continues to provide its employees and their families with access to a variety of health and wellness programs, including programs that provide protection and security so they can have peace of mind concerning events that may require time away from work. Cleco also has programs that support employees’ physical and mental health by providing tools and resources to help them improve or maintain their health and encourage engagement in healthy behaviors. These include paid time off, family leave, flexible work schedules, employee assistance programs, wellness programs, tuition assistance, and on-site services, such as fitness centers, among many others.
Compensation and Benefits
Cleco is committed to offering market-competitive compensation and benefits.benefits to its employees. Its incentive plan reinforces and rewards individuals for achievement of specific company goals. This may include involvement of outside compensation advisors or use of benchmarking data. Cleco’s benefit offerings are designed to meet the varied and evolving needs of a diverse workforce and offer choice where possible so employees can customize their benefits to meet their needs and the needs of their families. These offerings include a 401(k) Plan, healthcare benefits, health savings and flexible spending accounts, and a variety of insurance options.
Talent Acquisition and Talent Development
Cleco prioritizes investing in the attraction and development of the talent needed to build a sustainable workforce. Cleco has continued to revamp its recruiting and hiring practices, technologies, and resources as well as expand its focus on continuous learning and development. Cleco utilizes industry-leading methodologies to assess performance and potential, provide coaching and feedback, and develop talent. Cleco provides a series of targeted management workshops to address leadership skill and competency gaps. Additionally,
its performance management program provides an ongoing opportunity for employees and managers to engage in continuous dialogue and coaching aligned with its annual performance review process. Cleco also hasprovides its employees with a multitude of resources, such as online learning platforms, that provide quick access to learning resources, tuition reimbursement, and executive talent and succession planning paired with a differentiated development approach.planning. Cleco also encourages employees to engage in external workshops and organizations to address individualized development needs and stay abreast of industry and position-specific best practices.
Employee Engagement
Employee sentiment is important to Cleco. The company measures this throughout the year via an employee engagement survey. One of the key metrics used is the Employee Net Promoter Score (eNPS), which is an indicator of employees’ likelihood to recommend Cleco as a place of employment to friends and/or family. Cleco strives to consistently receive a strong eNPS score year over year. Other important areas measured on the employee engagement survey include future outlook, leadership, safety, diversity and inclusion, communications, vibrancy, and goals.
Pulse, which is Cleco’s mobile, two-way communication platform for employees, allows for tracking of viewership, enables targeted messaging by employee segments, and offers key performance indicators to measure how internal communication supports Cleco’s business objectives. In support of employee engagement efforts, Pulse is the cornerstone of communication for all employees in which 95% ofall Cleco employees are registered.have access. Pulse has allowed Cleco to successfully reach employees during the COVID-19 pandemic, hurricanes, and winter storms. Pulse also enables forums on topics such as diversity and inclusion and safety.
Communities
Cleco believes that building connections between its employees and its communities creates a more meaningful, fulfilling, and enjoyable workplace. Cleco is committed to being a responsible company in the communities where it does business. Through Cleco’s technology platforms for employee giving, company matching,donation and volunteering program,programs, employees are able to find and register for volunteer opportunities within their communities and use automated payroll deductions to donate to causes they are passionate about. Cleco continues to match employee donations made to Louisiana qualifying causes dollar for dollar up to $1,000 per year per employee. Employees can also be rewarded with $10 for every hour of volunteer time, up to $500 per year. Organizations are also able to enroll in the platform in order to receive donations faster and connect with corporate giving and volunteering opportunities at Cleco. Cleco also frequently collaborates with organizations on volunteer activities for its employees. Throughout the year, employees make a positive
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CLECO POWER | | 2022 FORM 10-K |
impact in their local communities and have found a multitude of special ways to volunteer.
Oversight and Governance
Cleco’s Leadership Development and Compensation Committee, of the Board of Managers, through its charter, provides oversight of Cleco’s policies, programs, and initiatives focusing on workforce diversity and inclusion. Cleco’s Governance and Public Affairs Committee, through its charter, provides oversight of Cleco’s charitable donations, outreach, and economic development funding programs.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Certain Factors Affecting Cleco Power
As an electric utility, Cleco Power is affected by a number of factors influencing the electric utility industry in general. For more information on these factors, see Part II, Item 7,
“Management’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Comparison of the Years Ended December 31, 2022,2023, and 20212022 — Cleco Power — Significant Factors Affecting Cleco Power.”
Power Generation
As of December 31, 2022,2023, Cleco Power’s aggregate net electric generating capacity was 2,8242,822 MW. This amount
reflects the maximum production capacity these units can sustain over a specified period of time under certain conditions.
On July 13, 2022,In May 2023, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3, barring any violations of specific applicable reliability standards. On January 31, 2023,2024, Cleco Power filed a notice with the LPSC to retire Teche Unit 3.3 in June 2024.
The following table sets forth certain information with respect to Cleco Power’s generating facilities as of December 31, 2022:2023:
| | GENERATING STATION | GENERATING STATION | YEAR OF INITIAL OPERATION | RATED CAPACITY (MW) | | NET CAPACITY (MW) | (1) | PRIMARY FUEL USED
FOR GENERATION | GENERATION TYPE | GENERATING STATION | YEAR OF INITIAL OPERATION | RATED CAPACITY (MW) | | NET CAPACITY (MW) | (1) | PRIMARY FUEL USED
FOR GENERATION | GENERATION TYPE |
| Brame Energy Center | Brame Energy Center | | | | | | | Brame Energy Center | | | | | | |
| Nesbitt Unit 1 | Nesbitt Unit 1 | 1975 | | 440 | | | 424 | | | natural gas | steam | Nesbitt Unit 1 | 1975 | | 440 | 440 | | | 417 | | 417 | | | natural gas | | natural gas | steam |
| Rodemacher Unit 2 | Rodemacher Unit 2 | 1982 | | 157 | | (2) | 147 | | (2) | coal | steam | Rodemacher Unit 2 | 1982 | | 157 | 157 | | (2) | (2) | 149 | | (2) | (2) | coal | steam |
| Madison Unit 3 | Madison Unit 3 | 2010 | | 641 | | | 627 | | | petroleum coke/coal | steam | Madison Unit 3 | 2010 | | 641 | 641 | | | 637 | | 637 | | | petroleum coke/coal | | petroleum coke/coal | steam |
| Acadia Unit 1 | Acadia Unit 1 | 2002 | | 580 | | | 538 | | | natural gas | combined cycle | Acadia Unit 1 | 2002 | | 580 | 580 | | | 535 | | 535 | | | natural gas | | natural gas | combined cycle |
| Coughlin Unit 6 | Coughlin Unit 6 | 2000 | | 264 | | | 254 | | | natural gas | combined cycle | Coughlin Unit 6 | 2000 | | 264 | 264 | | | 251 | | 251 | | | natural gas | | natural gas | combined cycle |
| Coughlin Unit 7 | Coughlin Unit 7 | 2000 | | 511 | | | 481 | | | natural gas | combined cycle | Coughlin Unit 7 | 2000 | | 511 | 511 | | | 479 | | 479 | | | natural gas | | natural gas | combined cycle |
| Teche Unit 3 | Teche Unit 3 | 1971 | | 359 | | | 272 | | | natural gas | steam | Teche Unit 3 | 1971 | | 359 | 359 | | | 272 | | 272 | | | natural gas | | natural gas | steam |
| Teche Unit 4 | Teche Unit 4 | 2011 | | 33 | | | 34 | | | natural gas | combustion | Teche Unit 4 | 2011 | | 33 | 33 | | | 35 | | 35 | | | natural gas | | natural gas | combustion |
| St. Mary Clean Energy Center | St. Mary Clean Energy Center | 2019 | | 50 | | | 47 | | | waste heat | steam | St. Mary Clean Energy Center | 2019 | | 50 | 50 | | | 47 | | 47 | | | waste heat | | waste heat | steam |
| Total generating capability | Total generating capability | | 3,035 | | | 2,824 | | | | Total generating capability | | 3,035 | | | 2,822 | | 2,822 | | | | | | |
(1) Based on capacity testing of the generating units and operational tests performed between March and August 2022.October 2023. These amounts do not represent generating unit capacity for MISO planning reserve margins.
(2) Represents Cleco Power’s 30% ownership interest in the capacity of Rodemacher Unit 2, a 523-MW generating unit.
The following table sets forth the amounts of power generated by Cleco Power for the years indicated:
| | YEAR | YEAR | THOUSAND
MWh | | PERCENT OF
TOTAL ENERGY
REQUIREMENTS | YEAR | THOUSAND
MWh | | PERCENT OF
TOTAL ENERGY
REQUIREMENTS |
| 2023 | | 2023 | 10,250 | | | 83.3 | % |
| 2022 | 2022 | 10,842 | | | 87.0 | % | 2022 | 10,842 | | | 87.0 | | 87.0 | % |
| 2021 | 2021 | 10,774 | | | 90.7 | % | 2021 | 10,774 | | | 90.7 | | 90.7 | % |
| 2020 | 11,801 | | | 101.5 | % |
|
Cleco Power’s generation dispatch and transmission operations are integrated with MISO. The amount of power generated by Cleco Power is dictated by the availability of Cleco Power’s generating fleet and the manner in which MISO dispatches each generating unit. Depending on how generating units are dispatched by MISO, the amount of power generated may be greater than or less than total energy requirements. Generating units are dispatched by referencing each unit’s economic efficiency as it relates to the overall MISO market. For more information on MISO, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates.”
Fuel and Purchased Power
Changes in fuel expenses reflect fluctuations in the amount, type, and pricing of fuel used for electric generation; fuel transportation and delivery costs; and deferral of expenses for recovery from customers through Cleco Power’s FAC in subsequent months. Changes in purchased power expenses are a result of the quantity and price of economic power purchased from the MISO market. These quantity changes can be affected by Cleco plant outages and plant performance. For a discussion of certain risks associated with changes in fuel costs and their impact on utility customers, see Item 1A, “Risk Factors — OperationalFinancial Risks — Transmission Constraints”Congestion” and “— Regulatory Risks — LPSC Audits.”
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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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | |
| | | | | | LIGNITE | | | | COAL | | NATURAL GAS | | PETROLEUM COKE | | | RENEWABLES | | WEIGHTED
AVERAGE COST
PER MWh | | | LIGNITE | | | | COAL | | NATURAL GAS | | PETROLEUM COKE | | | RENEWABLES | | WEIGHTED
AVERAGE COST
PER MWh |
| YEAR | YEAR | COST PER
MWh | | PERCENT OF
GENERATION | | COST PER
MWh | | PERCENT OF
GENERATION | | COST PER
MWh | | PERCENT OF
GENERATION | | COST PER
MWh | | PERCENT OF
GENERATION | | | PERCENT OF
GENERATION | |
| 2023 | |
| 2023 | |
| 2023 | |
| 2022 | 2022 | N/A (1) | | N/A (1) | | $ | 31.56 | | | 14.1 | % | | $ | 54.78 | | | 66.7 | % | | $ | 57.64 | | | 17.0 | % | | | 2.2 | % | | $ | 51.02 | |
| 2021 | 2021 | $ | 134.76 | | | 4.3 | % | | $ | 24.20 | | | 14.7 | % | | $ | 33.71 | | | 55.2 | % | | $ | 31.62 | | | 23.9 | % | | | 1.9 | % | | $ | 35.75 | |
| 2020 | $ | 159.10 | | | 2.9 | % | | $ | 25.49 | | | 9.1 | % | | $ | 16.97 | | | 66.2 | % | | $ | 17.40 | | | 20.3 | % | | | 1.5 | % | | $ | 21.90 | |
| |
(1) Prior to the retirement of the Dolet Hills Power Station on December 31, 2021, Cleco Power used lignite for generation at the plant. For information about the lignite fuel costs under prudency review, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Litigation,16 —Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — LPSC Audits and Reviews — Dolet Hills Prudency Reviews — Deferred Lignite and Mine Closure Costs.Review.”
Power Purchases
Cleco Power is a participant in the MISO market. MISO makes economic and routine dispatch decisions regarding Cleco Power’s generating units. Power purchases are made at prevailing market prices, also referred to as LMP. LMP includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have higher LMPs. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power’s pricing zones. 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.” For information on MISO, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates.”
Coal and Petroleum Coke and Lignite Supply
Cleco Power uses coal for generation at Rodemacher Unit 2. On January 1, 2022,2 and a combination of coal and petroleum coke for generation at Madison Unit 3. Cleco Power contractedhad adequate coal and petroleum coke supply to meet its operational needs during 2023. Parties with whom Cleco Power had an existing railcar lease and existing marine transportation delivery agreements were able to satisfy the fuel needs of both generating stations in 2023. During 2023, Cleco Power purchased approximately 260,000 tons of coal and 300,000 tons of petroleum coke. At December 31, 2023, coal inventory at Rodemacher Unit 2 was approximately 231,000 tons, which is approximately a supplier96-day supply. At December 31, 2023, coal inventory at Madison Unit 3 was approximately 206,000 tons and petroleum coke inventory at Madison Unit 3 was approximately 190,000 tons, which collectively totals to provide an approximate 52-day supply.
Cleco Power’sPower is utilizing a short-term, fixed-price coal agreement and an existing two-year, fixed price agreement to meet its coal supply needs at Rodemacher Unit 2 utilizing a two-year, fixed-price, coalduring 2024. Cleco Power has an existing railcar lease agreement expiring on December 31, 2023. For 2023, Cleco Power intends to meetin March 2024 and anticipates reassessing this agreement upon its coal needs through this coal agreement and one other short-term, fixed-price coal agreement. In 2022, Cleco Power had an agreement to transport coal from Wyoming’s Powder River Basinexpiration. Coal will be transported to Rodemacher Unit 2. This2 by way of an existing railcar transportation agreement was renewed on January 1, 2023, for an additional three years, expiring onthrough December 31, 2025. During 2021,
As a result of previously executed petroleum coke supply contracts, Cleco Power renewed its leasehas sufficient coal and petroleum coke supply for 113 railcars to transport itsanticipated operations at Madison Unit 3 during 2024. Cleco Power has barge logistics agreements for delivery of petroleum coke and coal under one lease, which expires onat Madison Unit 3 through March 31, 2024.2033.
TheCleco Power’s continuous supply of coal and petroleum coke may be subject to interruption due to adverse weather conditions or other factors that may disrupt transportation to the plant site. At December 31, 2022, Cleco Power’s coal inventory at Rodemacher Unit 2 was approximately 109,000 tons (approximately a 45-day supply).
Cleco Power uses a combination of petroleum coke and Illinois Basin coal for generation at Madison Unit 3. Petroleum coke is a by-product of the oil refinery process and is not considered a fuel specifically produced for a market; however, ample petroleum coke supplies are produced from refineries each year throughout the world, particularly in the Gulf Coast region. The price of petroleum coke is largely driven by the demand for the fuel and the related transportation costs. During 2022, Cleco Power received its petroleum coke supply from multiple refineries located along the upper and lower Mississippi River. Cleco Power purchased approximately 722,000 tons of petroleum coke during 2022, all of which were either an evergreen extension of a previous agreement or a negotiated agreement for one year ending on December 31, 2022. Cleco Power has one-year agreements, expiring on December 31, 2023, to purchase 779,000 tons of petroleum
coke from multiple refineries located along the upper and lower Mississippi River.
During 2022, Cleco Power purchased approximately 202,000 tons of Illinois Basin coal. Cleco Power uses Louisiana waterways, such as the Mississippi River and the Red River, to deliver both petroleum coke and Illinois Basin coal to the Madison Unit 3 plant site. The continuous supply of petroleum coke may also be interrupted by change in regional and Illinois Basin coal may be subject to interruption due to adverse weather conditions or other factors that may disrupt transportation to the plant site. On January 1, 2023, Cleco Power contracted with a supplier to provide Cleco Power’s coal needs at Madison Unit 3 utilizing a two-year, fixed-price, coal agreement expiring on December 31, 2024. For 2023, Cleco Power intends to meet its petroleum coke needs through three one-year, fixed-price petroleum coke agreements. Cleco Power has a logistics agreement with its primary transportation coordinator and provider that is set to expire in March 2033. At December 31, 2022, Cleco Power’s petroleum coke inventory at Madison Unit 3 was approximately 211,000 tons, and Cleco Power’s Illinois Basin coal inventory at Madison Unit 3 was approximately 70,000 tons. The total fuel inventory was 281,000 tons (approximately a 47-day supply).global refining output.
Natural Gas Supply
During 2022, Cleco Power purchased 58.2 million 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 following table:
| | | | | | | | | | | | | | | | | |
| NATURAL GAS SUPPLIER | 2022
PURCHASES
(MMBtu) | | AVERAGE AMOUNT PURCHASED PER DAY (MMBtu) | | PERCENT OF TOTAL NATURAL GAS USED |
| Tenaska Marketing Ventures | 12,889,300 | | | 35,313 | | | 22.1 | % |
| Mansfield Power and Gas | 12,088,311 | | | 33,119 | | | 20.8 | % |
| Spire Marketing, Inc | 4,807,300 | | | 13,171 | | | 8.3 | % |
| Sabine Pass Liquefaction, LLC | 3,842,500 | | | 10,527 | | | 6.6 | % |
| Total Gas & Power North America, Inc | 3,774,700 | | | 10,342 | | | 6.5 | % |
| Cima Energy LP | 3,470,700 | | | 9,509 | | | 6.0 | % |
| Nextera Energy Resources | 2,945,400 | | | 8,070 | | | 5.1 | % |
| Vitol, Inc | 1,784,463 | | | 4,889 | | | 3.1 | % |
| Others | 12,623,629�� | | | 34,585 | | | 21.5 | % |
| | | | | |
| Total | 58,226,303 | | | 159,525 | | | 100.0 | % |
|
Cleco Power owns natural gas pipelines and interconnections at all of its natural gas generating facilities that allow it to access various natural gas supply markets and maintain a reliable, economical fuel supply for its customers.
Although Cleco Power also uses underground salt dome gas storage to help mitigate supply disruptions to its generating facilities and to operationally balance gas supply to its units. During 2023, Cleco Power utilized purchases on the spot market through daily, monthly, and seasonal contracts with various natural gas prices were elevated and extremely volatile during 2022,suppliers as well as gas in storage to meet its natural gas was available without interruption throughoutrequirements. Additionally, during 2023, Cleco Power utilized short-term and long-term natural gas firm transportation contracts with two interstate pipelines and two self-built pipeline laterals directly connected to a storage hub to supply fuel to its power plants. During 2023, Cleco Power purchased approximately 66.9 million MMBtu of natural gas from various suppliers for the year. generation of electricity. At December 31, 2023, Cleco Power had 1.4 million MMBtu of gas in storage.
Cleco Power expects to continue to meet its natural gas requirements with purchases on the spot market through daily, monthly, and seasonal contracts with various natural gas suppliers. Natural gas prices may increase rapidly in response to temporary supply interruptions. During 2022 Cleco Power contracted for natural
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CLECO POWER | | 2022 FORM 10-K |
gassuppliers and an existing firm transportation with two interstate pipelines. One pipeline contract, is for a period of two years endingwhich expires in October 31, 2024, and the other is for six months ending May 31, 2023.
Cleco Power also uses underground salt dome gas storage to help mitigate supply disruptions to its generating facilities and to operationally balance gas supply to its units. The storage volume is contracted by paying a capacity reservation charge at a fixed rate. There are also variable charges incurred to withdraw and inject gas from storage. At December 31, 2022, Cleco Power had 1.2 million MMBtu of gas in storage.2024. Currently, Cleco Power anticipates that its diverse supply options and gas storage, combined with its solid-fuel generation resources, are adequate to meet its generation needs during any temporary interruption of natural gas supplies. To the extent natural gas supplies may become disrupted or natural gas prices significantly increase, Cleco Power may in some instances use alternate fuels or rely to a larger extent on coal and purchased power.
Sales
Cleco Power’s 20222023 and 20212022 system peak demands, which occurred on August 23, 2023, and December 24, 2022, were 2,759 MW and February 16, 2021, were 2,695 MW, and 2,645 MW, respectively. SalesGenerally, sales and system peak demand are affected by weather and are typically highest during the summer air-conditioning season; however, peaks may occur during the winter season as well. For information on the effects of future energy sales on Cleco Power’s results of operations, financial condition, and cash flows, see Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales” and “— Weather Sensitivity.and Climate Vulnerabilities.”
Reserve margin is the net capacity resources (either owned or purchased) less native load demand, divided by native load demand. Members of MISO submit their forecasted native load demand to MISO each year. During 2022, Cleco Power’s reserve margin was 9.1%, which was above MISO’s unforced planning reserve margin benchmark of 8.7%. During 2021, Cleco Power’s reserve margin was 22.5%, which was also above MISO’s unforced planning reserve margin benchmark of 9.4%. Cleco Power plans on meeting its planning reserve margin requirements inOn June 1, 2023, as MISO transitionstransitioned from a traditional annual unforced capacity value to a seasonal accreditation capacity value. During 2023, Cleco Power was a net seller of MWs in the MISO capacity auction. For more information on MISO, see
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Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Transmission Rates.”
Customers and Competition
During 2022each of 2023 and 2021,2022, Cleco Power had one wholesale customer that accounted for 10.8% and 10.6%, respectively, of itsCleco Power’s consolidated revenue. This wholesale customer also accounted for 11.0% of Cleco’s consolidated revenue during 2023. In 2021 through a request for proposal process, this significant wholesale customer currently under contract with Cleco Power informed Cleco Power it was not selected as a provider of capacity and
energy after the first quarter of 2024, and on October 19, 2022, the LPSC certified these results. Cleco Power’s failure to recontract this agreement is expected to affect jurisdictional retail rates that will beis subject to review by the LPSC in conjunction with Cleco Power’s nextcurrent rate case. On June 30, 2023, Cleco Power filed an application with the LPSC for its current rate case, expected to bewith anticipated new rates being effective July 1, 2024.
Cleco Power did not have a significant customer that accounted for 10% or more of its consolidated revenue in 2020.
During 2022, 2021, or 2020, Cleco Power did not have a significant customer that accounted for 10% or more of Cleco’s consolidated revenue.
For more information regarding Cleco Power’s sales and revenue, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”
Within MISO, competitors are typically comprised of investor-owned utilities, independent power producers, power marketers, and power plant developers. These entities typically compete on the basis of price, reliability, and residual risk to the purchasing customer and its end users. Cleco Power could experience some competition for electric sales to industrial customers in the form of cogeneration and from alternative and distributed energy power sources.
The LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities could
materially impact Cleco Power’s results of operations, financial condition, and cash flows. Management is unable to determine the timing and outcome of a final LPSC ruling.
Capital Investment Projects
For a discussion of certain Cleco Power major capital investment projects, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Cleco Power.”
Capital Expenditures and Financing
For information on Cleco Power’s capital expenditures, financing, and related matters, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures.”
Cleco Cajun
Power Generation
On November 22, 2023, Cleco Cajun entered into the Cleco Cajun Divestiture Purchase and Sale Agreement to sell its unregulated business, the Cleco Cajun Sale Group. The Cleco Cajun Sale Group is presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — “Discontinued Operations.” The following table sets forth certain information with respect to Cleco Cajun’s generating facilities:
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| | GENERATING STATION | GENERATING STATION | COMMENCEMENT
OF COMMERCIAL
OPERATION | RATED CAPACITY (MW) | | NET CAPACITY (MW) | (1) | PRIMARY FUEL USED
FOR GENERATION | GENERATION TYPE | GENERATING STATION | COMMENCEMENT
OF COMMERCIAL
OPERATION | RATED CAPACITY (MW) | | NET CAPACITY (MW) | (1) | PRIMARY FUEL USED
FOR GENERATION | GENERATION TYPE |
Bayou Cove (2) | Bayou Cove (2) | 2002 | | 225 | | | 221 | | | natural gas | combustion | Bayou Cove (2) | 2002 | | 225 | 225 | | | 219 | | 219 | | | natural gas | | natural gas | combustion |
| Big Cajun I | Big Cajun I | |
| Unit 1 and Unit 2 | Unit 1 and Unit 2 | 1972 | | 220 | | | 172 | | | natural gas | steam |
| Unit 1 and Unit 2 | |
| Unit 1 and Unit 2 | | 1972 | | 220 | | | 173 | | | natural gas | steam |
| Unit 3 and Unit 4 | Unit 3 and Unit 4 | 2001 | | 210 | | | 193 | | | natural gas | combustion | Unit 3 and Unit 4 | 2001 | | 210 | 210 | | | 195 | | 195 | | | natural gas | | natural gas | combustion |
| Big Cajun II | Big Cajun II | |
| Unit 1 | |
| Unit 1 | |
| Unit 1 | Unit 1 | 1981 | | 580 | | | 532 | | | coal | steam | 1981 | | 580 | 580 | | | 554 | | 554 | | | coal | | coal | steam |
| Unit 2 | Unit 2 | 1982 | | 540 | | | 552 | | | natural gas | steam | Unit 2 | 1982 | | 540 | 540 | | | 563 | | 563 | | | natural gas | | natural gas | steam |
| Unit 3 | Unit 3 | 1983 | | 341 | | (4) | 318 | | (4) | coal | steam | Unit 3 | 1983 | | 341 | 341 | | (4) | (4) | 322 | | (4) | (4) | coal | steam |
Cottonwood (3) | Cottonwood (3) | 2003 | | 1,263 | | | 1,166 | | | natural gas | combined cycle | Cottonwood (3) | 2003 | | 1,263 | 1,263 | | | 1,144 | | 1,144 | | | natural gas | | natural gas | combined cycle |
| | Total generating capability | Total generating capability | | 3,379 | | | 3,154 | | | | |
| Total generating capability | |
| Total generating capability | | | 3,379 | | | 3,170 | | | | |
(1) Based on capacity testing of the generating units and operational tests performed between AprilSeptember 2022 and August 2022.2023. These amounts do not represent generating unit capacity for MISO planning reserve margins.
(2) Units 2, 3, and 4.
(3) Units 1, 2, 3, and 4. Upon closing of the Cleco Cajun Transaction,Acquisition, Cottonwood Energy entered into the Cottonwood Sale Leaseback. For more information on the Cottonwood Sale Leaseback, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Leases — Additional Lessee Disclosures — Cottonwood Sale Leaseback Agreement.”
(4) Represents Cleco Cajun’s 58% ownership interest in the capacity of Big Cajun II, Unit 3, a 588-MW generating unit.
Fuel and Purchased Power
Cleco Cajun uses coal and natural gas for its power generation resources. Cleco Cajun procures these fuels under contracts from a variety of suppliers and transporters. Cleco Cajun maintains an inventory of coal supply on-site at its coal generating facilities.
Sales
Cleco Cajun sells wholesale electric supply in Louisiana, Texas, and Arkansas.Louisiana. It furnishes supply to its wholesale customers primarily through
all-requirements power supply and service agreements, which require Cleco Cajun to provide the electric capacity, energy, and other services necessary to serve most of its customers’ load requirements. Cleco Cajun procures the entirety of the power required to fulfill these obligations through its participation in the MISO market, and sells the entirety of power produced from its generating plants to the MISO market.
Cleco Cajun’s business experiences seasonality, as it bills its customers based on actual electric energy consumed. This
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usage tends to be greater during periods of high and low temperatures as compared to periods of moderate temperatures.
Cleco Cajun’s Cottonwood Plant is leased to a third party in which the third party operates the plant and receives all revenues from the operations of the plant.
Customers and Competition
Competition for Cleco Cajun’s electric cooperative customers is limited through the first quarter of 2025, when the majority of the wholesale electric supply contracts expire. Cleco Cajun’s cooperative customers have notified Cleco Cajun that it was not selected as a provider beyond the first quarter of 2025. The regulatory certification process for new supply contracts has been finalized by the LPSC for all but three cooperative customers. This non-selection is believed to be the result of a trend toward cooperatives favoring shorter-term, market-based solutions and intermittent renewables rather than asset-backed, long-term full-service contracts. Cleco Cajun’s failure to recontract these agreements could have a material adverse effect on Cleco's results of operations, financial condition, or cash flows as early as the second quarter of 2025.Cleco is exploring options related to its investment in Cleco Cajun, including the potential sale of part or all of Cleco Cajun’s assets.
Cleco Cajun did not have a significant customer that accounted for 10% or more of Cleco’s consolidated revenue in 2022, 2021, or 2020.
For more information regarding Cleco Cajun’s sales and revenue, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations.”
Within MISO, competitors are typically comprised of investor-owned utilities, independent power producers, power marketers, and power plant developers. These entities typically compete on the basis of price, reliability, and residual risk to the purchasing customer and its end users.
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| REGULATORY MATTERS, INDUSTRY DEVELOPMENTS, AND FRANCHISES |
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 is subject to the jurisdiction of FERC with respect to transmission tariffs, accounting, interconnections with other utilities, reliability, and the transmission of power. Periodically, Cleco Power has sought and received from both the LPSC and FERC increases in retail rates and transmission tariffs, respectively, to cover increases in operating costs and costs associated with additions to generation, transmission, and distribution facilities.
Cleco Cajun is subject to the jurisdiction of FERC with respect to transmission tariffs, interconnections with other utilities, reliability, and the transmission of power. The rates Cleco, through Cleco Power and Cleco Cajun, charges its wholesale customers are subject to FERC’s triennial market power analysis. Cleco filed its most recent triennial power analysis in December 2023, and it is currently pending FERC approval. The next triennial market power analysis is expected to be filed in December 2026.
Effective July 1, 2021, under the terms of the current FRP, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5% and all retail earnings over 10.5% are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds are ultimately subject to LPSC approval. On June 30, 2023, Cleco Power filed an application with the LPSC for its current rate case , with anticipated new rates being effective on July 1, 2024. For more information on the current FRP, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— FRP.”
From June 1, 2021, through August 31, 2022, Cleco Power recovered from retail customers certain incurred costs
associated with Hurricanes Laura, Delta, and Zeta through an interim storm recovery rate. Effective September 1, 2022, those costs are being recovered through a storm recovery surcharge resulting from the storm recovery securitization financing.
Generally, Cleco Power’s cost of fuel used for electric generation and the cost of purchased power are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. For more information on the FAC and the most recent fuel audits, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Cleco Power has an EAC that is used to recover certain costs of environmental compliance from its customers. These costs are subject to periodic review by the LPSC. For more information on the EAC and the most recent environmental audit, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
For information on the regulatory impacts of the TCJA on Cleco Power, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — TCJA.”
For information on Cleco Power’s transmission rates, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 5 — Revenue Recognition — Transmission Revenue.”
For information on regulatory risks that could have an impact on Cleco, see Item 1A, “Risk Factors — Regulatory Risks.”
Franchises
Cleco Power operates under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state law. These franchises are for fixed terms that vary in length. Historically, Cleco Power has been substantially successful in the timely renewal of franchises as each neared the end of its term.
Industry Developments and Competition
For information on developments and competition within the electric utility industry, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Structure.”
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:
•the ability of electric utilities to recover stranded costs,
•the role of electric utilities, independent power producers, and competitive bidding in the purchase, construction, and operation of new generating capacity,
•the role of electric utilities and independent transmission providers in competitive bidding in the construction of new transmission facilities,
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•the pricing of transmission service on an electric utility’s transmission system, or the cost of transmission services provided by an RTO/ISO,
•FERC’s assessment of market power and a utility’s ability to buy generation assets,
•transmission reliability standards mandates,
•NERC’s imposition of additional reliability and cybersecurity standards,
•the authority of FERC to grant utilities the power of eminent domain,
•increasing requirements for renewable energy sources,
•demand response and energy efficiency standards,
•comprehensive environmental regulation in the areas of air, water, and waste,
•FERC’s ability to impose financial penalties, and
•the LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities.
At this time, management is unable to predict the outcome of such issues or the effects thereof on the results of operations, financial condition, or cash flows of the Registrants.
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 and Other Matters.”
Environmental Quality
Cleco is subject to federal, state, and local laws and regulations governing the protection of the environment. Violations of these laws and regulations may result in substantial fines and penalties. Cleco has obtained the environmental permits necessary for its operations and is in compliance in all material respects with these permits, as well as all applicable environmental laws and regulations. Environmental requirements affecting electric power facilities are complex, change frequently, and have become more stringent over time as a result of new legislation, administrative actions, and judicial interpretations. Therefore, the capital costs and other expenditures necessary to comply with existing and new environmental requirements are difficult to determine. Cleco Power may request recovery of the costs to comply with certain environmental laws and regulations from its retail customers. If recovery were to be approved by the LPSC, Cleco Power’s retail rates could increase. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, Cleco Power would bear those costs directly. Such a decision could negatively impact the results of operations, financial condition, or cash flows of the Registrants. For information on Cleco Power’s expected capital expenditures related to environmental compliance, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures.”
Air Quality
Air emissions from each of Cleco’s generating units are regulated by the EPA and the LDEQ. The LDEQ has authority over and implements certain air quality programs established by the EPA under the federal CAA, as well as its own air quality
regulations. The LDEQ establishes standards of performance and requires permits for EGUs in Louisiana. Cleco’s generating units are subject to these requirements.
The EPA has proposed and adopted rules under the authority of the CAA relevant to the emissions of SO2 and NOx from Cleco’s generating units.
Regional Haze SIP
The CAA contains a regional haze program with the goal of returning Class I Federal areas of the nation to natural visibility by 2064. To attain this goal, states are required to develop a SIP, which, among other things, must include requirements for the installation of Best Available Retrofit Technology (BART) for applicable EGUs. Louisiana’s SIP for the first planning phase was approved by the EPA in December 2017. Because the Louisiana SIP mandates use of existing controls and participation in the CSAPR as BART, Cleco does not believe the Louisiana SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants. In April 2021, the LDEQ issued for public comment, a proposed SIP for the second planning period, but never submitted it to the EPA. In August, 2022, the EPA published a finding that Louisiana and fourteen other states failed to submit a regional haze SIP for the second planning period. Such finding requires the EPA to issue a Federal Implementation Plan (FIP) within two years of the effective date of the finding, if a SIP is not provided by LDEQ before then. Until the LDEQ determines what the reasonable progress requirements are for Cleco units, completes its update of the SIP, and the SIP is approved by the EPA, Cleco is unable to predict if the second phase SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Acid Rain Program
The CAA also established the Acid Rain Program to address the effects of acid rain and imposed restrictions on acid rain-causing SO2 emissions from certain generating units. The CAA requires all of the regulated EGUs to possess a regulatory allowance for each ton of SO2 emitted beginning in 2000. The EPA allocates a set number of allowances to each affected unit based on its historic emissions. Cleco had sufficient allowances for operations in 2023 and expects to have sufficient allowances for 2024 operations.
The Acid Rain Program also established emission rate limits on NOx emissions for certain generating units. Cleco’s management believes that compliance with the acid rain emission limits for NOx has been achieved at all affected facilities.
CSAPR
In July 2011, the EPA adopted CSAPR, a cap-and-trade type program requiring utilities to make substantial reductions in NOx emissions that contribute to ozone to reduce interstate transport of such pollution. In October 2016, the EPA finalized a rule updating CSAPR to maintain 2008 ozone emission limitations in downwind states by addressing summertime transport of ozone pollution (CSAPR Update). The CSAPR Update, which commenced in May 2017, set stricter NOx ozone season emission budgets in 22 states.
In April 2021, the EPA issued a Revised CSAPR Update rule to address states with interstate pollution transport obligations for the 2008 ozone NAAQS. Cleco does not expect the final regulation to have a material impact on the results of operations, financial condition, or cash flow of the Registrants.
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In October 2015, the EPA promulgated the 2015 ozone NAAQS, lowering the level of both the primary and secondary ground-level ozone standards from 75 ppb to 70 ppb. Under the CAA, each state is required to submit a SIP that provides for the implementation, maintenance and enforcement of each primary and secondary NAAQS. In particular, each SIP must contain adequate provisions prohibiting emissions activity within the state, which will contribute significantly to non-attainment or interfere with maintenance by any other state with respect to any such primary or secondary ambient air quality standard. In February 2023, the EPA issued a disapproval of the “good neighbor” SIP submitted by Louisiana, and a number of other states, for the 2015 ozone NAAQS. In May 2023, the U.S. Court of Appeals for the Fifth Circuit responded to a petition for review of the EPA decision and temporarily stayed the disapproval of the “good neighbor” SIP pending judicial review. In June 2023, the EPA published a final FIP for regulation of emission transport in Louisiana to address the “good neighbor” provision for Louisiana, which might result in the allocation of fewer emission allowances to generating units and may cause Cleco to buy additional allowances and/or take other measures to comply. However, since the EPA’s disapproval of the Louisiana SIP is stayed, the EPA is unable to apply the FIP in Louisiana. Until the Court opines on the challenge to the SIP disapproval, Cleco’s management is unable to predict or give a reasonable estimate of the outcome of the EPA’s decision regarding the “good neighbor” provision.
In July 2023, the EPA issued an interim final rule addressing the judicial stays of several states’ interstate transport SIP disapprovals. The interim final rule stayed the effectiveness of the FIP addressing interstate transport for the states with judicially stayed SIP disapprovals, such as Louisiana. The interim final rule revised existing regulations for the Group 2 trading program to require the EGUs in each state covered by a stay order for the SIP disapproval action to participate in the Group 2 trading program instead of the Group 3 trading program while the stay for that state remains in place. Louisiana is in the Group 3 trading program under the Revised CSAPR Update and will be subject to a modified Group 2 trading program. Louisiana will be subject to the same state emissions budgets, unit-level allocation provisions, and banked allowance holdings from the Revised CSAPR Update but will be moved under the umbrella of the Group 2 trading program. The interim final rule also creates two non-interchangeable subtypes of Group 2 allowances, which are the CSAPR NOx Ozone Season Original Group 2 allowances and CSAPR NOx Ozone Season Expanded Group 2 allowances. States that are part of the Group 2 trading program will use Original Group 2 allowances for compliance. Louisiana will use Expanded Group 2 allowances for compliance. The rule also states that the EPA will deduct banked 2021 and 2022 CSAPR NOx Ozone Season Group 3 allowances and convert them to Expanded Group 2 allowances on September 18, 2023. It is unclear if sufficient allowances will be available in the Expanded Group 2 allowance market for purchase should Cleco experience a shortage of allowances to cover the 2023 ozone season.
MATS
For information about MATS, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
CPP/ACE and NSPS
In August 2015, the EPA issued a final rule under Section111(d) of the CAA, referred to as the CPP. The rule included state-specific goals as well as guidelines for states to develop plans for meeting those goals. In July 2019, the EPA repealed the CPP rule and finalized the ACE rule as a replacement. The ACE rule established emission guidelines for states to develop plans to address GHG emissions from existing coal-fired plants. In January 2021, the U.S. Court of Appeals for the District of Columbia Circuit vacated the ACE rule and remanded the rule to the EPA for reconsideration. In February 2021, the EPA issued a memorandum notifying states that it will not require the submittal of plans to the EPA under Section 111(d) because the court vacated the ACE rule without reinstating the CPP. In October 2021, the U.S. Supreme Court granted petitions to review the District of Columbia Circuit Court of Appeals’ decision and, in June 2022, found that the EPA lacked clear congressional authorization to require generation shifting under Section 111(d). In October 2022, the D.C. Circuit recalled its partial mandate vacating the ACE rule and granted a motion by the EPA to hold pending challenges to the ACE rule in abeyance while the EPA develops a replacement rule.
In May 2023, the EPA published a proposed rule titled New Source Performance Standards for Greenhouse Gas Emissions From New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions From Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule. The proposed rule would repeal the ACE Rule, revise the NSPS under Section 111(b) for GHG emissions from new fossil fuel-fired stationary combustion turbine EGUs and from fossil-fuel fired steam generating units that undertake a large modification, and establish emissions guidelines under Section 111(d) for GHG emissions from existing fossil fuel-fired steam generating EGUs and from the largest, most frequently operating stationary combustion turbines. The proposal utilizes the application of the “best system of emission reduction” that can be demonstrated taking into account costs, energy requirements, and other statutory factors. In November 2023, the EPA issued a Supplemental Notice of Proposed Rulemaking regarding mechanisms to help ensure that the proposed Section 111(d) regulations can be implemented without adversely affecting the reliability of the electrical grid. The EPA has indicated that it anticipates issuing a final rule in April 2024. A final rule that requires significant reductions in CO2 emissions for existing EGUs could require significant capital expenditures or curtailment of operations of certain EGUs to achieve compliance.
In August 2015, the EPA released the NSPS rules for CO2 emissions from new, modified, or reconstructed units. The rules set requirements and conditions with respect to CO2 emission standards for new units and those that are modified or reconstructed.
In December 2018, the EPA published proposed rules to replace the August 2015 NSPS rules, but did not take further action. In May 2023, the EPA proposed to update and establish more protective rules for CO2 emissions from new, modified, and reconstructed EGUs. Cleco does not anticipate a future modification or future reconstruction of its existing units, as defined in the proposal, which would trigger the application of the proposed CO2 emission limits. Until the EPA finalizes the rules, Cleco’s management cannot state what the final standards will entail or if the new rules will have a material
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impact on the results of operations, financial condition, or cash flows of the Registrants.
NAAQS
In April 2010, the EPA promulgated a 100 ppb one-hour primary NAAQS for NO2. In April 2018, the EPA issued a decision to retain the NO2 NAAQS. Due to the fact that fossil fuel-fired EGUs are a significant source of NO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their NO2 emissions. However, because the EPA has not yet completed any new designations, Cleco’s management cannot predict the likelihood or potential impacts of such a redesignation on its generating units at this time.
The EPA revised the NAAQS for SO2 in June 2010 to a one-hour health standard of 75 ppb. In January 2018, the EPA designated all areas containing Cleco generation facilities as either attainment/unclassifiable or unclassifiable. Therefore, there is no adverse impact to Cleco’s generating units. In March 2019, the EPA published a final action that retains the NAAQS for SO2. Due to the fact that fossil fuel-fired EGUs are a significant source of SO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their SO2 emissions. However, because the EPA has not yet completed any new designations, Cleco cannot predict the likelihood or potential impacts of such a redesignation on its generating units at this time.
In December 2020, the EPA published a final rule that retains the NAAQS for ozone, which was last revised in 2015. Cleco’s generation facilities are not located in areas designated as nonattainment of the ozone NAAQS.
In January 2023, the EPA published a proposed rule titled Reconsideration of the National Ambient Air Quality Standards for Particulate Matter that would reduce the annual primary fine particulate matter ambient air concentration standard (PM2.5 standard) from the current 12 micrograms/cubic meter (mg/m3) to somewhere in the EPA-preferred range of 9-10 mg/m3 while also entertaining comments from the public on setting the standard at 8 mg/m3 or 11 mg/m3. Cleco cannot predict the likelihood or potential impacts of such a rule on its generating units at this time.
Other
In May 2019, Louisiana Generating notified the EPA and the LDEQ that it has elected not to Retrofit (as such term is defined in the Consent Decree) Big Cajun II, Unit 1.
In December 2022, Louisiana Generating notified the EPA and the LDEQ that it had elected to Refuel (as such term is defined in the Consent Decree) Big Cajun II, Unit 1, in accordance with certain provisions of the Consent Decree.
Water Quality
Cleco’s facilities are subject to federal and state laws and regulations regarding wastewater discharges. Cleco has received, from the EPA and the LDEQ, permits required under the federal Clean Water Act (CWA) for wastewater discharges from its generating stations. Wastewater discharge permits have fixed dates of expiration, and Cleco applies for renewal of these permits within the applicable time periods.
In March 2011, the EPA proposed regulations that would establish standards for cooling water intake structures at existing power plants and other facilities pursuant to Section 316(b) of the CWA. The EPA published its final rule in August
2014. The standards are intended to protect fish and other aquatic wildlife by minimizing capture, both in screens attached to intake structures (impingement mortality) and in the actual intake structures themselves (entrainment mortality). The final rule (1) sets a performance standard, dealing with fish impingement mortality or reducing the flow velocity at cooling water intakes to less than 0.5 feet per second and (2) requires entrainment standards to be determined on a case-by-case basis by state-delegated permitting authorities. Facilities subject to the standards are required to complete a number of studies within a 45-month period and then comply with the rule as soon as possible after the next discharge permit renewal, by a date determined by the permitting authorities. Portions of the final rule could apply to a number of Cleco’s fossil fuel steam electric generating stations. Until the required studies are conducted, including technical and economic evaluations of the control options available, and regulatory agency officials have reviewed the studies and made determinations, Cleco remains uncertain as to which technology options or retrofits will be required to be installed on its affected facilities. The costs of required technology options and retrofits may be significant, particularly if closed cycle cooling is required.
In November 2015, the EPA released the Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category Rule (ELG Rule), which focused on reducing the discharge of metals in wastewater from generating facilities to surface waters.
In 2020, the EPA revised the technology-based effluent limitation guidelines and standards applicable to flue gas desulfurization and bottom ash transport waste waters. The 2020 revised ELG Rule, known as the Reconsideration Rule, allows a unit to come into compliance with the ELG Rule by qualifying as an electric generating unit that will achieve permanent cessation of coal combustion by December 31, 2028. Under this compliance option, Cleco submitted a Notice of Planned Participation by the October 13, 2021 submittal deadline for the Dolet Hills Power Station, Rodemacher Unit 2, and Big Cajun II, Unit 1.
On March 29, 2023, the EPA published a proposed rule, Supplemental Guidelines and Standards for the Steam Electric Power Generating Point Source Category, to strengthen certain discharge limits in the ELG Rule and issued a direct final rule to extend the deadline for plants to opt-in to the 2028 early retirement provision promulgated in the 2020 revised ELG Rule. Cleco cannot predict the potential impacts of these rules on its generating units at this time.
On November 27, 2023, the EPA published draft guidance addressing how the Supreme Court of the United States opinion in County of Maui v. Hawaii Wildlife Fund (2020) applies to the NPDES wastewater discharge permit program for discharges through groundwater to waters of the United States. Until finalized, Cleco cannot predict the potential impacts of the guidance on its operations at this time.
Solid Waste Disposal
The Solid Waste Division of the LDEQ has adopted a permitting system for the management and disposal of solid waste generated by power stations. Cleco has all required permits from the LDEQ for the on-site disposal of solid waste from its generating stations.
In April 2015, the EPA published a final rule regulating the disposal and management of CCRs from coal-fired power plants (CCR Rule). In August 2018, the D.C. Circuit Court of Appeals vacated several requirements in the CCR Rule, which
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included eliminating the previous acceptability of compacted clay material as a liner for impoundments. As a result, in August 2020, the EPA published a final rule that would set deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impoundments. In November 2020, Cleco submitted demonstrations to the EPA specifying its intended course of action for the ash disposal facilities at Rodemacher Unit 2, Dolet Hills Power Station, and Big Cajun II in order to comply with the final CCR Rule. On January 11, 2022, the EPA communicated that Cleco’s demonstrations have been deemed complete. Cleco Power withdrew the Dolet Hills demonstration due to the cessation of receiving waste. The two remaining demonstrations are still subject to EPA approval based on pending technical reviews.
On May 18, 2023, the EPA published a proposed rule titled Hazardous and Solid Waste Management System: Disposal of Coal Combustion Residuals from Electric Utilities; Legacy Surface Impoundments. This proposed rule expands the scope of units regulated under the CCR regulations to include inactive surface impoundments at inactive generating facilities. In addition, the proposed rule would regulate CCR Management Units, which include inactive and closed landfills as well as other non-containerized accumulations of CCR at facilities otherwise subject to federal CCR regulations. Cleco cannot predict the potential impacts of such a rule on its generating units at this time.
As a result of solid waste disposal regulations, Cleco Power and Cleco Cajun have AROs for the retirement of certain ash disposal facilities. All costs of the CCR Rule for Cleco Power are expected to be recovered from its customers in future rates. The actual asset retirement costs related to the CCR Rule requirements may vary substantially from the estimates used to record the increased obligation. For more information on Cleco’s compliance strategies and financial impacts of the CCR Rule, see Part II, Item 8, “Financial Statements and Supplementary Data—Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments.” For more information on the regulatory treatment of Cleco Power’s AROs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — AROs.”
In 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which gave the EPA the authority to implement a CCR permitting program as well as authorize state CCR permitting programs. In 2020, the EPA published a proposed rule establishing the federal CCR permit program for CCRs in states without approved CCR permitting programs. In October 2023, LDEQ published a proposed rulemaking, Disposal of Coal Combustion Residuals, to regulate CCR units under a state permit program. Until Louisiana has finalized its CCR permit program rule and such program has been approved by the EPA, Cleco cannot determine if there will be a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Cleco produces certain wastes that are classified as hazardous at its electric generating stations and at other locations, which are disposed of off-site at permitted hazardous waste disposal facilities.
Toxic Substances Control Act (TSCA)
The TSCA directs the EPA to regulate the marketing, disposing, manufacturing, processing, distributing in commerce, and usage of various toxic substances, including PCBs. Cleco operates and may continue to operate equipment containing PCBs regulated under the TSCA. Once the equipment reaches the end of its useful life, the EPA regulates handling and the disposal of equipment and fluids containing PCBs. Cleco disposes of its PCB waste material at TSCA-permitted disposal facilities.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
CERCLA imposes strict liability on parties responsible for the presence of hazardous substances at a site. In 2007, Cleco received a Special Notice for Remedial Investigation and Feasibility Study (RI/FS) from the EPA for a facility known as the Devil’s Swamp Lake site located northwest of Baton Rouge, Louisiana. The notice requested that Cleco and Cleco Power, along with many other listed potentially responsible parties (PRP), enter into negotiations with the EPA for the performance of an RI/FS at the Devil’s Swamp Lake site. In 2008, the EPA identified Cleco as one of many companies that sent PCB wastes for disposal to the site. The EPA proposed to add the Devil’s Swamp Lake site to the National Priorities List, based on the release of PCBs to fisheries and wetlands located on the site, but no final listing decision has been made. The EPA issued a Unilateral Administrative Order to two PRPs, Clean Harbors, Inc. and Baton Rouge Disposal, to conduct an RI/FS in 2009. The Tier 1 part of the study was completed in June 2012. The tier 2 remedial investigation report was made public in December 2015. In September 2019, the EPA publicly announced a proposed cleanup strategy for the Superfund Site. In August 2020, the EPA signed a Record of Decision for the Devil’s Swamp Lake site that defines a remediation approach for cleaning up the site and monitoring the natural recovery of certain areas of the lake. With the Record of Decision signed, the EPA has started the enforcement negotiations for the next phase of the project. Management is unable to determine how significant Cleco’s share of the costs associated with a possible response action at the site, if any, may be and whether this will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Emergency Planning and Community Right-to-Know Act (EPCRA)
Section 313 of the EPCRA requires certain facilities that manufacture, process, or otherwise use minimum quantities of listed toxic chemicals to file an annual report with the EPA called a Toxic Release Inventory (TRI) report. The TRI report requires industrial facilities to report on approximately 650 substances that the facilities release into the air, water, and land. The TRI report ranks companies based on the amount of a particular substance they release on a state and parish (county) level. Annual reports are due to the EPA on July 1 following the reporting year-end. Cleco has submitted required 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.
Electric and Magnetic Fields (EMFs)
The possibility that exposure to EMFs emanating from electric power lines, household appliances, and other electric devices may result in adverse health effects and damage to the
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environment has been a subject of some public attention. Lawsuits alleging that the presence of electric power transmission and distribution lines has an adverse effect on
health and/or property values have arisen in several states. Neither Cleco nor Cleco Power are parties in any lawsuits related to EMFs.
The following risk factors could have a material adverse effect on results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrants.
Holding Company
Cleco Holdings is a holding company and its ability to meet its debt obligations is dependent on the cash generated by its subsidiaries.
Cleco Holdings is a holding company and conducts its operations primarily through its subsidiaries. Accordingly, Cleco Holdings’ ability to meet its debt obligations is largely dependent upon the cash generated by these subsidiaries. Cleco Holdings’ subsidiaries are separate and distinct entities and have no obligations to pay any amounts due on Cleco Holdings’ debt or to make any funds available for such payment. In addition, Cleco Holdings’ subsidiaries’ ability to make dividend payments or other distributions to Cleco Holdings may be restricted by their obligations to holders of their outstanding securities and to other general business creditors. Substantially all of Cleco’s consolidated assets are held by either Cleco Power or Cleco Cajun (pending consummation of the Cleco Cajun Divestiture). Cleco Holdings’ right to receive any assets of any subsidiary, and therefore the right of its creditors to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if Cleco Holdings were a creditor of any subsidiary, its rights as a creditor would be effectively subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary ranking senior to that held by Cleco Holdings. Cleco Power is subject to regulation by the LPSC. The 2016 Merger Commitments also provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings.
Cleco Cajun Divestiture
The divestiture of the unregulated electric utility business by subsidiaries of Cleco Holdings may not occur on the initial terms agreed to by the parties, in the expected time frame, or at all and, as a result, could adversely affect the Registrants’ business and financial condition.
On November 22, 2023, the Cleco Cajun Sellers entered into the Cleco Cajun Divestiture Purchase and Sale Agreement with the Cleco Cajun Purchasers in which the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. The closing of the transaction is subject to customary closing conditions, including (i) the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) approval of FERC, (iii) approval of the Federal Communication Commission, and (iv) customary conditions regarding the accuracy of the representations and warranties and compliance by the parties with their respective obligations under the Cleco Cajun Divestiture Purchase and Sale Agreement. The Cleco Cajun Divestiture Purchase and Sale Agreement includes customary termination provisions, including if the closing of the transaction does not occur within nine months of November 22, 2023.
If the transaction fails to close, Cleco’s business and financial condition may be adversely affected and Cleco will continue to be responsible for any transaction costs incurred. Additionally, in the event the transaction fails to occur, Cleco’s business and financial condition will continue to depend on its ability to manage and operate the unregulated electric utility business through service to electric cooperative customers and other wholesale customers. In the event the transaction fails to occur pursuant to the terms of the Cleco Cajun Divestiture Purchase and Sale Agreement, failure by Cleco Cajun to successfully manage its unregulated electric utility business could have a material adverse effect on Cleco’s results of operations, financial condition, cash flows and liquidity.
Future Electricity Sales
Cleco’s future electricity sales and cash flows could be negatively affected by adverse macroeconomic conditions.
Adverse macroeconomic conditions resulting in low economic growth can negatively impact the businesses of Cleco Power’s residential, commercial, wholesale, and industrial customers and Cleco Cajun’s wholesale customers. Such resulting decreased power consumption, could cause a corresponding decrease in base revenue for Cleco Power and, in the event the Cleco Cajun Divestiture fails to close pursuant to the Cleco Cajun Divestiture Purchase and Sale Agreement, a decrease in the revenue for Cleco Cajun. The reduced production or shutdown of customer facilities could substantially reduce Cleco Power’s base revenue and Cleco Cajun’s revenue in such cases.
Energy conservation, energy efficiency efforts, and other factors that reduce energy demand could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Regulatory and legislative bodies have proposed or introduced requirements and incentives to reduce energy consumption. Conservation and energy efficiency programs are designed to reduce energy demand. Future electricity sales could be impacted by customers switching to alternative sources of energy, such as solar and wind, on-site power generation, and retail customers purchasing less electricity due to increased conservation efforts or expanded energy efficiency measures. Declining usage could result in an under-recovery of fixed costs at Cleco Power’s rate regulated business. An increase in energy conservation, energy efficiency efforts, and other
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efforts that reduce energy demand without the ability for Cleco Power to recover lost revenue could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Weather and Climate Vulnerabilities
Cleco’s operations and power generation could be harmed due to the impact of severe weather events, other natural disasters, or climate change, which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Severe weather, including hurricanes, winter storms, tropical storms, and other natural disasters, such as floods and wildfires, can affect transportation of fuel to plant sites and can be destructive, causing outages, blackouts or disruptions of interconnected transmission systems, and property damage that can potentially result in additional expenses, lower revenue, and additional capital restoration costs. Extreme drought conditions can impact the availability of cooling water to support the operations of generating plants, which can also result in additional expenses and lower revenue. Extreme weather conditions could also increase commodity prices, including fuel, which could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows.
Climate change that results in more frequent and more severe weather events in Cleco’s service territory could result in one or more physical risks that could cause damage to its generation, transmission, and distribution assets. These physical risks include an increase in sea level, wind and storm surge damages, wetland and barrier island erosion, flooding, wildfires, changes in temperature and precipitation patterns, and potential increased impacts of extreme weather conditions, including ice storms and prolonged droughts, The Registrants’ assets are in and serve communities that are at risk from sea level rise, changes in weather conditions, and loss of the protection offered by coastal wetlands. In addition, a significant portion of the nation’s oil and gas infrastructure is located in these areas and is susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to fuel supply interruptions and price spikes.
For example, during 2020 and 2021, Cleco’s service territory sustained substantial damage from four separate hurricanes and two winter storms that resulted in damage to Cleco Power’s distribution and transmission assets, electricity generation supply shortages, natural gas supply shortages, increases in prices of natural gas in the U.S., and significant outages for Cleco Power’s customers.
Any future severe weather, other natural disaster, or physical changes resulting from climate change could cause damage to, or the loss of, Cleco’s equipment and facilities, which could result in Cleco incurring additional costs, such as the cost to restore service, repair damaged facilities, or obtain replacement power. Any future severe weather, other natural disaster, or physical changes resulting from climate change could also result in changes in demand for and usage of electricity in Cleco’s service territory and the service territory of Cleco’s wholesale customers. The delivery of equipment and supplies necessary to Cleco’s business could also be disrupted. Cleco Power’s recovery of costs associated with these events is subject to LPSC review and approval, and the LPSC could disallow timely and full recovery of the costs
incurred. These risks and other possible effects of severe weather, other natural disasters, and climate change could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The operating results of Cleco are affected by weather conditions and may fluctuate on a seasonal basis.
Weather conditions directly influence the demand for electricity, particularly with respect to residential customers. In Cleco’s service territory, demand for power typically peaks during the hot summer months. As a result, Cleco’s financial results typically fluctuate on a seasonal basis. In addition, Cleco has sold less power and, consequently, earned less income when weather conditions were mild. Unusually mild weather in the future could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Workforce
Failure to attract, retain, and develop an appropriately qualified workforce could have a negative impact on business operations and a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Certain events, such as employee resignations and retirements without appropriate replacements, labor shortages, wage inflation, a lack of equivalent or enhanced skill sets to fulfill future needs, or unavailability of contract resources, may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge, difficulty in finding highly skilled, qualified candidates, specifically due to the location of Cleco’s corporate office and potential employee relocation challenges even with a hybrid work option, and a lengthy time period associated with skill development. Costs may increase as a result of contractors replacing employees, productivity slowdown, and safety incidents. Failure to hire and adequately develop replacement employees, maintain an inclusive work environment, transfer functional knowledge and expertise to the next generation of employees, ensure the availability of skilled new hires, or accept hybrid or remote work options may adversely affect the ability to manage and safely operate the Registrants’ business. If the Registrants are unable to successfully attract, retain, and develop an appropriately qualified workforce, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected.
Technology and Terrorism Threats
The operational and information technology systems on which Cleco relies to conduct its business and serve customers could fail to function properly due to technological problems, cyberattacks, physical attacks on Cleco’s assets, acts of terrorism, severe weather, solar events, electromagnetic events, natural disasters, the age and condition of information technology assets, human error, or other reasons that could disrupt Cleco’s operations and cause Cleco to incur unanticipated losses and expense.
The operation of Cleco’s extensive electrical systems relies on evolving operational and information technology systems and network infrastructures that are becoming extremely complex as new technologies and systems are implemented to more safely and reliably deliver electric services. Cleco’s business is highly dependent on its ability to process and monitor, on a real-time basis, a large number of tasks and transactions,
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many of which are highly complex. Cleco’s flexible working environment makes protecting distributed assets more challenging, and there is a greater opportunity for successful cyberattacks. The failure of Cleco’s operational and information technology systems and networks due to a physical attack or other event, including the inability to detect malicious software that has infected Cleco’s systems, could significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s systems, including its financial information, operational, advanced metering, and billing systems, require constant maintenance, monitoring, security patches, modification or configuration of systems, and update and upgrade of systems, which can be costly and increase the risk of errors and malfunction. Any disruptions or deficiencies in existing systems, or disruptions, delays, or deficiencies in the modification, transition to, or implementation of new systems, could result in increased costs, the inability to track or collect revenues and the diversion of management’s and employees’ attention and resources, and could adversely affect the effectiveness of Cleco’s control environment, and/or its ability to accurately or timely file required regulatory reports.
Despite implementation of security and mitigation measures, Cleco’s technology systems and those of Cleco’s vendors are vulnerable to inoperability, impaired operations, or failures due to physical attacks or cyberattacks on the facilities and equipment needed to operate the technology systems, viruses, human errors, acts of war or terrorism, and other events. If Cleco’s or its vendor’s information technology systems or network infrastructure were to fail, Cleco might be unable to fulfill critical business functions and serve its customers, which could have a material adverse effect on the financial conditions, results of operations, or cash flows of the Registrants. The potential consequences of a future material cyberattack include reputational damage, litigation with third parties, government enforcement actions, penalties, disruption to systems and facilities, unauthorized release of confidential or otherwise protected information, corruption of data and increased cybersecurity protection and remediation costs, which in turn could adversely affect Cleco’s competitiveness, results of operations and financial condition. Due to the evolving nature of such cybersecurity threats, the potential impact of any future incident cannot be predicted. Further, the amount of insurance coverage Cleco maintains may be inadequate to cover claims or liabilities related to a cyberattack.
In addition, in the ordinary course of its business, Cleco collects and retains sensitive information including personal identification information about customers and employees, customer energy usage, and other confidential information. The theft, damage, or improper disclosure of sensitive electronic data could subject Cleco to both penalties for violation of applicable privacy laws and claims from third parties, or harm Cleco’s reputation. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
Cleco’s Generation, Transmission, and Distribution Facilities
Cleco’s generation facilities are susceptible to unplanned outages, significant maintenance requirements, and interruption of fuel deliveries.
The operation of power generation facilities involves many risks, including breakdown or failure of equipment, fuel supply interruption, and performance below expected levels of output or efficiency. Aging equipment, even if maintained in accordance with good engineering practices, may require significant expenditures to operate at peak efficiency, or to comply with environmental permits. Newer equipment can also be subject to unexpected failures. Accordingly, Cleco may incur more frequent unplanned outages, higher than anticipated operating and maintenance expenditures, higher replacement costs of purchased power, increased fuel costs, MISO related costs, and the loss of potential revenue related to competitive opportunities. The costs of such repairs, maintenance, and purchased power may not be fully recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s generating facilities are currently fueled primarily by coal, natural gas, and petroleum coke. The deliverability of these fuel sources may be constrained due to such factors as higher demand, decreased regional supply, production shortages, weather-related disturbances, railroad constraints or disruptions, waterway levels, labor strikes, or lack of transportation capacity. If suppliers are unable to deliver the contracted volume of fuel and associated inventories are depleted, Cleco may be unable to operate its generating units which may cause Cleco Power to incur higher costs, which in turn could increase the cost to customers. Cleco Power’s fuel and MISO-procured/settled energy expenses, which are recovered from its customers through the FAC, are subject to refund until either a prudency review or a periodic fuel audit is conducted by the LPSC.
Cleco Power could be indirectly liable for the impacts of other companies’ activities on lands that have been mined and reclaimed by Cleco Power. The liability for impacts on reclaimed lands may not be recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The construction of and capital improvements to power generation, transmission, and distribution facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful or significantly more expensive than planned, the financial condition, results of operations, or liquidity of the Registrants could be materially affected.
Cleco’s ability to complete construction of or capital improvements to power generation, transmission, and distribution facilities in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include engineering and project execution risk and escalating costs for materials, labor, and environmental compliance. Delays in obtaining permits, shortages in materials and qualified labor, suppliers and contractors not performing as set forth under their contracts, changes in the scope and timing of projects, inaccurate cost estimates, the inability to raise capital or secure funding on favorable terms or at all, changes in commodity prices affecting revenue, fuel or material costs, changes in the economy, changes in laws or regulations, including
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environmental compliance requirements, and other events beyond the control of Cleco may materially affect the schedule and cost of these projects. If these projects are significantly delayed or become subject to cost overruns or cancellation, Cleco could incur additional costs including termination payments, face increased risk of potential write-off of the investment in the project, or be unable to recover such costs in rates. Furthermore, failure to maintain various levels of generating unit availability or transmission and distribution reliability may result in various disallowances of Cleco Power’s investments.
Alternative Generation Technology
Changes in technology may have a material adverse effect on the value of Cleco Power’s and Cleco Cajun’s generating facilities.
A basic premise of Cleco’s business is that generating electricity at central power plants achieves economies of scale and produces electricity at a relatively low price. There are alternative technologies to produce electricity, most notably wind turbines, photovoltaic cells, and other solar-generated power. Many companies and organizations conduct research and development activities to seek improvements in alternative technologies. As new technologies are developed and become available, the quantity and pattern of electricity purchased by customers could decline, with a corresponding decline in revenues derived by generating assets. In addition, to the extent Cleco is slow to adopt viable alternative generation technologies, employs technology that is problematic to operate, and/or under or over relies on these alternative technologies, the value of Cleco Power’s and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun’s generating facilities could be reduced.
Litigation
Cleco is subject to litigation and a negative outcome could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The Registrants are parties to various litigation matters arising out of the ordinary operations of their business. The ultimate outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability that the Registrants may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters and, as a result, these matters may have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Additionally, in connection with the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. See Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — 2016 Merger” for a discussion of these actions.
Regulatory Compliance
Cleco operates in a highly regulated environment and adverse regulatory decisions or changes in applicable regulations could have a material adverse effect on the Registrants’ business or result in significant additional costs.
Cleco’s business is subject to extensive federal, state, and local energy, environmental, and other laws and regulations. Should Cleco be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on Cleco, Cleco’s business could be adversely affected. Existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to Cleco or Cleco’s facilities, including decisions by the U.S. Supreme Court that could affect the operation of federal agencies, that may have a material adverse effect on the Registrants’ business or result in significant additional costs.
As a result of the 2016 Merger, Cleco Holdings and Cleco Power made the 2016 Merger Commitments to the LPSC including, but not limited to, maintaining employee headcount, salaries, and benefits for ten years, and a limitation from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. Additionally, upon approval of the Cleco Cajun Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail customers harmless for any adverse impacts, increased costs of debt or equity, credit rating downgrades attributable to the Cleco Cajun Acquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by the end of 2024. For information about Cleco Holdings’ repayment schedule, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Cleco.”
Cleco Power’s Rates
The LPSC and FERC regulate the retail rates and wholesale transmission tariffs, respectively, that Cleco Power can charge its customers.
Cleco Power’s ongoing financial viability depends on its ability to recover its costs in a timely manner from its LPSC-jurisdictional customers through LPSC-approved rates and its ability to recover its FERC-authorized revenue requirements from its FERC-jurisdictional wholesale transmission customers. Cleco Power’s financial viability also depends on its ability to recover in rates an adequate return on capital, including long-term debt and equity. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. If Cleco Power is unable to recover any material amount of its costs in rates in a timely manner or recover an adequate return on capital, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected. Recovery of these costs could result in rising utility bills threatening the affordability of such costs by Cleco Power’s customers in certain demographic areas, which in turn could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases or, in
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some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of subject expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow recovery of costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of just and reasonable rates.
Retail Electric Service
Cleco Power’s retail electric rates and business practices are regulated by the LPSC and reviews may result in refunds to customers.
Cleco Power’s retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC. Cleco Power’s current retail rate plan became effective on July 1, 2021. If a refund of previously recorded revenue is required as a result of the LPSC’s review, the refund could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the current retail rate plan, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements —Note 14 — Regulation and Rates — FRP.”
On June 30, 2023, Cleco Power filed an application with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024. The outcome of any future base rate case could have a material adverse effect on the results of operations, financial condition, and cash flows of the Registrants.
Dolet Hills Prudency Review
Cleco Power’s ability to recover costs associated with the retirement of the Dolet Hills Power Station and lignite mine closure is subject to a prudency review by the LPSC that could result in significant refunds to customers or disallowance of recovery.
Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. Initial testimony by the LPSC Staff and intervenors filed in August 2022 indicated disagreement with the recoverability of these incurred costs, quantifying up to $228.0 million of related costs as potentially unrecoverable. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power’s management has estimated that a loss resulting from a potential disallowance is
probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023.
Due to the nature of the regulatory process, Cleco Power is currently unable to determine the outcome and timing of resolution of this matter. If costs are disallowed for recovery or a refund is required as a result of the LPSC’s review, this could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the Dolet Hills prudency review, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”
LPSC Audits
The LPSC conducts fuel audits that could result in Cleco Power making substantial refunds of previously recorded revenue.
Generally, Cleco Power’s cost of fuel used for electric generation and cost of purchased power are recovered through the LPSC-established FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. For more information about Cleco Power’s current fuel audit, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Management is unable to predict or give a reasonable estimate of the possible range of the disallowance by the LPSC, if any, related to FAC filings. If a disallowance of fuel costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The LPSC conducts audits of environmental costs that could result in Cleco Power making substantial refunds of previously recorded revenue.
Cleco Power has an EAC that is used to recover from customers certain costs of environmental compliance. The costs eligible for recovery are prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. These costs are subject to periodic review by the LPSC.
Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to EAC filings. If a disallowance of environmental costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about LPSC audits related to environmental costs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements
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— Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
FERC Audit
FERC conducts audits that could result in Cleco Power making refunds of previously recorded revenue.
Generally, Cleco Power records wholesale transmission revenue through approved formula rates, Attachment O of the MISO tariff, and certain grandfathered agreements. The calculation of the rate formulas, as well as FERC accounting and reporting requirements, are subject to periodic audits by FERC. Management is unable to predict the timing of future audits and whether or not the outcome of such future audits will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
MISO
MISO market operations could have a material adverse effect on the results of operations, generation revenues, energy supply costs, financial condition, or cash flows of the Registrants.
Cleco is a member of the MISO market region referred to as “MISO South,” which encompasses parts of Arkansas, Louisiana, Mississippi, and Texas. Dispatch of generation resources and generation volumes to the market is determined by MISO. Costs in the MISO South region are heavily influenced by commodity fuel prices, transmission congestion, dispatch of the generating assets owned not only by Cleco, but by all market participants in the MISO South region, and the overall demand and generation availability in the region.
On June 1, 2023, due to generation resource retirements, increased reliance on intermittent resources, significant weather events with correlated generator outages, and declining excess reserve margins that are expected to profoundly impact future grid reliability, MISO transitioned from a traditional annual unforced capacity value to a seasonal accreditation capacity (“SAC”) value. MISO evaluates SAC values to assess generating unit capacity for Cleco’s planning reserve margin for each season. If Cleco is subject to a significant number of outages during critical instances, Cleco may not possess sufficient planning reserves to serve its needs and could be forced to purchase capacity from the MISO resource adequacy auction. Generally, Cleco Power recovers these costs through its FAC. Recovery of these costs is subject to audit by the LPSC. If a disallowance of recovery is ordered, it could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Because of the recentness of the transition, management is unable to predict the long-term potential impact the transition will have, and any such refund resulting from a disallowance could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows of the Registrants.
Reliability and CIP Standards Compliance
Cleco is subject to mandatory reliability and CIP standards. Fines and civil penalties are imposed on those who fail to comply with these standards.
NERC serves as the ERO with authority to establish and enforce mandatory reliability and CIP standards, subject to FERC approval, for users of the nation’s transmission system.
FERC enforces compliance with these standards. New standards are being developed and existing standards are continuously being modified.
As these standards continue to be adopted and modified, they may impose additional compliance requirements on Cleco Power and Cleco Cajun separately, which may result in increased capital expenditures and operating expenses for Cleco Power and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun. Failure to comply with these standards can result in the imposition of material fines and civil penalties.
A NERC Reliability Standards audit and NERC CIP Audit are conducted every three years for Cleco Power and Cleco Cajun. For more information on Cleco’s current and future audits, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition — Financial Condition — Regulatory and Other Matters — Market Structure — Wholesale Electric Markets — ERO.”
Management is unable to predict the financial outcome of any future audits or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Environmental Compliance
Cleco’s costs of compliance with environmental laws and regulations are significant. The costs of compliance with new environmental laws and regulations, as well as the incurrence of incremental environmental liabilities, could be significant to the Registrants.
Cleco is subject to extensive environmental oversight by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations related to air quality, water quality, waste management, natural resources, and health and safety. Cleco also is required to obtain and comply with numerous governmental permits in operating its facilities. Existing environmental laws, regulations, and permits could be revised or reinterpreted, and new laws and regulations could be adopted or become applicable to Cleco. As a result, some of Cleco’s EGUs could be rendered uneconomical to maintain or operate and could prompt early retirement of certain generation units. Any legal obligation that would require Cleco to substantially reduce its emissions beyond present levels could require extensive mitigation efforts and could raise uncertainty about the future viability of some fossil fuels as fuel for new and existing EGUs. Cleco will evaluate potential solutions to comply with such regulations and monitor rulemaking and any legal matters impacting the proposed regulations. Cleco may incur significant capital expenditures or additional operating costs to comply with such revisions, reinterpretations, and new requirements. If Cleco were to fail to comply, it could be subject to civil or criminal liabilities and fines or may be forced to shut down or reduce production from its facilities. Cleco cannot predict the timing or the outcome of pending or future legislative and rulemaking proposals.
Cleco Power may request from its customers recovery of its costs to comply with new environmental laws and regulations. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, there could be a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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Wholesale Electric Service
Cleco’s business practices are regulated by FERC, and the wholesale rates of both Cleco Power and Cleco Cajun are subject to FERC’s triennial market power analysis. Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates.
FERC requires a utility to pass a screening test as a condition for securing and/or retaining approval to sell electricity in wholesale markets at market-based rates. An updated market power analysis must be filed with FERC every three years or upon the occurrence of a change in status as defined by FERC regulation. Cleco filed its most recent triennial market power analysis in December 2023, and it is currently pending FERC approval. The next triennial market power analysis is expected to be filed in December 2026. In the future, if FERC determines Cleco Power and/or Cleco Cajun possesses generation market power in excess of certain thresholds, Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates, which could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Commodity and Commercial Transactions
Cleco may enter into fuel supply contracts, energy hedge transactions, and/or commercial transactions, including sales to wholesale customers. If risks related to these transactions are not managed effectively, they may have a material adverse effect on the liquidity, results of operations, or financial condition of the Registrants.
During its normal course of business, Cleco is exposed to uncertain market prices of electricity, natural gas, coal, and other commodities. Market price volatility can impact costs of fuel supply for generation, generation revenue, cost to serve Cleco’s contracted wholesale electricity customers, customer utility bills, and revenue from customers. To manage market price volatility, Cleco Power and Cleco Cajun may each enter into purchases or sales of certain physical and financial commodity contracts within established risk management guidelines.
For Cleco Power, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance are deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. At settlement, realized gains or losses are included in Cleco Power’s FAC and reflected on customer’s bills as a component of the fuel charge. Recovery of these costs included in Cleco Power’s FAC is subject to, and may be disallowed as part of, a prudency review or a periodic fuel audit conducted by the LPSC. For Cleco Cajun, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance as well as the realized gains and losses at settlement are recorded on the income statement as either a component of fuel expense, for gas-related derivatives, or purchased power expense, for FTRs.
Because Cleco is subject to significant fluctuations caused by changes in market prices, Cleco is unable to accurately predict the effect that these transactions could have on its results of operations, financial condition, or cash flows. ManagementAll risks associated with these transactions cannot be fully
eliminated. Therefore, the judgements and assumptions made in the underlying decisions related to these transactions could have a material adverse effect on the liquidity, results of operations, financial condition, or cash flows of the Registrants.
Transmission Congestion
Transmission congestion could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have a higher LMP. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power and Cleco Cajun’s pricing zones or result in transmission curtailments. Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. However, insufficient FTR allocations or increased FTR costs, due to negative congestion flows, may result in an unexpected increase in energy costs to Cleco’s customers. For Cleco Power, if a disallowance of additional fuel costs associated with congestion is ordered by the LPSC resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Counterparty Risk and Guarantees
Cleco may be required to provide credit support to its counterparties, which could have a material adverse effect on the Registrants’ liquidity.
Cleco may guarantee the performance of all or some of its commercial transaction obligations and may also be required to provide counterparty credit support in the form of cash or cash equivalent collateral to secure all or part of those obligations. Downgrades in Cleco’s credit quality or changes in the market prices of transaction-related energy commodities could increase the collateral or margin required to be on deposit with the counterparty or clearing house. The required credit support or increase in credit support could have a material adverse effect on the Registrants’ liquidity.
Cleco is exposed to the risk that counterparties may not meet their performance obligations, which could have a material adverse effect on the operating and financial performance of the Registrants.
Counterparties may fail to perform on their physical or financial obligations. Currently, Cleco has industry accepted master agreements in place with counterparties that provide credit default language. Some master agreements with counterparties contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Cleco. If the counterparties to these arrangements fail to perform, Cleco may enforce and recover the proceeds from the credit support provided; however, in the event of a default, credit support may not always be adequate to cover the related obligations. In such event, Cleco may incur losses in excess of amounts already paid, if any, to the counterparties or due to an adverse replacement cost of the transaction and may be unable to collect liquidated damages.
The credit commitments of Cleco’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such
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lenders, which could materially affect the adequacy of its liquidity sources. In no case would Cleco Power bear any commodity or credit risk of Cleco Cajun.
Global Economic Environment and Uncertainty
Adverse capital market performance could result in reductions in the fair value of benefit plan assets and increase the Registrants’ liabilities related to such plans. Sustained declines in the fair value of the plan’s assets or sustained increases in plan liabilities could result in significant increases in funding requirements, which could adversely affect the Registrants’ liquidity and results of operations.
Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under Cleco’s defined benefit pension plan. Sustained adverse market performance could result in lower rates of return for these assets than projected by Cleco and could increase Cleco’s funding requirements related to the pension plan. Additionally, changes in interest rates affect the present value of Cleco’s liabilities under the pension plan. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
Cleco Credit Ratings
A downgrade in Cleco Holdings’ or Cleco Power’s credit ratings could result in an increase in their respective borrowing costs, a reduced pool of potential investors and funding sources, and a restriction on Cleco Power making distributions to Cleco Holdings.
Neither Cleco Holdings nor Cleco Power can assure that its current debt ratings will remain in effect for any given period of time or that one or more of its debt ratings will not be lowered or withdrawn entirely by a rating agency. If S&P, Moody’s, or Fitch were to downgrade Cleco Holdings’ or Cleco Power’s long-term ratings, particularly below investment grade, the value of their debt securities could be adversely affected. Downgrades of either Cleco Holdings’ or Cleco Power’s credit ratings could result in additional fees and higher interest rates for borrowings under their respective credit facilities and term loans. In addition, Cleco Holdings or Cleco Power, as the case may be, would likely be required to pay higher interest rates in future debt financings, may be subject to more onerous debt covenants, and their pool of potential investors and funding sources could decrease. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings in the event of a ratings downgrade below investment grade.
Cleco Power LLC’s Unsecured and Unsubordinated Obligations
Cleco Power LLC’s unsecured and unsubordinated obligations, including, without limitation, its senior notes, will be effectively subordinated to any secured debt of Cleco Power LLC and structurally subordinated to indebtedness and other liabilities and preferred equity of any of Cleco Power LLC’s subsidiaries.
Cleco Power LLC’s senior notes and its obligations under various loan agreements and refunding agreements with the Rapides Finance Authority, the Louisiana Public Facilities Authority, and other issuers of tax-exempt bonds for the benefit of Cleco Power LLC are unsecured and rank equally with all of Cleco Power LLC’s existing and future unsecured and
unsubordinated indebtedness. As of December 31, 2023, Cleco Power LLC had an aggregate of $1.47 billion of unsecured and unsubordinated indebtedness net of debt discount and debt expense. The unsecured and unsubordinated indebtedness of Cleco Power LLC will be effectively subordinated to, and thus have a junior position to, any secured debt that Cleco Power LLC may have outstanding from time to time (including any mortgage bonds) with respect to the assets securing such debt. Certain agreements entered into by Cleco Power LLC with other lenders that are unsecured provide that if Cleco Power LLC issues secured debt, Cleco Power LLC is obligated to grant these lenders the same security interest in certain assets of Cleco Power LLC. If such a security interest were to arise, it would further subordinate Cleco Power LLC’s unsecured and unsubordinated obligations.
As of December 31, 2023, Cleco Power LLC had no secured indebtedness outstanding. Cleco Power LLC may issue mortgage bonds in the future under any future Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power LLC material assets upon dissolution, winding up, liquidation, or reorganization. Additionally, neither Cleco Power LLC nor its creditors, including holders of its senior notes, can use the assets of Cleco Securitization I to settle debts of Cleco Power LLC.
Presidential Administration
The Presidential administration has made and may continue to make substantial changes to environmental, fiscal, and tax policies that could have a material adverse effect on the Registrants’ business.
The Presidential administration may propose substantial changes to environmental, fiscal, and tax policies, which may include comprehensive tax reform, more stringent and onerous requirements for reducing GHG emissions and other pollutants from existing fossil fuel-fired power plants, and other objectives that may impact the results of operations, financial condition, or cash flows of the Registrants. Since taking office in January 2021, the current President has issued several executive orders designed to address climate change and GHG emissions, as well as an executive order requiring agencies to review past environmental actions. Furthermore, the current President has recommitted the U.S. to the Paris Agreement and announced the U.S.’s nationally determined contribution under the Paris Agreement at the summit on climate change in April 2021. The target aims to reduce U.S. emissions by 50-52% compared to a 2005 baseline by 2030. The current Presidential administration has also issued a memorandum to departments and agencies to refrain from proposing or issuing rules until a departmental or agency head appointed or designated by the administration has reviewed and approved the rule. The executive orders may result in the development of additional regulations or changes to existing regulations, and it is possible that these changes could adversely affect Cleco’s business. Until any such changes are enacted, management is unable to determine the timing and outcomeimpact of a final LPSC ruling.any such changes on the Registrants’ business, results of operations, financial condition, or cash flows.
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Taxes
Changes in taxation due to uncertain effects of various tax reform legislation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The Registrants make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate their obligations to taxing authorities. Tax obligations include income, franchise, property, sales and use, and employment-related taxes. These judgments may include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken by the Registrants could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The IRA of 2022 was signed into law on August 16, 2022. Management is still monitoring any potential impact the legislation could have on the Registrants. For more information related to the IRA of 2022’s tax and renewable provisions, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Tax Reform.”
Insurance
Cleco’s insurance coverage may not be sufficient and may become more costly to maintain.
Cleco currently has property, casualty, cybersecurity, and liability insurance policies in place to protect its employees, board of managers, and assets in amounts that it considers appropriate. Such policies are subject to certain limits and deductibles. Insurance coverage may not be available in the future at current costs, on commercially reasonable terms, or at all, and the insurance proceeds received for any loss of, or any damage to, any of Cleco’s facilities may not be sufficient to restore the loss or damage without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Like other utilities that serve coastal regions, Cleco Power does not have insurance covering its transmission and distribution system, other than substations, because it believes such insurance to be cost prohibitive. In the future, Cleco Power may not be able to recover the costs incurred in restoring transmission and distribution properties following hurricanes or other natural disasters through issuance of storm recovery bonds or a change in Cleco Power’s regulated rates or otherwise, or any such recovery may not be timely granted. Therefore, Cleco Power may not be able to restore any loss of, or damage to, any of its transmission and distribution properties without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Global Economic Uncertainty and Access to Capital
Disruptions in the capital and credit markets may adversely affect the Registrants’ cost of capital and ability to meet liquidity needs or access capital to operate and grow the business.
The Registrants’ business is capital intensive and dependent upon the Registrants’ respective abilities to access capital at reasonable rates and other terms. The Registrants’ liquidity needs could significantly increase in the event of a hurricane
or other weather-related or unforeseen disaster or when there are spikes in the price of natural gas and other commodities. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel, purchased power, or storm restoration costs; higher than expected required pension contributions; an acceleration of payments or decreased credit lines; less cash flow from operations than expected; or other unexpected events, could cause the financing needs of the Registrants to increase materially.
Events beyond the Registrants’ control, such as political uncertainty in the U.S. (including the ongoing debates related to the U.S. federal government budget), volatility and disruption in global capital and credit markets, (including those resulting from geopolitical events, such as the Russian invasion of Ukraine or the continued conflict in the Middle East), uncertainty regarding increases or decreases in interest rates resulting from changes in the federal funds rate range targeted by the Federal Reserve, pandemics, epidemics and other outbreaks (such as COVID-19), or other adverse developments that affect financial institutions (such as bank failures) may create uncertainty that could increase the cost of capital for the Registrants or impair their ability to access the capital markets, including the ability to draw on their respective bank credit facilities. Additionally, upon approval of the Cleco Cajun Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail customers harmless for any adverse impacts, increased costs of debt or equity, and credit rating downgrades attributable to the Cleco Cajun Acquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by 2024. At December 31, 2023, the remaining balance of Cleco Holdings’ debt to be repaid by 2024 was $66.7 million. The Registrants may be unable to predict the degree of success they will have in renewing or replacing their respective credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If the Registrants are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities, and/or bear an unfavorable cost of capital, which, in turn, could have a material adverse effect on the Registrants’ ability to fund capital expenditures or to service debt, or on the Registrants’ flexibility to react to changing economic and business conditions.
Inflation may negatively impact the results of operations, financial condition, or cash flows of the Registrants.
While the pace of inflation has moderated during the course of 2023, Cleco has observed that prices for equipment, materials, supplies, employee labor, and contractor services have increased. Long-term inflationary pressures may result in such prices continuing to increase more quickly than expected. Increases in inflation raises costs for labor, materials, and services, and Cleco may be unable to secure these resources on economically acceptable terms or offset such costs with increased revenues, operating efficiencies, or cost savings, which may adversely impact the results of operations, financial condition, or cash flows of the Registrants.
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ESG
Increased focus on and changing expectations regarding ESG programs, as well as failure to achieve ESG goals, may adversely impact the Registrants’ access to capital, results of operations, financial condition, and cash flows.
Stakeholder scrutiny of companies’ ESG practices has been increasing across numerous industries. In recent years, certain stakeholders, including an increasing number of investors and lenders, have started placing more importance on ESG criteria when making lending and investment decisions. The increased focus on and activism related to ESG may limit the Registrants’
access to capital or financing and/or increase the cost of capital or financing as some investors or lenders may elect to increase their required returns on capital offered to the Registrants or reallocate or not commit capital based on their assessment of the Registrants’ ESG profile. Additionally, the Registrants’ failure to address and meet stakeholders’ ESG expectations, which continue to evolve, failure to report progress on ESG initiatives, or failure to achieve the ESG goals may negatively impact the Registrants’ reputation and business and, as a result, could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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ITEM 1B.UNRESOLVED STAFF COMMENTS |
None.
Risk Management, Strategy, and Governance
Cybersecurity Integration with overall risk management
Cleco’s business operations rely on complex and evolving operational and information technology systems and network infrastructures. Digital information, information technology, and automation are essential components of Cleco’s operations and growth strategy. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. These cybersecurity tools and assessments are embedded in Cleco’s overall enterprise risk management system. Cleco utilizes the following tools, methodologies, and standards to assess, identify, and manage material cybersecurity risks:
•NERC CIP standards, which protect Cleco’s operational technology,
•National Institute of Standards and Technology Cybersecurity Framework (NIST CSF), which protects Cleco’s operational and information technology,
•Sarbanes-Oxley Act (SOX) regulations, which require Cleco to maintain access and security controls for certain systems that are essential to the completeness and accuracy of financial reporting,
•internal and third-party assessments to identify and prioritize risks,
•Cybersecurity Incident Response Plans (CSIRPs), and
•a security operations center managed 24 hours a day by a third party.
Processes to assess, identify, and manage material risks
Cleco has processes and procedures in place to ensure its cybersecurity program is operating effectively and members of Cleco’s EMT routinely review its cybersecurity strategy, policy, program effectiveness, standards enforcement, and cybersecurity issue management. Cleco conducts risk assessments and compliance audits against standards including the NIST CSF, NERC CIP, and SOX. Cleco also engages with a variety of independent third parties, such as assessors, consultants, and auditors, for periodic audits and reviews of cybersecurity threats and related controls, including review of periodic penetration tests, regular patch reviews from vendors listing relevant risks, industry alerts and forums, and tabletop exercises. These assessment results are used to
develop appropriate cybersecurity controls and risk mitigation strategies, which are implemented throughout the organization. Cleco also utilizes its Internal Audit department to review its cybersecurity program, in which findings are reported to the Audit Committee.
Cleco’s CSIRPs help ensure a timely, consistent, and compliant response to actual or attempted cybersecurity incidents impacting Cleco. These response plans include detection, analysis, containment, eradication, recovery, post-incident review, and timely notice to relevant stakeholders, including Cleco’s Audit Committee, once an incident is deemed to be potentially significant or material.
Cleco maintains a formal cybersecurity training program for all employees that includes training on matters such as phishing and email security best practices. Employees are also required to complete compulsory training on data privacy. Cleco also provides specialized security training for certain other employee roles.
Processes to oversee and identify material risks associated with use of third-party service providers
Cleco is implementing processes to manage the cybersecurity risks associated with its use of third-party service providers. Additionally, Cleco is actively reviewing and updating all third-party service contracts upon renewal for potential amendments related to security, confidentiality, and recourse in the event of a negligent incident, such as a breach, loss, or unauthorized use of Cleco’s data. These measures provide the structure for managing Cleco’s cyber-related risks.
Management’s oversight
Cleco maintains a cybersecurity program overseen by its Chief Administrative and Sustainability Officer, EMT, and Audit Committee that uses a risk-based methodology to support the security, confidentiality, integrity, and availability of information. This program is integrated within Cleco’s enterprise risk management program, which utilizes the Enterprise Risk Management Committee to collaboratively manage and advance enterprise-wide risk management processes. Cleco’s Disclosure Committee, which is comprised of EMT and the Chief Accounting Officer, is the means in which cybersecurity matters are assessed for disclosure requirements. Cleco’s EMT sets enterprise risk strategies and makes risk-informed decisions that include the assessment and response to
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cybersecurity risk. In March 2024, management began engaging in quarterly discussions with the Audit Committee regarding incidents of any magnitude experienced during the quarter, strategies and significant risk exposures, as well as the measures implemented to monitor and control these risks. These discussions may include the results of internal and third party risk assessments and audit results, and management’s plans to improve its cybersecurity posture using a risk-based approach.
Cleco’s cybersecurity team, overseen by the Chief Administrative and Sustainability Officer, has decades of experience selecting, deploying, and operating cybersecurity technologies, initiatives, and processes. Members of this team have extensive technical and leadership experience in federal and/or private sector environments as well as industry-recognized cybersecurity certifications. This team relies on threat intelligence as well as other information obtained from governmental, public or private sources, including external consultants engaged by Cleco. Cleco’s Audit Committee oversees the management of its cybersecurity risk and is responsible for communicating cyber-related incidents to its Boards of Managers.
Risks and previous events with material effects
It is possible that Cleco’s information technology systems and networks, or those managed by third parties, could have vulnerabilities and those vulnerabilities could go unnoticed for a period of time. Cleco may also be exposed to, and adversely affected by, interruptions to its computer and information technology systems, and sophisticated cyberattacks, including cybersecurity threats and vulnerabilities in its systems, malware, and attacks targeting its information technology systems and networks. Any such prior events, to date, have not had a material impact on Cleco’s results of operations, financial condition or cash flows. While various procedures and controls have been and are being utilized to mitigate such risks, there can be no guarantee that the actions and controls Cleco has implemented and is implementing, or which Cleco causes or has caused third party providers to implement, will be sufficient to protect its systems, information or other property. For more discussion of potential cyber threats that may affect Cleco, see Item 1A, “Risk Factors — Operational Risks — Technology and Terrorism Threats.”
All of Cleco Power’s electric generating stations and electric operating properties are located in Louisiana. Cleco Power considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Generating Stations
As of December 31, 2023, Cleco Power either owned or had an ownership interest in five steam electric generating stations, three combined cycle units, and one gas turbine with a combined rated capacity of 3,035 MW, and a combined electric net generating capacity of 2,822 MW. The net generating capacity is the result of capacity tests and operational tests performed during 2023, as required by MISO. This amount reflects the maximum production capacity these units can sustain over a specified period of time. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Substations
As of December 31, 2023, Cleco Power owned 93 active transmission substations and 250 active distribution substations.
Electric Lines
As of December 31, 2023, Cleco Power’s transmission system consisted of 67 circuit miles of 500-kiloVolt (kV) lines; 609 circuit miles of 230-kV lines; 682 circuit miles of 138-kV lines; and 29 circuit miles of 69-kV lines. Cleco Power’s distribution system consisted of 3,431 circuit miles of 34.5-kV lines and 8,843 circuit miles of other lines.
General Properties
Cleco Power owns various properties throughout Louisiana, which include a headquarters office building, regional offices,
service centers, telecommunications equipment, and other general-purpose facilities.
Title
Cleco Power’s electric generating plants and certain other principal properties are owned in fee simple. 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 under Cleco Power’s Indenture of Mortgage, which does not impair the use of such properties in the operation of its business. As of December 31, 2023, no mortgage bonds were outstanding under the Indenture of Mortgage. Some of the unsecured and unsubordinated indebtedness of Cleco Power will be effectively subordinated to, and thus have a junior position to, any mortgage bonds that Cleco Power may have outstanding from time to time with respect to the assets subject to the lien of the Indenture of Mortgage. Cleco Power may issue mortgage bonds in the future under its Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power material assets upon dissolution, winding up, liquidation, or reorganization.
Cleco Cajun has electric generating stations and electric operating properties located in Louisiana and Texas. Cleco Cajun considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. As a result, the Cleco Cajun Sale Group is presented as discontinued
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operations. For more information, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — “Discontinued Operations.”
Electric Generating Stations
As of December 31, 2023, Cleco Cajun has ownership interest in four electric generating stations which, combined, consist of five gas turbine units and five steam electric generating units located in Louisiana as well as four combined cycle units located in Texas. These generating facilities have a combined rated capacity of 3,379 MW. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
General Properties
Cleco Cajun owns various properties throughout Louisiana, which include a regional office, telecommunications equipment, and other general-purpose assets.
Title
Cleco Cajun’s assets are owned in fee simple and are not subject to non-ordinary course of business liens or encumbrances.
For information on legal proceedings affecting Cleco, see Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
For information on legal proceedings affecting Cleco Power, see Item 1, “Business — Environmental Matters — Air Quality” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
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ITEM 4. MINE SAFETY DISCLOSURES |
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| CLECO POWER | | 2023 FORM 10-K |
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ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
There is no established public trading market for Cleco Holdings’ membership interests. All of Cleco Holdings’ outstanding membership interests are owned by Cleco Group.
Cleco Holdings’ credit facility requires a total indebtedness of less than or equal to 65.0% of total capitalization in order to declare dividend payments. Additionally, in accordance with the 2016 Merger Commitments, Cleco Holdings is subject to certain provisions limiting the amount of distributions that may be paid from Cleco Holdings to Cleco Group or Cleco Partners, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings.
Cleco Holdings made $53.5 million and $219.6 million of distributions to Cleco Group during 2023 and 2022, respectively. Cleco Holdings made no distributions to Cleco Group during 2021.
Cleco Holdings received no equity contributions from Cleco Group during 2023, 2022, and 2021.
There is no market for Cleco Power’s membership interests. All of Cleco Power’s outstanding membership interests are owned
by Cleco Holdings. Distributions on Cleco Power’s membership interests are paid when and if declared by Cleco Power’s Board of Managers. Any future distributions also may be restricted by any credit or loan agreements into which Cleco Power may enter.
Some provisions in Cleco Power’s debt instruments restrict the amount of equity available for distribution to Cleco Holdings by Cleco Power by requiring Cleco Power’s total indebtedness to be less than or equal to 65.0% of total capitalization. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings.
Cleco Power made $94.8 million and $105.5 million of distributions to Cleco Holdings in 2023 and 2022, respectively. Cleco Power made no distributions to Cleco Holdings in 2021.
Cleco Power received no equity contributions from Cleco Holdings in 2023, 2022 and 2021.
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion is intended to assist in understanding Cleco’s results of operations and Cleco’s present financial condition. Cleco’s historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material.
Cleco uses its website, https://www.cleco.com, as a routine channel for distribution of important information, including news releases and financial information. Cleco’s website is the primary source of publicly disclosed news about Cleco. Cleco is providing the address to its website solely for informational purposes and does not intend for the address to be an active link. The contents of the website are not incorporated into this Annual Report on Form 10-K.
Cleco is a regional energy company that conducts substantially all of its business operations through its principal operating business segment, Cleco Power. Cleco Power is a regulated electric utility company that owns nine generating units with a total rated capacity of 3,035 MW and serves approximately 295,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana.
Many factors affect Cleco’s primary business of generating, delivering, and selling electricity. These factors include the ability to increase energy sales while containing
costs and the ability to successfully perform in MISO while subject to the related operating challenges and uncertainties, including increased wholesale competition. In addition, factors affecting Cleco Power include weather and the presence of a stable regulatory environment, which impacts the ROE and the current rate case, as well as the recovery of costs related to storms, growing energy demand, and volatile fuel prices; the ability to reliably deliver power to its jurisdictional customers; and the ability to comply with increasingly stringent regulatory and environmental standards. Significant events and major initiatives impacting Cleco and Cleco Power are discussed below.
Cleco Cajun Divestiture
In 2022, Cleco Holdings began a strategic review process related to its investment in Cleco Cajun. In March 2023, Cleco Holdings’ management, with the support of its Board of Managers, committed to a plan of action for the disposition of the Cleco Cajun Sale Group. On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers for the purchase price of $600.0 million. Cleco Holdings’ management determined that the criteria under GAAP for the Cleco Cajun Sale Group to be classified as held for sale were met and the sale will represent a strategic shift
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| CLECO POWER | | 2023 FORM 10-K |
that will have a major effect on Cleco’s future operations and financial results. Therefore, the results of operations and financial position of the Cleco Cajun Sale Group are presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
Dolet Hills
On January 31, 2022, Cleco Power filed an application with the LPSC requesting recovery of stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other costs associated with the closure of the Oxbow mine. These costs are currently under a prudency review by the LPSC. Pending the completion of the prudency review, Cleco Power intends to seek a financing order to securitize the unrecovered Dolet Hills Power Station closure costs, Oxbow mine closure costs, and deferred fuel costs. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power believes and continues to assert that the related costs were prudently incurred and should be recoverable. However, management has estimated that a loss resulting from a potential disallowance is probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on Cleco’s and Cleco Power’s Balance Sheets and Electric customer credits on Cleco’s and Cleco Power’s Statements of Income. Cleco Power is seeking a settlement to resolve this matter and move forward with the securitization process. Due to the nature of the regulatory process, the outcome and timing of resolution of this matter is uncertain. For more information on the prudency review, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”
ESG
Cleco is accelerating its efforts to protect the environment, manage social relationships, govern responsibly, and ensure accountability. To protect the environment, Cleco is increasing its renewable and electrification initiatives. Cleco is also aiming to reduce GHG emissions in ways such as incorporating renewable energy resources into its generating fleet, as it replaces coal-fired generation units retired after serving their useful lives. Cleco aims to sustainably reduce its GHG emissions by approximately 60.0% by 2030 with aspirations of net zero emissions by 2050. To manage social relationships, Cleco plans to ensure that the electricity that it generates is affordable, reliable, and sustainable. Cleco also continues to support community investment opportunities across its service territory and has created a workforce culture that rewards inclusion, safety, and innovation. To govern responsibly, Cleco plans to continue operating according to policies and practices that support the governance framework. To ensure accountability, Cleco has created an ESG Steering Committee and appointed a Chief Sustainability Officer to oversee the
continued implementation of ESG initiatives. Currently, management is unable to predict the impact of implementing these ESG initiatives on the Registrants. For more information on these ESG goals, see Part I, Item 1, “Business — Human Capital — Diversity and Inclusion,” “— Communities,” and “— Oversight and Governance.” For more information about Cleco’s environmental initiatives, see “— Renewable and Electrification Initiatives.”
Tax Reform
On August 16, 2022, the IRA of 2022 became law. The IRA of 2022 seeks to lower gasoline and electricity prices, increase energy security, and help consumers afford emissions-cutting technologies. In addition, the IRA of 2022 provides tax credits for clean electricity sources and energy storage, as well as creates programs to enable states and electric utilities to transition to clean power. There are several tax and renewables provisions in this legislation that could have a material effect on the results of operations, financial condition, or cash flows of the Registrants. These include provisions related to direct pay and credit transferability, enhanced carbon capture and sequestration credits, new technology-neutral clean energy investment credits, and new technology-neutral clean energy production credits. These credits are expected to help fund Cleco Power’s Project Diamond Vault as well as future renewable and electrification projects. Management continues to monitor any potential impact the IRA of 2022 could have on the Registrants. In addition, the IRA of 2022 could increase business growth in Cleco’s service territory.
Decarbonization Initiatives
Cleco Power is exploring multiple decarbonization initiatives predominantly associated with Madison Unit 3, with the primary initiative currently being Project Diamond Vault.
Project Diamond Vault
On April 11, 2022, Cleco Power announced Project Diamond Vault, a carbon capture and sequestration facility that is anticipated to be constructed at the Brame Energy Center. This facility is expected to capture and compress carbon dioxide produced by the combustion of fuel at Madison Unit 3 and store the compressed gas permanently in deep geological formations located beneath the Brame Energy Center. Cleco Power expects to reduce the carbon dioxide output of Madison Unit 3 by up to 95% with the implementation of this technology. Through this project, Cleco Power plans to leverage technology advancements and Louisiana’s natural resources to create a clean power solution.
Total development costs for Project Diamond Vault are expected to be approximately $58.0 million, of which the FEED study is projected to cost approximately $13.0 million. The FEED study has begun and a $9.0 million congressional appropriation has been secured to help offset costs of this study. As of December 31, 2023, Cleco Power has incurred $12.0 million for Project Diamond Vault development efforts, including the FEED study and received $2.8 million of the congressional appropriation from the U.S. Department of Energy to partially offset these costs. On March 1, 2024, Cleco Power received an additional $1.4 million of the congressional appropriation. The FEED study is expected to be completed in late 2024, and major permitting is expected to be completed in the second half of 2025. Construction of the project is expected to begin in the second half of 2026. Management
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| CLECO POWER | | 2023 FORM 10-K |
expects the total project will be completed in mid to late 2030. After the cost of the FEED study, the remaining project cost is currently estimated to be between $1.70 billion and $2.00 billion. This estimate will be refined throughout the FEED study process as additional information and cost estimates become available. Cleco anticipates funding this project through one or more sources including tax credits provided by the IRA of 2022, U.S. Department of Energy grants or loans, debt financing, private equity investment, and partnership interests.
Renewable and Electrification Initiatives
On July 22, 2022, Cleco Power entered into a long-term agreement to purchase, among other things, the output, capacity, and current and future environmental resource credits of a 240-MW solar electric generation facility to be constructed in DeSoto Parish, Louisiana and owned by a third party. The agreement is subject to LPSC approval and other conditions precedent. If approved, Cleco Power expects to begin receiving output from this facility in 2026.
Cleco Power is also pursuing electrification initiatives such as gas compression, e-trucking, green tariffs, residential heating programs, and increasing the supply of light duty electric vehicles and forklifts, among others.
Cleco Power is seeking available funds from the U.S. government for funding of these electrification initiatives. Cleco Power cannot predict the likelihood that any funding from the U.S. government ultimately will be approved.
DSMART Project
The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment to utilize new and emerging technologies to facilitate automatic fault isolation, service restoration, and fault location. The project is expected to provide savings through a reduction in outage restoration time and improve operational efficiencies and time to locate faults. The project is also expected to improve safety and reliability of Cleco Power’s distribution assets by minimizing outage patrols and improving situational awareness in the distribution operations center. The total estimated project cost is $90.2 million. The project implementation will be completed in phases, and management expects the total project will be completed by the end of 2028. Cleco Power is currently in the second phase of the project. As of December 31, 2023, Cleco Power had spent $55.1 million on the project.
Other
Cleco Power is working to secure load growth opportunities that include renewing existing franchises, pursuing new franchises, and adding new retail load opportunities with large industrial, commercial, and residential customers. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government, military, wood. paper, health care, information technology, transportation, and other manufacturing.
In 2021 through a request for proposal process, a significant wholesale customer currently under contract with Cleco Power informed Cleco Power that it was not selected as a provider of capacity and energy after the first quarter of 2024, and on October 19, 2022, the LPSC certified these results. Cleco Power’s failure to recontract this agreement is expected to affect jurisdictional retail rates that is subject to review by the LPSC in conjunction with Cleco Power’s current rate case. On June 30, 2023, Cleco Power filed an application
with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Comparison of the Years Ended December 31, 2023, and 2022
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| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,238,791 | | | $ | 1,604,480 | | | $ | (365,689) | | | (22.8) | % |
| Operating expenses | 1,179,323 | | | 1,205,091 | | | 25,768 | | | 2.1 | % |
| Operating income | 59,468 | | | 399,389 | | | (339,921) | | | (85.1) | % |
| Interest income | 5,393 | | | 5,250 | | | 143 | | | 2.7 | % |
| Allowance for equity funds used during construction | 5,747 | | | 3,740 | | | 2,007 | | | 53.7 | % |
| Other expense, net | (694) | | | (11,240) | | | 10,546 | | | 93.8 | % |
| Interest charges | 164,856 | | | 143,956 | | | (20,900) | | | (14.5) | % |
| Federal and state income tax (benefit) expense | (65,073) | | | 20,035 | | | 85,108 | | | 424.8 | % |
| (Loss) income from continuing operations, net of income taxes | (29,869) | | | 233,148 | | | (263,017) | | | (112.8) | % |
| Income (loss) from discontinued operations, net of income taxes | 14,642 | | | (44,337) | | | 58,979 | | | 133.0 | % |
| Net (loss) income | $ | (15,227) | | | $ | 188,811 | | | $ | (204,038) | | | (108.1) | % |
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The change in Cleco’s results of operations are primarily attributable to the following:
•lower gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $217.3 million included in continuing operations.
•activity of its reportable segment, Cleco Power. For detailed discussions of those impacts, see “— Cleco Power.”
•the effects of the presentation of the Cleco Cajun Sale Group as discontinued operations and, as a result, Cleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco.”
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| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Significant Factors Affecting Cleco Power
Revenue is primarily affected by the following factors:
As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors influencing the electric utility industry. These factors, among others, include:
•an increasingly competitive business environment;
•the ability to recover costs through rate-setting proceedings,
•the ability to successfully perform in MISO and the related operating challenges,
•the cost of compliance with environmental and reliability regulations,
•conditions in the credit markets and global economy,
•changes in the federal and state regulation of generation, transmission, and the sale of electricity, and
•the increasing uncertainty of future federal and state regulatory and environmental policies.
For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see “Cautionary Note Regarding Forward-Looking Statements,” Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises,” and “— Financial Condition — Regulatory and Other Matters — Market Structure.” For a discussion of risk factors affecting Cleco Power’s business, see Part I, Item 1A, “Risk Factors.”
Cleco Power’s residential customers’ demand for electricity is affected largely by weather. Weather is generally measured in cooling degree-days and heating degree-days. A high number of cooling degree-days may indicate consumers will use more air conditioning, while a high number of heating degree-days may indicate consumers will use more 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 readily available and winter energy is typically priced below the rate charged for energy used in the summer. 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.
Over the last five years, Cleco Power’s non-industrial retail sales have been relatively steady; however, there have been fluctuations in industrial retail sales. Cleco Power anticipates moderate growth in retail sales over the next five years. Cleco Power expects to begin providing service to expansions of current customers’ operations, as well as service to new retail customers. Cleco Power’s expectations and projections regarding retail sales are dependent 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. Cleco Power is pursuing load growth opportunities that include renewal of existing franchises as well as adding new franchises. For more information on other expectations of future energy sales on Cleco Power, see “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Other issues facing the electric utility industry that could affect sales include:
•imposition of federal and/or state renewable portfolio standards,
•imposition of energy efficiency mandates without recovery of lost revenues,
•legislative and regulatory changes,
•increases in environmental regulations and compliance costs,
•cost of power impacted by the price movement of fuels and the addition of new generation capacity,
•transmission congestion costs,
•increases in capital and operations and maintenance costs due to higher construction and labor costs,
•changes in electric rates compared to customers’ ability to pay,
•changes in the credit markets and local and global economies, and
•the LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities.
For more information on energy legislation in regulatory matters that could affect Cleco, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Legislative and Regulatory Changes and Matters.”
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases, or in some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. Effective July 1, 2021, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, are required to be refunded to customers. On June 30, 2023, Cleco Power filed an application with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of limiting rate increases or reducing rates.
Expenses are primarily affected by the following factors:
The majority of Cleco Power’s non-fuel cost recovery expenses include:
•other operations expenses that are affected by, among other things, the cost of employee benefits, insurance expense,
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| CLECO POWER | | 2023 FORM 10-K |
and the costs associated with energy delivery and customer service,
•maintenance expenses for Cleco Power’s generating plants, which generally depend upon the plant’s physical characteristics, maintenance practices, and effectiveness of preventive maintenance programs,
•maintenance expenses of transmission and distribution assets, which are generally affected by the level of repair and rehabilitation of lines to maintain reliability,
•depreciation and amortization expense, which is primarily affected by the cost of the facilities in service, the time the facilities were placed in service, and the estimated useful life of the facilities,
•taxes other than income taxes, which generally include payroll taxes, franchise taxes, and property taxes, and
•interest charges, which are generally affected by interest rates on outstanding debt.
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 692,866 | | | $ | 685,419 | | | $ | 7,447 | | | 1.1 | % |
| Fuel cost and purchased power recovery | 504,503 | | | 837,647 | | | (333,144) | | | (39.8) | % |
| Electric customer credits | (60,689) | | | (7,674) | | | (53,015) | | | (690.8) | % |
| Other operations | 111,561 | | | 98,759 | | | 12,802 | | | 13.0 | % |
| Affiliate revenue | 8,904 | | | 6,377 | | | 2,527 | | | 39.6 | % |
| Operating revenue, net | 1,257,145 | | | 1,620,528 | | | (363,383) | | | (22.4) | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 504,512 | | | 837,647 | | | 333,135 | | | 39.8 | % |
| Non-recoverable fuel and purchased power | 45,485 | | | 59,846 | | | 14,361 | | | 24.0 | % |
| Other operations and maintenance | 233,863 | | | 216,851 | | | (17,012) | | | (7.8) | % |
| Depreciation and amortization | 191,745 | | | 178,231 | | | (13,514) | | | (7.6) | % |
| Taxes other than income taxes | 60,676 | | | 55,075 | | | (5,601) | | | (10.2) | % |
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| Regulatory disallowance | — | | | 13,841 | | | 13,841 | | | 100.0 | % |
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| Total operating expenses | 1,036,281 | | | 1,361,491 | | | 325,210 | | | 23.9 | % |
| Operating income | 220,864 | | | 259,037 | | | (38,173) | | | (14.7) | % |
| Interest income | 5,011 | | | 5,082 | | | (71) | | | (1.4) | % |
| Allowance for equity funds used during construction | 5,747 | | | 3,740 | | | 2,007 | | | 53.7 | % |
| Other expense, net | (28) | | | (7,081) | | | 7,053 | | | 99.6 | % |
| Interest charges | 98,879 | | | 88,218 | | | (10,661) | | | (12.1) | % |
| Federal and state income tax (benefit) expense | (4,434) | | | 2,503 | | | 6,937 | | | 277.1 | % |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | (32,908) | | | (19.4) | % |
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The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (MILLION kWh) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,772 | | | 3,787 | | | (0.4) | % |
| Commercial | 2,723 | | | 2,674 | | | 1.8 | % |
| Industrial | 2,229 | | | 2,282 | | | (2.3) | % |
| Other retail | 124 | | | 121 | | | 2.5 | % |
| Total retail | 8,848 | | | 8,864 | | | (0.2) | % |
| Sales for resale | 2,980 | | | 3,061 | | | (2.6) | % |
| Total retail and wholesale customer sales | 11,828 | | | 11,925 | | | (0.8) | % |
The following table shows the components of Cleco Power’s base revenue:
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (THOUSANDS) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,729 | | | $ | 322,545 | | | 0.1 | % |
| Commercial | 201,270 | | | 200,031 | | | 0.6 | % |
| Industrial | 95,707 | | | 90,243 | | | 6.1 | % |
| Other retail | 11,663 | | | 11,032 | | | 5.7 | % |
| | | | | |
| Total retail | 631,369 | | | 623,851 | | | 1.2 | % |
| Sales for resale | 61,497 | | | 61,568 | | | (0.1) | % |
| Total base revenue | $ | 692,866 | | | $ | 685,419 | | | 1.1 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2023 CHANGE |
| | 2023 | | 2022 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,707 | | | 3,095 | | | 2,920 | | | 19.8 | % | | 27.0 | % |
| Heating degree-days | 1,057 | | | 1,650 | | | 1,477 | | | (35.9) | % | | (28.4) | % |
Base
Base revenue increased $7.4 million primarily due to $4.9 million of higher industrial demand. Industrial demand increased primarily due to new industrial customers in 2023. Also contributing to the increase was $1.4 million of higher rates, largely related to the infrastructure and incremental cost recovery rider. Although higher than normal temperatures were experienced during the summer of 2023 which contributed to an increase in base revenue, the lower usage from milder winter weather during 2023 offset this increase resulting in no meaningful impact to the overall base revenue variance for 2023.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
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| CLECO POWER | | 2023 FORM 10-K |
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to recover from its customers substantially all such prudently incurred charges. Approximately 77% of Cleco Power’s total fuel cost during 2023 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. Cleco Power’s incremental recoverable fuel and purchased power expenses for the year ended December 31, 2023, were impacted primarily by lower natural gas costs as compared to the year ended December 31, 2022. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Electric Customer Credits
Electric customer credits increased $53.0 million primarily due to $58.7 million for the accrual of an estimated contingency loss related to the probability of a partial disallowance of the recovery of incurred fuel costs associated with the Dolet Hills prudency review. This increase was partially offset by $5.7 million for the absence of a 2022 refund to Cleco Power’s retail customers related to the St. Mary Clean Energy Center for costs recovered in periods prior to September 30, 2022. For information on the Dolet Hills prudency review, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.” For more information about the 2022 refund, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $12.8 million primarily due to $20.8 million for a full year of storm recovery collection in 2023 compared to four months of storm recovery collection in 2022, partially offset by $6.7 million of lower MISO transmission revenue from lower usage.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power decreased $14.4 million primarily due to $8.6 million for the timing of recovery of transmission costs and $4.7 million of lower fuel expense primarily due to the expiration of wholesale contracts in December 2022 and May 2023.
Other Operations and Maintenance
Other operations and maintenance increased $17.0 million primarily due to $14.7 million of higher employee-related expenses largely related to employee benefits. Also contributing to the increase was $3.1 million of higher routine distribution maintenance expenses, $2.8 million of higher outside service costs primarily related to information technology support and consulting, $2.2 million of higher distribution operations expenses, and $2.1 million of higher reserve for credit losses. These increases were partially offset by $8.2 million of lower generating outage maintenance expenses and $1.4 million of lower generating routine maintenance expenses.
Depreciation and Amortization
Depreciation and amortization increased $13.5 million primarily due to $11.6 million for the amortization of the securitized intangible asset that began in November 2022, $6.5 million related to changes in the estimated useful lives of internal software, and $4.2 million for higher normal recurring additions to fixed assets. These increases were partially offset by $7.4 million for the absence of amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta and $2.1 million for the absence of amortization related to costs associated with lignite mining. For more information on the securitized intangible asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill— Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.6 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
Regulatory disallowance decreased $13.8 million due to the absence of the impairment charge resulting from the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information about the regulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Expense, Net
Other expense, net decreased $7.1 million primarily due to the absence of non-service pension costs amortization as a result of an increase in the discount rate which caused actuarial gains.
Interest Charges
Interest charges increased $10.7 million primarily due to $8.8 million for interest on storm recovery bonds issued in June 2022 by Cleco Securitization I and $4.3 million for higher rates on variable rate debt. These increases were partially offset by $2.8 million for the absence of interest on floating rate senior notes that were redeemed at par in June 2022.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Income Taxes
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco Power.”
Comparison of the Years Ended December 31, 2022, and 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,604,480 | | | $ | 1,226,324 | | | $ | 378,156 | | | 30.8 | % |
| Operating expenses | 1,205,091 | | | 934,321 | | | (270,770) | | | (29.0) | % |
| Operating income | 399,389 | | | 292,003 | | | 107,386 | | | 36.8 | % |
| Interest income | 5,250 | | | 3,297 | | | 1,953 | | | 59.2 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
| | | | | | | |
| Other expense, net | (11,240) | | | (15,061) | | | 3,821 | | | 25.4 | % |
| Interest charges | 143,956 | | | 128,798 | | | (15,158) | | | (11.8) | % |
| Federal and state income tax expense | 20,035 | | | 1,333 | | | (18,702) | | | * |
| Income from continuing operations, net of income taxes | 233,148 | | | 160,013 | | | 73,135 | | | 45.7 | % |
| (Loss) income from discontinued operations, net of income taxes | (44,337) | | | 34,953 | | | (79,290) | | | (226.8) | % |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | (6,155) | | | (3.2) | % |
| *Not Meaningful | | | | | | |
The change in Cleco’s results of operations are primarily attributable to the following:
•activity of its reportable segment, Cleco Power. For detailed discussions of those impacts, see “— Cleco Power.”
•higher gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $33.9 million included in continuing operations.
•the effects of the presentation of the Cleco Cajun Sale Group as discontinued operations and, as a result, Cleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco.”
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 685,419 | | | $ | 652,573 | | | $ | 32,846 | | | 5.0 | % |
| Fuel cost and purchased power recovery | 837,647 | | | 549,676 | | | 287,971 | | | 52.4 | % |
| Electric customer credits | (7,674) | | | (40,878) | | | 33,204 | | | 81.2 | % |
| Other operations | 98,759 | | | 74,625 | | | 24,134 | | | 32.3 | % |
| Affiliate revenue | 6,377 | | | 5,641 | | | 736 | | | 13.0 | % |
| Operating revenue, net | 1,620,528 | | | 1,241,637 | | | 378,891 | | | 30.5 | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 837,647 | | | 549,677 | | | (287,970) | | | (52.4) | % |
| Non-recoverable fuel and purchased power | 59,846 | | | 41,420 | | | (18,426) | | | (44.5) | % |
| Other operations and maintenance | 216,851 | | | 223,257 | | | 6,406 | | | 2.9 | % |
| Depreciation and amortization | 178,231 | | | 173,498 | | | (4,733) | | | (2.7) | % |
| Taxes other than income taxes | 55,075 | | | 49,598 | | | (5,477) | | | (11.0) | % |
| Regulatory disallowance | 13,841 | | | — | | | (13,841) | | | (100.0) | % |
| | | | | | | |
| | | | | | | |
| Total operating expenses | 1,361,491 | | | 1,037,450 | | | (324,041) | | | (31.2) | % |
| Operating income | 259,037 | | | 204,187 | | | 54,850 | | | 26.9 | % |
| Interest income | 5,082 | | | 3,294 | | | 1,788 | | | 54.3 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
| Other expense, net | (7,081) | | | (19,561) | | | 12,480 | | | 63.8 | % |
| Interest charges | 88,218 | | | 73,090 | | | (15,128) | | | (20.7) | % |
| Federal and state income tax expense (benefit) | 2,503 | | | (9,353) | | | (11,856) | | | (126.8) | % |
| Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 35,969 | | | 26.8 | % |
| | | | | | | |
The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (MILLION kWh) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,787 | | | 3,653 | | | 3.7 | % |
| Commercial | 2,674 | | | 2,564 | | | 4.3 | % |
| Industrial | 2,282 | | | 2,170 | | | 5.2 | % |
| Other retail | 121 | | | 125 | | | (3.2) | % |
| Total retail | 8,864 | | | 8,512 | | | 4.1 | % |
| Sales for resale | 3,061 | | | 2,880 | | | 6.3 | % |
| Total retail and wholesale customer sales | 11,925 | | | 11,392 | | | 4.7 | % |
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table shows the components of Cleco Power’s base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (THOUSANDS) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,545 | | | $ | 304,761 | | | 5.8 | % |
| Commercial | 200,031 | | | 189,802 | | | 5.4 | % |
| Industrial | 90,243 | | | 88,661 | | | 1.8 | % |
| Other retail | 11,032 | | | 10,984 | | | 0.4 | % |
| | | | | |
| Total retail | 623,851 | | | 594,208 | | | 5.0 | % |
| Sales for resale | 61,568 | | | 58,365 | | | 5.5 | % |
| Total base revenue | $ | 685,419 | | | $ | 652,573 | | | 5.0 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2022 CHANGE |
| | 2022 | | 2021 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,095 | | | 3,141 | | | 2,779 | | | (1.5) | % | | 11.4 | % |
| Heating degree-days | 1,650 | | | 1,314 | | | 1,547 | | | 25.6 | % | | 6.7 | % |
Base
Base revenue increased $32.8 million primarily due to $19.3 million of higher usage as a result of weather and $18.0 million of higher rates as a result of the implementation of Cleco Power’s current retail rate plan.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 78% of Cleco Power’s total fuel cost during 2022 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. In February 2021, Cleco Power’s incremental fuel and purchased power costs were impacted significantly as a result of Winter Storms Uri and Viola. On March 29, 2021, Cleco Power received approval from the LPSC to recover a portion of the incremental fuel and purchased power costs resulting from Winter Storms Uri and Viola through Cleco Power’s FAC over a period of 12 months beginning with the May 2021 bills. Cleco Power’s incremental fuel and purchased power costs during 2021 were also impacted by higher costs of lignite at the Dolet Hills Power Station, which are being recovered through Cleco Power’s
FAC. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.” For more information on lignite costs at the Dolet Hills Power Station, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”
Electric Customer Credits
Electric customer credits decreased $33.2 million primarily due to $39.9 million of lower credits to retail customers for the federal tax-related benefits of the TCJA now being a component of rates as a result of Cleco Power’s current retail rate plan. After the implementation of Cleco Power’s current retail rate plan, these credits offset base revenue on Cleco Power’s Consolidated Statement of Income. Partially offsetting this decrease was $7.1 million for refunds to Cleco Power’s retail customers as a result of the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— TCJA.” For more information about the LPSC settlement and disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $24.1 million primarily due to $13.2 million for storm recovery securitization revenue, $11.6 million of higher transmission revenue from increased usage at higher rates, $1.9 million of higher forfeited discounts, and $1.0 million of higher pole attachment rental income. Partially offsetting these increases was $3.8 million of lower revenue as a result of the expiration of a utility contract in September 2021.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power increased $18.4 million primarily due to $10.9 million for higher volumes of power purchased from MISO at higher prices, $4.6 million for lower amounts deferred to a regulatory asset associated with the Northlake Transmission Agreement, and $1.8 million of higher amortization to the Northlake Transmission Agreement regulatory asset. For more information on the Northlake Transmission Agreement regulatory asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Other.”
Other Operations and Maintenance
Other operations and maintenance decreased $6.4 million primarily due to $6.9 million of lower generating routine maintenance expenses largely due to the absence of expenses related to the Dolet Hills Power Station as a result of
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
its retirement in December 2021, $6.3 million of lower generating outage maintenance expenses, and $5.7 million of lower distribution maintenance expenses which was largely the result of fewer storms in 2022. These decreases were partially offset by $6.8 million of higher administrative and general employee related expenses and $3.1 million of higher routine distribution operations expense.
Depreciation and Amortization
Depreciation and amortization increased $4.7 million primarily due to $4.3 million for the amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta, $2.8 million for the amortization of the securitized intangible asset that began in November 2022, and $1.3 million for the absence of a 2021 adjustment to the corporate franchise tax regulatory asset. These increases were partially offset by $5.3 million of lower normal recurring additions to fixed assets. For more information on the securitized intangible asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill— Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.5 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
In September 2022, Cleco Power recognized a regulatory disallowance of $13.8 million for the impairment charge resulting from a portion of planning and construction costs incurred for the St. Mary Clean Energy Center that were deemed imprudent and not recoverable by the LPSC. For more information about the regulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction decreased $6.2 million primarily due to the absence of a December 2021 adjustment driven by the timing of the election and LPSC approval of the FERC modified formula.
Other Expense, Net
Other expense, net decreased $12.5 million primarily due to $8.4 million of lower pension non-service costs largely due to lower amortization of net losses, $2.4 million for the absence of a special termination benefit, and $1.0 million of disallowed costs as a result of the settlement of Cleco Power’s current retail rate plan.
Interest Charges
Interest charges increased $15.1 million primarily due to $10.0 million for interest on storm recovery bonds issued in June
2022 by Cleco Securitization I, $2.0 million for higher rates on variable rate debt, and $1.3 million for higher interest on floating rate senior notes issued in September 2021.
Income Taxes
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco Power.”
Non-GAAP Measure
The financial results in the following table is presented on an accrual basis. EBITDA is a key non-GAAP financial measure used by the CEO to assess the operating performance of Cleco’s segment however, it is not indicative of future performance. Management evaluates the performance of Cleco’s segment and allocates resources to it based on segment profit and the requirements to implement strategic initiatives and projects to meet current business objectives. EBITDA is defined as net income adjusted for interest, income taxes, depreciation, and amortization.
The financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect the presentation of the Cleco Cajun Sale Group as discontinued operations. Cleco’s segment structure and its allocation of corporate expenses were updated to reflect how management makes financial decisions and allocates resources. Cleco has recast data from prior periods to reflect this change to conform to the current year presentation. For more information, see item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
The following table sets forth a reconciliation of net income, the nearest comparable GAAP financial performance measure, to EBITDA for the Cleco Power reportable segment for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | 134,088 | |
| Add: Depreciation and amortization | 191,745 | | | 178,231 | | | 173,498 | |
| Less: Interest income | 5,011 | | | 5,082 | | | 3,294 | |
| Add: Interest charges | 98,879 | | | 88,218 | | | 73,090 | |
| Add: Federal and state income tax expense (benefit) | (4,434) | | | 2,503 | | | (9,353) | |
| EBITDA | $ | 418,328 | | | $ | 433,927 | | | $ | 368,029 | |
|
Selected Financial Data
The information set forth in the following table should be read in conjunction with Cleco’s Consolidated Financial Statements and the related Notes in Item 8, “Financial Statements and Supplementary Data.”
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, | | | | |
| (THOUSANDS, EXCEPT PER SHARE AND PERCENTAGES) | 2023 | | 2022 | | 2021 | | | | |
| Operating revenue, net (excluding intercompany revenue) | | | | | | | | | |
Cleco Power (1) | $ | 1,248,241 | | | $ | 1,614,151 | | | $ | 1,235,996 | | | | | |
| | | | | | | | | |
| Other | (9,450) | | | (9,671) | | | (9,672) | | | | | |
| Total | $ | 1,238,791 | | | $ | 1,604,480 | | | $ | 1,226,324 | | | | | |
| (Loss) income from continuing operations before income taxes | $ | (94,942) | | | $ | 253,183 | | | $ | 161,346 | | | | | |
| Income (loss) from discontinued operations, net of income taxes | $ | 14,642 | | | $ | (44,337) | | | $ | 34,953 | | | | | |
| Net income | $ | (15,227) | | | $ | 188,811 | | | $ | 194,966 | | | | | |
| Capitalization | | | | | | | | | |
| Member’s equity | 47.77 | % | | 48.42 | % | | 46.56 | % | | | | |
Long-term debt and finance leases (2) | 52.23 | % | | 51.58 | % | | 53.44 | % | | | | |
| Member’s equity | $ | 2,873,173 | | | $ | 2,947,067 | | | $ | 2,954,156 | | | | | |
Long-term debt and finance leases (2) | $ | 3,141,924 | | | $ | 3,139,094 | | | $ | 3,390,033 | | | | | |
| Total assets | $ | 8,100,393 | | | $ | 8,253,749 | | | $ | 8,125,018 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1) Includes revenue for transmission services provided to Cleco Cajun that are no longer eliminated on Cleco’s Consolidated Statements of Income as a result of discontinued operations presentation. For more information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
(2) Excludes long-term debt and finance leases due within one year.
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| CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS |
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2023, and 2022, see “— Results of Operations — Comparison of the Years Ended December 31, 2023, and 2022 — Cleco Power.”
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2022, and 2021, see “— Results of Operations — Comparison of the Years Ended December 31, 2022, and 2021 — Cleco Power.”
The narrative analysis referenced above should be read in combination with Cleco Power’s Financial Statements and the Notes contained in this Annual Report on Form 10-K.
| | | | | | | | | | | | | | |
| CRITICAL ACCOUNTING ESTIMATES |
The preparation of Cleco’s and Cleco Power’s Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that could have a material impact on the results of operations, financial condition, or cash flows of the Registrants. For more information on Cleco’s accounting policies, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies.”
Cleco believes that the following accounting estimates are the most significant in understanding reported financial results:
•Regulatory Accounting: A significant portion of Cleco’s businesses are subject to regulation. This results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. Cleco Power is allowed to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of Cleco’s businesses. Cleco’s management believes that currently available facts support
the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment. For more information on regulatory assets and liabilities, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Regulation,” “Note 6 — Regulatory Assets and Liabilities,” and “Note 14 — Regulation and Rates.”
•Goodwill: On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion, all of which was assigned to the Cleco Power reporting unit. Goodwill is required to be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires management to make significant assumptions and estimates, including the identification of reporting units, assignments of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of the reporting units, in which independent valuation experts are often used. Changes in management’s assumptions and estimates could materially affect the determination of fair value and goodwill impairment. For more information on goodwill recorded in connection with the 2016 Merger, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill — Goodwill.”
•Pension and Other Postretirement Benefits: To determine assets, liabilities, and expenses relating to pension and other postretirement benefits, management must make assumptions about future trends. Assumptions and estimates include, but are not limited to, discount rates, expected return on plan assets, mortality rates, future rate of compensation increases, and medical inflation trend rates. These assumptions are reviewed and updated on an annual basis. Changes in the rates from year-to-year and newly-enacted laws could have a material effect on Cleco’s financial condition and results of operations by changing the recorded assets, liabilities, expense, or required funding of
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
the pension plan obligation. One component of pension expense is the expected return on plan assets. It is an assumed percentage return on the market-related value of plan assets. The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. The 2023 return on plan assets was 9.23% compared to an expected long-term return of 6.60%. For 2022, the plan assets had a return of (19.94)% compared to an expected long-term return of 5.25%. For the calculation of the 2024 periodic expense, Cleco decreased the discount rate to 5.13% and increased the expected long-term return on plan assets to 6.68%.
Management uses a theoretical bond portfolio in order to calculate the discount rate for the measurement of liabilities. As a result of the annual review of assumptions, the pension plan discount rate decreased from 5.44% to 5.13% for the December 31, 2023, measurement of liabilities.
A change in the assumed discount rate creates a deferred actuarial gain or loss. Generally, when the assumed discount rate decreases compared to the prior measurement date, a deferred actuarial loss is created. When the assumed discount rate increases compared to the prior measurement date, a deferred actuarial gain is created. Actuarial gains and losses also are created when actual results, such as compensation increases, differ from assumptions. On December 31, 2023, Cleco recognized a $17.1 million net actuarial loss primarily due to updated demographic assumptions resulting from the completion of an experience study in 2023, a decrease in the discount rate and higher than expected return on assets. Historically, Cleco Power has been allowed to recover pension plan expenses; therefore, deferred actuarial gains and losses are recorded as a regulatory asset or liability. The net of the deferred gains and losses is amortized to pension expense over the average service life of the remaining plan participants (approximately five years as of December 31, 2023, for Cleco’s plan) when it exceeds certain thresholds. This approach of amortizing gains and losses has the effect of reducing the volatility of pension expense. Over time, it is not expected to reduce or increase the pension expense relative to an approach that immediately recognizes losses and gains.
The following table shows the impact of a 0.5% change in Cleco’s pension plan discount rate, salary scale, and rate of return on plan assets:
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ACTUARIAL ASSUMPTION
(THOUSANDS) | CHANGE IN ASSUMPTION | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | CHANGE IN ESTIMATED BENEFIT COST |
| Discount rate | 0.5% increase | | $ | (28,459) | | | $ | 561 | |
| 0.5% decrease | | $ | 31,391 | | | $ | (660) | |
| Salary scale | 0.5% increase | | $ | 3,261 | | | $ | 314 | |
| 0.5% decrease | | $ | (3,058) | | | $ | (293) | |
| Expected return on assets | 0.5% increase | | $ | — | | | $ | (2,278) | |
| 0.5% decrease | | $ | — | | | $ | 2,278 | |
Cleco was not required to make contributions to the pension plan in 2023, 2022, or 2021. Based on funding assumptions at December 31, 2023, management estimates that $94.2 million of pension contributions will be required
through 2028. Cleco expects to make $25.7 million of required contributions to the pension plan in 2024. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Future required contributions are driven by liability funding target percentages set by law which could cause the required contributions to change from year-to-year. The ultimate amount and timing of the contributions will be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
For more information on pension and other postretirement benefits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Pension Plan and Employee Benefits.”
•Income Taxes: For more information on income taxes, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Income Taxes” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes.”
•Loss Contingencies: Cleco is currently involved in certain legal and regulatory proceedings and management has estimated the probable costs for the resolution of these matters. These estimates are based on an analysis of potential results, assuming a combination of litigation and settlement assumptions. For more information on legal and regulatory proceedings affecting Cleco, see Part I, Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees.”
•Discontinued Operations: Cleco calculated an estimated impairment on the disposition of its Cleco Cajun Sale Group as of December 31, 2023. Cleco determined that the estimated fair value less the estimated cost to sell the Cleco Cajun Sale Group was less than the carrying value of the Cleco Cajun Sale Group at December 31, 2023. The fair value estimates involved a number of judgements and assumptions including the future performance of the Cleco Cajun Sale Group through the expected divestiture date, the expected net working capital adjustment to the sale proceeds from the Cleco Cajun Divestiture Purchase and Sale Agreement, and the weighted average cost of capital or discount rate. The estimated fair value was determined using the income approach. If a significant change occurs in the fair value less cost to sell the Cleco Cajun Sale Group, the actual impairment on the disposition of the Cleco Cajun Sale Group could be materially different than the current estimated loss recorded at December 31, 2023. For more on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Cleco Power’s retail rates are regulated by the LPSC and its tariffs for transmission services are regulated by FERC, while rates for wholesale power sales are based on market-based rates and ultimately reviewed by FERC. Cleco Power must evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral and the recoverability and refund of certain assets. Future rate changes could have a material impact on the results of operations, financial condition, or cash flows of Cleco Power. Areas that could be materially impacted by future actions of regulators are described below:
•The LPSC allows Cleco Power to recover prudent costs incurred in developing long-lived assets. If the LPSC were to rule that the cost of current or future long-lived assets was imprudent and not recoverable, Cleco Power could be required to write down the asset and incur a corresponding impairment loss.
On September 21, 2022, the LPSC approved a settlement regarding the St. Mary Clean Energy Center disallowing recovery of $15.0 million, which resulted in a net $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value.
•The LPSC determines the amount and type of fuel and purchased power expenses that Cleco Power can charge customers through the FAC. Changes in the determination of allowable costs already incurred by Cleco Power could cause material changes in fuel revenue. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, by the LPSC related to these filings. For more information on current LPSC fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees —Litigation — LPSC Audits and Reviews — Fuel Audits.” For information on fuel revenue, see “— Results of Operations — Comparison of the Years Ended December 31, 2023, and 2022 — Cleco Power — Significant Factors Affecting Cleco Power — Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Power Purchased.”
Liquidity and Capital Resources
General Considerations and Credit-Related Risks
Credit Ratings and Counterparties
Financing for operational needs and capital expenditure requirements not satisfied by operating cash flows depends upon the cost and availability of external funds through both short- and long-term financing. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain or expand its businesses. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, Cleco Holdings’ and Cleco Power’s credit ratings, cash flows
from routine operations, and credit ratings of project counterparties. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. The following table presents the credit ratings of Cleco Holdings and Cleco Power at December 31, 2023:
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| SENIOR UNSECURED DEBT | | CORPORATE/LONG-TERM ISSUER |
| S&P | MOODY’S | FITCH | | S&P | MOODY’S | FITCH |
| Cleco Holdings | BBB- | Baa3 | BBB- | | BBB- | Baa3 | BBB- |
| Cleco Power | BBB+ | A3 | BBB+ | | BBB+ | A3 | BBB |
Credit ratings are not recommendations to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
On December 5, 2023, following the announcement of the proposed sale of the Cleco Cajun Sale Group, S&P placed all their ratings for Cleco Holdings and Cleco Power on CreditWatch with positive implications of the expected improvement in business risk from having a fully regulated utility business following the completion of the transaction.
Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest rating held. If Cleco Holdings’ or Cleco Power’s credit ratings were to be downgraded, Cleco Holdings or Cleco Power, respectively, could be required to pay additional fees and incur higher interest rates for borrowings under their respective revolving credit facilities.
Cleco may be required to provide credit support with respect to bilateral transactions and contracts that Cleco has entered into or may enter into in the future. The amount of credit support required may change based on margining formulas, changes in credit agency ratings, or liquidity ratios.
Cleco Power and Cleco Cajun participate in the MISO market. MISO requires Cleco Power and Cleco Cajun to provide credit support which may increase or decrease due to the timing of the settlement schedules and MISO margining formulas. For more information about MISO, see “— Regulatory and Other Matters — Transmission Rates.” For more information about credit support, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees and “Note 9 — Derivative Instruments.”
Global and U.S. Economic Environment
Global and domestic economic conditions may have an impact on Cleco’s business and financial condition. Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. During periods of capital market volatility, the availability of capital could be limited and the costs of capital may increase for many companies. Although the Registrants have not experienced restrictions in the financial markets, their ability to access the capital markets may be restricted at a time when the Registrants would like, or need, to do so. Any restrictions could have a material impact on the Registrants’ ability to fund capital expenditures or debt service, or on their flexibility to react to changing economic and business conditions. Credit constraints could have a material, negative impact on the Registrants’ lenders or customers, causing them
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
to fail to meet their obligations to the Registrants or to delay payment of such obligations. The higher interest rate environment the Registrants have been exposed to has negatively affected interest expense on variable rate debt and positively affected interest income for the Registrants’ short-term investments.
In recent years, inflationary pressures have increased substantially. Under established regulatory practice, historical costs have traditionally formed the basis for recovery from customers. As a result, Cleco Power’s future cash flows designed to provide recovery of historical plant costs may not be adequate to replace property, plant, and equipment in future years. For information on the impacts of inflation and market price volatility of natural gas on credit loss reserves related to customer accounts receivable, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Reserves for Credit Losses” and Part I, Item 1A, “Risk Factors — General Risk Factors — Global Economic Uncertainty and Access to Capital.”
TCJA
The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan, which included the settlement of the TCJA protected and unprotected excess ADIT. As a result of this settlement, all retail customers will continue receiving bill credits resulting from the TCJA. For more information on the regulatory impact of the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — TCJA.”
Fair Value Measurements
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. For more information about fair value instruments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 8 — Fair Value Accounting Instruments.”
Cash Generation and Cash Requirements
Restricted Cash and Cash Equivalents
For information on Cleco’s and Cleco Power’s restricted cash and cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”
Working Capital and Debt
Cleco
At December 31, 2023, and 2022, Cleco had $110.0 million and $109.0 million, respectively, of short-term debt for outstanding borrowings under its aggregate $475.0 million revolving credit facilities. For more information on Cleco’s credit facilities, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
At December 31, 2023, Cleco’s long-term debt and finance leases outstanding, excluding fair value adjustments resulting from the 2016 merger, was $3.30 billion, of which $256.8 million was due within one year. The long-term debt due within one year at December 31, 2023, primarily
represents Cleco Power’s $125.0 million bank term loan due in May 2024, $66.7 million of principal payments made on Cleco Holdings’ bank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun Acquisition commitments to the LPSC, $50.0 million of Cleco Power’s senior notes due in December 2024, and $14.5 million of Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. For more information on Cleco’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.”
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes due in 2023. As a result, the interest rate of the senior notes changed to a floating interest rate equal to SOFR plus 1.725% and the maturity date was extended from May 1, 2023, to May 1, 2025.
Proceeds from the divestiture of the Cleco Cajun Sale Group, which is subject to customary regulatory approvals, must be used to satisfy the LPSC commitment related to the debt that funded the Cleco Cajun Acquisition. For more information, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 3 —Discontinued Operations.”
Cash and cash equivalents available at December 31, 2023, were $122.6 million combined with $365.0 million available revolving credit facility capacity ($65.0 million from Cleco Holdings and $300.0 million from Cleco Power) for total liquidity of $487.6 million.
At December 31, 2023, and 2022, Cleco had a working capital deficit of $17.5 million and $88.8 million, respectively. The $71.3 million decrease in the working capital deficit is primarily due to:
•an $84.1 million decrease in long-term debt due within one year primarily due to the reclassification of Cleco Holdings’ $165.0 million senior notes due in May 2025 and the refinancing of Cleco Power’s $100.0 million senior notes due in December 2026. These decreases were partially offset by Cleco Power’s $125.0 million bank term loan due in May 2024, Cleco Power’s $50.0 million senior notes due in December 2024, and $4.9 million of additional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024,
•a $68.0 million increase in cash and cash equivalents,
•a $53.6 million increase in net assets and liabilities held for sale primarily due to the reclassification of all assets and liabilities related to the Cleco Cajun Sale Group,
•a $24.7 million increase in materials and supplies inventory primarily due to higher purchases of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $21.0 million decrease in regulatory liabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory liability,
•a $15.8 million decrease in accounts payable, excluding FTRs, primarily due to lower accruals related to enterprise resource planning (ERP) system upgrades, various substation projects, natural gas, and solid fuels, and
•an $11.3 million increase in fuel inventory primarily due to higher coal volume with higher transportation costs driven by lower usage from a decrease in market gas prices, partially offset by lower petroleum coke volume at a lower price per ton.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
These decreases in the working capital deficit were partially offset by:
•a $57.8 million increase in the provision for rate refund primarily due to the accrual of an estimated contingent loss related to the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $46.2 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to lower fuel costs,
•a $41.7 million decrease in energy risk management assets, excluding FTRs, primarily due to market value changes of gas-related derivative contracts,
•a $25.8 million increase in the current portion of postretirement benefit obligations primarily due to the accrual of pension contributions expected to be made in 2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $12.9 million decrease in regulatory assets primarily due to withdrawing the remaining balance of the Hurricane Ida regulatory asset from the related storm reserve following settlement of the prudency review and due to the reclassification of the short-term portion of the TCJA regulatory liability.
At December 31, 2023, Cleco’s Consolidated Balance Sheets reflected $5.23 billion of total liabilities compared to $5.31 billion at December 31, 2022. The $79.5 million decrease in total liabilities during 2023 was primarily due to:
•an $81.2 million decrease in total long-term debt primarily due to the $65.6 million principal payment on Cleco Holdings’ debt, as required by the Cleco Cajun Acquisition commitments to the LPSC, and $9.6 million of Cleco Securitization I storm recovery bond principal payments,
•a $48.1 million decrease in liabilities held for sale primarily due to the reclassifications of liabilities related to the Cleco Cajun Sale Group,
•a $21.0 million decrease in regulatory liabilities, as previously discussed,
•a $18.9 million decrease in accumulated deferred income tax primarily due to an associated decrease in deferred fuel and market value changes of gas-related derivative contracts, and
•a $15.8 million decrease in accounts payable, as previously discussed.
These decreases in total liabilities were partially offset by:
•a $57.7 million increase in the provision for rate refund, as previously discussed,
•a $25.8 million increase in the current portion of postretirement benefit obligations, as previously discussed,
•a $17.0 million increase in customer advances for construction of substation expansions, and
•a $12.6 million increase in energy risk management liabilities, excluding FTRs, primarily due to market value changes on gas-related derivative contracts.
Cleco Holdings
At December 31, 2023, and 2022. Cleco Holdings had $110.0 million and $64.0 million, respectively, of short-term debt outstanding, which represented borrowings under its $175.0 million revolving credit facility. For more information on Cleco Holdings’ credit facility, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
At December 31, 2023, Cleco Holding’s long-term debt outstanding was $1.41 billion, $66.5 million of which was due within one year. The long-term debt due within one year at December 31, 2023, primarily represents $66.7 million of principal payments on Cleco Holdings’ bank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun Acquisition commitments to the LPSC. For Cleco Holdings, long-term debt decreased $64.2 million primarily due to the $65.6 million principal payment on Cleco Holdings’ debt as required by the Cleco Cajun Acquisition commitments to the LPSC, paid in 2023.
Cleco Holdings has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Power’s similar line of credit, to support its working capital needs. At December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit.
Cash and cash equivalents available at Cleco Holdings at December 31, 2023, were $5.2 million, combined with $65.0 million available revolving credit facility capacity for a total liquidity of $70.2 million.
Cleco Power
At December 31, 2023, Cleco Power had no short-term debt. At December 31, 2022, Cleco Power had $45.0 million of short-term debt for outstanding borrowings under its $300.0 million revolving credit facility. For more information on Cleco Power’s credit facility, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
Cleco Power has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Holdings’ similar line of credit, to support their working capital needs. At December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit.
At December 31, 2023, Cleco Power’s long-term debt and finance leases outstanding was $1.89 billion, of which $190.3 million was due within one year. The long-term debt due within one year at December 31, 2023, primarily represents a $125.0 million bank term loan due in May 2024, $50.0 million of Cleco Power’s senior notes due in December 2024, and $14.5 million of Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. For more information on Cleco Power’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.”
On December 14, 2023, Cleco Power entered into a note
purchase agreement for the issuance and sale in a private placement of $100.0 million aggregate principal amount of senior notes at a fixed interest rate of 5.96% and a maturity date of December 14, 2026. The proceeds of the issuance were used to pay Cleco Power’s $100.0 million aggregate principal amount of senior notes due December 2023.
Cash and cash equivalents available at December 31, 2023, were $49.2 million combined with $300.0 million
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| CLECO POWER | | 2023 FORM 10-K |
available revolving credit facility capacity for total liquidity of $349.2 million.
At December 31, 2023, and 2022, Cleco Power had a working capital deficit of $66.2 million and a working capital surplus of $35.9 million, respectively. The $102.1 million decrease in the working capital surplus is primarily due to:
•an $80.0 million increase in long-term debt due within one year primarily due to the reclassification of a $125.0 million bank term loan due in May 2024, $50.0 million of senior notes due in December 2024, and $4.9 million of additional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. These increases were offset by the refinancing of $100.0 million senior notes with a maturity date of December 2026,
•a $57.7 million increase in the provision for rate refund primarily due to the accrual of an estimated contingent loss related to the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $46.2 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to lower fuel costs,
•a $25.8 million increase in the current portion of postretirement benefit obligations primarily due to the accrual of pension contributions expected to be made in 2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $14.3 million increase in risk management liability, excluding FTRs, primarily due to market value changes on gas-related derivative contracts.
These decreases in the working capital surplus were partially offset by:
•a $45.0 million decrease in short-term debt due to payments on the revolving credit facility,
•a $34.5 million increase in cash and cash equivalents,
•a $24.7 million increase in materials and supplies inventory primarily due to higher purchases of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $23.8 million decrease in accounts payable, excluding FTRs, primarily due to lower accruals related to ERP system upgrades, various substation projects, natural gas, and solid fuels, and
•a $21.0 decrease in regulatory liabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory liability.
At December 31, 2023, Cleco Power’s Consolidated Balance Sheets reflected $3.37 billion of total liabilities compared to $3.32 billion at December 31, 2022. The $45.0 million increase in total liabilities during 2023 was primarily due to:
•a $57.7 million increase in the provision for rate refund, as previously discussed,
•a $36.4 million increase in accumulated deferred income tax primarily due to the utilization of the loss carryforward,
•a $25.8 million increase in the current portion of postretirement benefit obligations, as previously discussed,
•a $17.0 million increase in customer advances for construction primarily due to multiple substation expansions, and
•a $14.3 million increase in risk management liability, excluding FTRs, as previously discussed.
These increases in total liabilities were partially offset by:
•a $45.0 million decrease in short-term debt, as previously discussed,
•a $23.8 million decrease in accounts payable, as previously discussed, and
•a $21.0 million decrease in regulatory liabilities, as previously discussed.
Concentrations of Credit Risk
At December 31, 2023, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 8 — Fair Value Accounting Instruments.”
Debt and Distribution Limitations
The 2016 Merger Commitments include provisions for limiting the amount of distributions that can be made from Cleco Holdings to Cleco Group, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings. Cleco Holdings may not make any distribution unless, after giving effect to such distribution, Cleco Holdings’ debt to EBITDA ratio is equal to or less than 6.50 to 1.00 and Cleco Holdings’ corporate credit rating is investment grade with one or more of the three credit rating agencies. At December 31, 2023, Cleco Holdings was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. Additionally, in accordance with the 2016 Merger Commitments, Cleco Power is subject to certain provisions limiting the amount of distributions that may be paid to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings. Cleco Power may not make any distribution unless, after giving effect to such distribution, Cleco Power’s common equity ratio would not be less than 48% and Cleco Power’s corporate credit rating is investment grade with two of the three credit rating agencies. At December 31, 2023, Cleco Power was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. The 2016 Merger Commitments also prohibit Cleco from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. For more information on the 2016 Merger Commitments, see Part I, Item 1A, “Risk Factors — Structural Risks — Holding Company” and “— Regulatory Risks — Regulatory Compliance.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cash Flows Comparison for the Years Ended December 31, 2023, and 2022
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2023, and 2022:
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| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | 2023 | | 2022 | | VARIANCE |
| Net cash provided by operating activities | $ | 421,192 | | | $ | 344,912 | | | $ | 76,280 | | | $ | 399,943 | | | $ | 274,265 | | | $ | 125,678 | |
| Net cash used in investing activities | $ | (227,816) | | | $ | (193,257) | | | $ | (34,559) | | | $ | (218,657) | | | $ | (220,693) | | | $ | 2,036 | |
| Net cash (used in) provided by financing activities | $ | (128,881) | | | $ | (111,065) | | | $ | (17,816) | | | $ | (150,352) | | | $ | 6,731 | | | $ | (157,083) | |
Cleco – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $76.3 million from 2022 primarily due to:
•$53.8 million of higher collections from Cleco Power and Cleco Cajun’s customers and
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$21.0 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by $37.1 million of higher purchased power costs from MISO at Cleco Power and Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities increased $34.6 million primarily due to lower life insurance proceeds of $41.3 million.
This increase was partially offset by lower additions to property, plant, and equipment, excluding AFUDC, of $6.5 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $17.8 million during 2023 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds and
•$101.0 million of lower draws on credit facilities.
These increases were partially offset by:
•$242.5 million of lower repayments on long-term debt,
•$166.1 million of lower distributions to Cleco Group, and
•$100.0 million of proceeds from the refinancing of Cleco Power’s senior notes due in 2023.
Cleco Power – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income,
and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $125.7 million from 2022 primarily due to:
•$50.6 million of higher collections from customers,
•$45.8 million of higher receipts for affiliate settlements,
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$16.7 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by:
•$18.9 million of higher fuel inventory costs due to purchases at a higher price per unit for petroleum coke and natural gas and
•$9.8 million of higher purchased power costs from MISO.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2023 decreased$2.0 million from 2022 primarily due to lower additions to property, plant, and equipment, excluding $8.0 million of AFUDC, and
These decreases were partially offset by lower life insurance proceeds received of $6.5 million.
Cleco Power – Net Financing Cash Flow
Net cash used in financing activities during 2023 increased $157.1 million from 2022 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s senior secured storm recovery bonds and
•$137.0 million of lower draws on revolving credit facilities.
These increases were partially offset by:
•$240.4 million of lower repayments on long-term debt,
•$100.0 million of proceeds from the refinancing of senior notes due in 2023,
•$47.0 million of lower payments on the credit facility,
•$10.7 million of lower distributions to Cleco Holdings, and
•$6.9 million of lower payments for debt financing costs.
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Cash Flows Comparison for the Years Ended December 31, 2022, and 2021
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2022, and 2021:
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| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | 2022 | | 2021 | | VARIANCE |
| Net cash provided by operating activities | $ | 344,912 | | | $ | 182,640 | | | $ | 162,272 | | | $ | 274,265 | | | $ | 102,518 | | | $ | 171,747 | |
| Net cash used in investing activities | $ | (193,257) | | | $ | (300,833) | | | $ | 107,576 | | | $ | (220,693) | | | $ | (290,745) | | | $ | 70,052 | |
| Net cash (used in) provided by financing activities | $ | (111,065) | | | $ | 178,910 | | | $ | (289,975) | | | $ | 6,731 | | | $ | 246,177 | | | $ | (239,446) | |
Cleco – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $162.3 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs at Cleco Power,
•higher recoveries of net fuel and purchased power costs at Cleco Power of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million at Cleco Power.
These increases were partially offset by:
•higher payments for affiliate settlements of $58.1 million and
•higher payments for fuel inventory of $29.8 million primarily due to purchases of coal at a higher price per ton at Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities decreased $107.6 million primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $74.4 million and
•higher life insurance proceeds of $40.9 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $290.0 million during 2022 primarily due to:
•the absence of the issuance of Cleco Power’s $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Group of $219.6 million, and
•the repayment of Cleco Power’s $25.0 million senior notes in December 2022.
These increases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022,
•lower payments on credit facilities of $143.0 million, and
•higher draws on credit facilities of $41.0 million.
Cleco Power – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $171.7 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs,
•higher recoveries of net fuel and purchased power costs of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million.
These increases were partially offset by higher payments for affiliate settlements of $46.9 million.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2022 decreased$70.1 million from 2021 primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $72.0 million and
•higher life insurance proceeds of $5.7 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco Power — Net Financing Cash Flow
Net cash provided by financing activities during 2022 decreased $239.4 million from 2021 primarily due to:
•the absence of issuance of $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Holdings of $105.5 million,
•the repayment of $25.0 million senior notes in December 2022, and
•lower draws on revolving credit facilities of $23.0 million.
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These decreases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022, and
•lower payments on credit facilities of $143.0 million.
Capital ExpendituresAir Quality
Air emissions from each of Cleco’s generating units are regulated by the EPA and the LDEQ. The LDEQ has authority over and implements certain air quality programs established by the EPA under the federal CAA, as well as its own air quality
regulations. The LDEQ establishes standards of performance and requires permits for EGUs in Louisiana. Cleco’s generating units are subject to these requirements.
The EPA has proposed and adopted rules under the authority of the CAA relevant to the emissions of SO2 and NOx from Cleco’s generating units.
Regional Haze SIP
The CAA contains a regional haze program with the goal of returning Class I Federal areas of the nation to natural visibility by 2064. To attain this goal, states are required to develop a SIP, which, among other things, must include requirements for the installation of Best Available Retrofit Technology (BART) for applicable EGUs. Louisiana’s SIP for the first planning phase was approved by the EPA in December 2017. Because the Louisiana SIP mandates use of existing controls and participation in the CSAPR as BART, Cleco does not believe the Louisiana SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants. In April 2021, the LDEQ issued for public comment, a proposed SIP for the second planning period, but never submitted it to the EPA. In August, 2022, the EPA published a finding that Louisiana and fourteen other states failed to submit a regional haze SIP for the second planning period. Such finding requires the EPA to issue a Federal Implementation Plan (FIP) within two years of the effective date of the finding, if a SIP is not provided by LDEQ before then. Until the LDEQ determines what the reasonable progress requirements are for Cleco units, completes its update of the SIP, and the SIP is approved by the EPA, Cleco is unable to predict if the second phase SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Acid Rain Program
The CAA also established the Acid Rain Program to address the effects of acid rain and imposed restrictions on acid rain-causing SO2 emissions from certain generating units. The CAA requires all of the regulated EGUs to possess a regulatory allowance for each ton of SO2 emitted beginning in 2000. The EPA allocates a set number of allowances to each affected unit based on its historic emissions. Cleco had sufficient allowances for operations in 2023 and expects to have sufficient allowances for 2024 operations.
The Acid Rain Program also established emission rate limits on NOx emissions for certain generating units. Cleco’s management believes that compliance with the acid rain emission limits for NOx has been achieved at all affected facilities.
CSAPR
In July 2011, the EPA adopted CSAPR, a cap-and-trade type program requiring utilities to make substantial reductions in NOx emissions that contribute to ozone to reduce interstate transport of such pollution. In October 2016, the EPA finalized a rule updating CSAPR to maintain 2008 ozone emission limitations in downwind states by addressing summertime transport of ozone pollution (CSAPR Update). The CSAPR Update, which commenced in May 2017, set stricter NOx ozone season emission budgets in 22 states.
In April 2021, the EPA issued a Revised CSAPR Update rule to address states with interstate pollution transport obligations for the 2008 ozone NAAQS. Cleco does not expect the final regulation to have a material impact on the results of operations, financial condition, or cash flow of the Registrants.
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In October 2015, the EPA promulgated the 2015 ozone NAAQS, lowering the level of both the primary and secondary ground-level ozone standards from 75 ppb to 70 ppb. Under the CAA, each state is required to submit a SIP that provides for the implementation, maintenance and enforcement of each primary and secondary NAAQS. In particular, each SIP must contain adequate provisions prohibiting emissions activity within the state, which will contribute significantly to non-attainment or interfere with maintenance by any other state with respect to any such primary or secondary ambient air quality standard. In February 2023, the EPA issued a disapproval of the “good neighbor” SIP submitted by Louisiana, and a number of other states, for the 2015 ozone NAAQS. In May 2023, the U.S. Court of Appeals for the Fifth Circuit responded to a petition for review of the EPA decision and temporarily stayed the disapproval of the “good neighbor” SIP pending judicial review. In June 2023, the EPA published a final FIP for regulation of emission transport in Louisiana to address the “good neighbor” provision for Louisiana, which might result in the allocation of fewer emission allowances to generating units and may cause Cleco to buy additional allowances and/or take other measures to comply. However, since the EPA’s disapproval of the Louisiana SIP is stayed, the EPA is unable to apply the FIP in Louisiana. Until the Court opines on the challenge to the SIP disapproval, Cleco’s management is unable to predict or give a reasonable estimate of the outcome of the EPA’s decision regarding the “good neighbor” provision.
In July 2023, the EPA issued an interim final rule addressing the judicial stays of several states’ interstate transport SIP disapprovals. The interim final rule stayed the effectiveness of the FIP addressing interstate transport for the states with judicially stayed SIP disapprovals, such as Louisiana. The interim final rule revised existing regulations for the Group 2 trading program to require the EGUs in each state covered by a stay order for the SIP disapproval action to participate in the Group 2 trading program instead of the Group 3 trading program while the stay for that state remains in place. Louisiana is in the Group 3 trading program under the Revised CSAPR Update and will be subject to a modified Group 2 trading program. Louisiana will be subject to the same state emissions budgets, unit-level allocation provisions, and banked allowance holdings from the Revised CSAPR Update but will be moved under the umbrella of the Group 2 trading program. The interim final rule also creates two non-interchangeable subtypes of Group 2 allowances, which are the CSAPR NOx Ozone Season Original Group 2 allowances and CSAPR NOx Ozone Season Expanded Group 2 allowances. States that are part of the Group 2 trading program will use Original Group 2 allowances for compliance. Louisiana will use Expanded Group 2 allowances for compliance. The rule also states that the EPA will deduct banked 2021 and 2022 CSAPR NOx Ozone Season Group 3 allowances and convert them to Expanded Group 2 allowances on September 18, 2023. It is unclear if sufficient allowances will be available in the Expanded Group 2 allowance market for purchase should Cleco experience a shortage of allowances to cover the 2023 ozone season.
MATS
For information about MATS, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
CPP/ACE and NSPS
In August 2015, the EPA issued a final rule under Section111(d) of the CAA, referred to as the CPP. The rule included state-specific goals as well as guidelines for states to develop plans for meeting those goals. In July 2019, the EPA repealed the CPP rule and finalized the ACE rule as a replacement. The ACE rule established emission guidelines for states to develop plans to address GHG emissions from existing coal-fired plants. In January 2021, the U.S. Court of Appeals for the District of Columbia Circuit vacated the ACE rule and remanded the rule to the EPA for reconsideration. In February 2021, the EPA issued a memorandum notifying states that it will not require the submittal of plans to the EPA under Section 111(d) because the court vacated the ACE rule without reinstating the CPP. In October 2021, the U.S. Supreme Court granted petitions to review the District of Columbia Circuit Court of Appeals’ decision and, in June 2022, found that the EPA lacked clear congressional authorization to require generation shifting under Section 111(d). In October 2022, the D.C. Circuit recalled its partial mandate vacating the ACE rule and granted a motion by the EPA to hold pending challenges to the ACE rule in abeyance while the EPA develops a replacement rule.
In May 2023, the EPA published a proposed rule titled New Source Performance Standards for Greenhouse Gas Emissions From New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions From Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule. The proposed rule would repeal the ACE Rule, revise the NSPS under Section 111(b) for GHG emissions from new fossil fuel-fired stationary combustion turbine EGUs and from fossil-fuel fired steam generating units that undertake a large modification, and establish emissions guidelines under Section 111(d) for GHG emissions from existing fossil fuel-fired steam generating EGUs and from the largest, most frequently operating stationary combustion turbines. The proposal utilizes the application of the “best system of emission reduction” that can be demonstrated taking into account costs, energy requirements, and other statutory factors. In November 2023, the EPA issued a Supplemental Notice of Proposed Rulemaking regarding mechanisms to help ensure that the proposed Section 111(d) regulations can be implemented without adversely affecting the reliability of the electrical grid. The EPA has indicated that it anticipates issuing a final rule in April 2024. A final rule that requires significant reductions in CO2 emissions for existing EGUs could require significant capital expenditures or curtailment of operations of certain EGUs to achieve compliance.
In August 2015, the EPA released the NSPS rules for CO2 emissions from new, modified, or reconstructed units. The rules set requirements and conditions with respect to CO2 emission standards for new units and those that are modified or reconstructed.
In December 2018, the EPA published proposed rules to replace the August 2015 NSPS rules, but did not take further action. In May 2023, the EPA proposed to update and establish more protective rules for CO2 emissions from new, modified, and reconstructed EGUs. Cleco does not anticipate a future modification or future reconstruction of its existing units, as defined in the proposal, which would trigger the application of the proposed CO2 emission limits. Until the EPA finalizes the rules, Cleco’s management cannot state what the final standards will entail or if the new rules will have a material
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impact on the results of operations, financial condition, or cash flows of the Registrants.
NAAQS
In April 2010, the EPA promulgated a 100 ppb one-hour primary NAAQS for NO2. In April 2018, the EPA issued a decision to retain the NO2 NAAQS. Due to the fact that fossil fuel-fired EGUs are a significant source of NO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their NO2 emissions. However, because the EPA has not yet completed any new designations, Cleco’s management cannot predict the likelihood or potential impacts of such a redesignation on its generating units at this time.
The EPA revised the NAAQS for SO2 in June 2010 to a one-hour health standard of 75 ppb. In January 2018, the EPA designated all areas containing Cleco generation facilities as either attainment/unclassifiable or unclassifiable. Therefore, there is no adverse impact to Cleco’s generating units. In March 2019, the EPA published a final action that retains the NAAQS for SO2. Due to the fact that fossil fuel-fired EGUs are a significant source of SO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their SO2 emissions. However, because the EPA has not yet completed any new designations, Cleco cannot predict the likelihood or potential impacts of such a redesignation on its generating units at this time.
In December 2020, the EPA published a final rule that retains the NAAQS for ozone, which was last revised in 2015. Cleco’s generation facilities are not located in areas designated as nonattainment of the ozone NAAQS.
In January 2023, the EPA published a proposed rule titled Reconsideration of the National Ambient Air Quality Standards for Particulate Matter that would reduce the annual primary fine particulate matter ambient air concentration standard (PM2.5 standard) from the current 12 micrograms/cubic meter (mg/m3) to somewhere in the EPA-preferred range of 9-10 mg/m3 while also entertaining comments from the public on setting the standard at 8 mg/m3 or 11 mg/m3. Cleco cannot predict the likelihood or potential impacts of such a rule on its generating units at this time.
Other
In May 2019, Louisiana Generating notified the EPA and the LDEQ that it has elected not to Retrofit (as such term is defined in the Consent Decree) Big Cajun II, Unit 1.
In December 2022, Louisiana Generating notified the EPA and the LDEQ that it had elected to Refuel (as such term is defined in the Consent Decree) Big Cajun II, Unit 1, in accordance with certain provisions of the Consent Decree.
Water Quality
Cleco’s facilities are subject to federal and state laws and regulations regarding wastewater discharges. Cleco has received, from the EPA and the LDEQ, permits required under the federal Clean Water Act (CWA) for wastewater discharges from its generating stations. Wastewater discharge permits have fixed dates of expiration, and Cleco applies for renewal of these permits within the applicable time periods.
In March 2011, the EPA proposed regulations that would establish standards for cooling water intake structures at existing power plants and other facilities pursuant to Section 316(b) of the CWA. The EPA published its final rule in August
2014. The standards are intended to protect fish and other aquatic wildlife by minimizing capture, both in screens attached to intake structures (impingement mortality) and in the actual intake structures themselves (entrainment mortality). The final rule (1) sets a performance standard, dealing with fish impingement mortality or reducing the flow velocity at cooling water intakes to less than 0.5 feet per second and (2) requires entrainment standards to be determined on a case-by-case basis by state-delegated permitting authorities. Facilities subject to the standards are required to complete a number of studies within a 45-month period and then comply with the rule as soon as possible after the next discharge permit renewal, by a date determined by the permitting authorities. Portions of the final rule could apply to a number of Cleco’s fossil fuel steam electric generating stations. Until the required studies are conducted, including technical and economic evaluations of the control options available, and regulatory agency officials have reviewed the studies and made determinations, Cleco remains uncertain as to which technology options or retrofits will be required to be installed on its affected facilities. The costs of required technology options and retrofits may be significant, particularly if closed cycle cooling is required.
In November 2015, the EPA released the Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category Rule (ELG Rule), which focused on reducing the discharge of metals in wastewater from generating facilities to surface waters.
In 2020, the EPA revised the technology-based effluent limitation guidelines and standards applicable to flue gas desulfurization and bottom ash transport waste waters. The 2020 revised ELG Rule, known as the Reconsideration Rule, allows a unit to come into compliance with the ELG Rule by qualifying as an electric generating unit that will achieve permanent cessation of coal combustion by December 31, 2028. Under this compliance option, Cleco submitted a Notice of Planned Participation by the October 13, 2021 submittal deadline for the Dolet Hills Power Station, Rodemacher Unit 2, and Big Cajun II, Unit 1.
On March 29, 2023, the EPA published a proposed rule, Supplemental Guidelines and Standards for the Steam Electric Power Generating Point Source Category, to strengthen certain discharge limits in the ELG Rule and issued a direct final rule to extend the deadline for plants to opt-in to the 2028 early retirement provision promulgated in the 2020 revised ELG Rule. Cleco cannot predict the potential impacts of these rules on its generating units at this time.
On November 27, 2023, the EPA published draft guidance addressing how the Supreme Court of the United States opinion in County of Maui v. Hawaii Wildlife Fund (2020) applies to the NPDES wastewater discharge permit program for discharges through groundwater to waters of the United States. Until finalized, Cleco cannot predict the potential impacts of the guidance on its operations at this time.
Solid Waste Disposal
The Solid Waste Division of the LDEQ has adopted a permitting system for the management and disposal of solid waste generated by power stations. Cleco has all required permits from the LDEQ for the on-site disposal of solid waste from its generating stations.
In April 2015, the EPA published a final rule regulating the disposal and management of CCRs from coal-fired power plants (CCR Rule). In August 2018, the D.C. Circuit Court of Appeals vacated several requirements in the CCR Rule, which
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included eliminating the previous acceptability of compacted clay material as a liner for impoundments. As a result, in August 2020, the EPA published a final rule that would set deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impoundments. In November 2020, Cleco submitted demonstrations to the EPA specifying its intended course of action for the ash disposal facilities at Rodemacher Unit 2, Dolet Hills Power Station, and Big Cajun II in order to comply with the final CCR Rule. On January 11, 2022, the EPA communicated that Cleco’s demonstrations have been deemed complete. Cleco Power withdrew the Dolet Hills demonstration due to the cessation of receiving waste. The two remaining demonstrations are still subject to EPA approval based on pending technical reviews.
On May 18, 2023, the EPA published a proposed rule titled Hazardous and Solid Waste Management System: Disposal of Coal Combustion Residuals from Electric Utilities; Legacy Surface Impoundments. This proposed rule expands the scope of units regulated under the CCR regulations to include inactive surface impoundments at inactive generating facilities. In addition, the proposed rule would regulate CCR Management Units, which include inactive and closed landfills as well as other non-containerized accumulations of CCR at facilities otherwise subject to federal CCR regulations. Cleco cannot predict the potential impacts of such a rule on its generating units at this time.
As a result of solid waste disposal regulations, Cleco Power and Cleco Cajun have AROs for the retirement of certain ash disposal facilities. All costs of the CCR Rule for Cleco Power are expected to be recovered from its customers in future rates. The actual asset retirement costs related to the CCR Rule requirements may vary substantially from the estimates used to record the increased obligation. For more information on Cleco’s compliance strategies and financial impacts of the CCR Rule, see Part II, Item 8, “Financial Statements and Supplementary Data—Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments.” For more information on the regulatory treatment of Cleco Power’s AROs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — AROs.”
In 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act) was signed into law, which gave the EPA the authority to implement a CCR permitting program as well as authorize state CCR permitting programs. In 2020, the EPA published a proposed rule establishing the federal CCR permit program for CCRs in states without approved CCR permitting programs. In October 2023, LDEQ published a proposed rulemaking, Disposal of Coal Combustion Residuals, to regulate CCR units under a state permit program. Until Louisiana has finalized its CCR permit program rule and such program has been approved by the EPA, Cleco cannot determine if there will be a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Cleco produces certain wastes that are classified as hazardous at its electric generating stations and at other locations, which are disposed of off-site at permitted hazardous waste disposal facilities.
Toxic Substances Control Act (TSCA)
The TSCA directs the EPA to regulate the marketing, disposing, manufacturing, processing, distributing in commerce, and usage of various toxic substances, including PCBs. Cleco operates and may continue to operate equipment containing PCBs regulated under the TSCA. Once the equipment reaches the end of its useful life, the EPA regulates handling and the disposal of equipment and fluids containing PCBs. Cleco disposes of its PCB waste material at TSCA-permitted disposal facilities.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
CERCLA imposes strict liability on parties responsible for the presence of hazardous substances at a site. In 2007, Cleco received a Special Notice for Remedial Investigation and Feasibility Study (RI/FS) from the EPA for a facility known as the Devil’s Swamp Lake site located northwest of Baton Rouge, Louisiana. The notice requested that Cleco and Cleco Power, along with many other listed potentially responsible parties (PRP), enter into negotiations with the EPA for the performance of an RI/FS at the Devil’s Swamp Lake site. In 2008, the EPA identified Cleco as one of many companies that sent PCB wastes for disposal to the site. The EPA proposed to add the Devil’s Swamp Lake site to the National Priorities List, based on the release of PCBs to fisheries and wetlands located on the site, but no final listing decision has been made. The EPA issued a Unilateral Administrative Order to two PRPs, Clean Harbors, Inc. and Baton Rouge Disposal, to conduct an RI/FS in 2009. The Tier 1 part of the study was completed in June 2012. The tier 2 remedial investigation report was made public in December 2015. In September 2019, the EPA publicly announced a proposed cleanup strategy for the Superfund Site. In August 2020, the EPA signed a Record of Decision for the Devil’s Swamp Lake site that defines a remediation approach for cleaning up the site and monitoring the natural recovery of certain areas of the lake. With the Record of Decision signed, the EPA has started the enforcement negotiations for the next phase of the project. Management is unable to determine how significant Cleco’s share of the costs associated with a possible response action at the site, if any, may be and whether this will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Emergency Planning and Community Right-to-Know Act (EPCRA)
Section 313 of the EPCRA requires certain facilities that manufacture, process, or otherwise use minimum quantities of listed toxic chemicals to file an annual report with the EPA called a Toxic Release Inventory (TRI) report. The TRI report requires industrial facilities to report on approximately 650 substances that the facilities release into the air, water, and land. The TRI report ranks companies based on the amount of a particular substance they release on a state and parish (county) level. Annual reports are due to the EPA on July 1 following the reporting year-end. Cleco has submitted required 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.
Electric and Magnetic Fields (EMFs)
The possibility that exposure to EMFs emanating from electric power lines, household appliances, and other electric devices may result in adverse health effects and damage to the
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environment has been a subject of some public attention. Lawsuits alleging that the presence of electric power transmission and distribution lines has an adverse effect on
health and/or property values have arisen in several states. Neither Cleco nor Cleco Power are parties in any lawsuits related to EMFs.
The following risk factors could have a material adverse effect on results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrants.
Holding Company
Cleco Holdings is a holding company and its ability to meet its debt obligations is dependent on the cash generated by its subsidiaries.
Cleco Holdings is a holding company and conducts its operations primarily through its subsidiaries. Accordingly, Cleco Holdings’ ability to meet its debt obligations is largely dependent upon the cash generated by these subsidiaries. Cleco Holdings’ subsidiaries are separate and distinct entities and have no obligations to pay any amounts due on Cleco Holdings’ debt or to make any funds available for such payment. In addition, Cleco Holdings’ subsidiaries’ ability to make dividend payments or other distributions to Cleco Holdings may be restricted by their obligations to holders of their outstanding securities and to other general business creditors. Substantially all of Cleco’s consolidated assets are held by either Cleco Power or Cleco Cajun (pending consummation of the Cleco Cajun Divestiture). Cleco Holdings’ right to receive any assets of any subsidiary, and therefore the right of its creditors to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if Cleco Holdings were a creditor of any subsidiary, its rights as a creditor would be effectively subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary ranking senior to that held by Cleco Holdings. Cleco Power is subject to regulation by the LPSC. The 2016 Merger Commitments also provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings.
Cleco Cajun Divestiture
The divestiture of the unregulated electric utility business by subsidiaries of Cleco Holdings may not occur on the initial terms agreed to by the parties, in the expected time frame, or at all and, as a result, could adversely affect the Registrants’ business and financial condition.
On November 22, 2023, the Cleco Cajun Sellers entered into the Cleco Cajun Divestiture Purchase and Sale Agreement with the Cleco Cajun Purchasers in which the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. The closing of the transaction is subject to customary closing conditions, including (i) the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) approval of FERC, (iii) approval of the Federal Communication Commission, and (iv) customary conditions regarding the accuracy of the representations and warranties and compliance by the parties with their respective obligations under the Cleco Cajun Divestiture Purchase and Sale Agreement. The Cleco Cajun Divestiture Purchase and Sale Agreement includes customary termination provisions, including if the closing of the transaction does not occur within nine months of November 22, 2023.
If the transaction fails to close, Cleco’s business and financial condition may be adversely affected and Cleco will continue to be responsible for any transaction costs incurred. Additionally, in the event the transaction fails to occur, Cleco’s business and financial condition will continue to depend on its ability to manage and operate the unregulated electric utility business through service to electric cooperative customers and other wholesale customers. In the event the transaction fails to occur pursuant to the terms of the Cleco Cajun Divestiture Purchase and Sale Agreement, failure by Cleco Cajun to successfully manage its unregulated electric utility business could have a material adverse effect on Cleco’s results of operations, financial condition, cash flows and liquidity.
Future Electricity Sales
Cleco’s future electricity sales and cash flows could be negatively affected by adverse macroeconomic conditions.
Adverse macroeconomic conditions resulting in low economic growth can negatively impact the businesses of Cleco Power’s residential, commercial, wholesale, and industrial customers and Cleco Cajun’s wholesale customers. Such resulting decreased power consumption, could cause a corresponding decrease in base revenue for Cleco Power and, in the event the Cleco Cajun Divestiture fails to close pursuant to the Cleco Cajun Divestiture Purchase and Sale Agreement, a decrease in the revenue for Cleco Cajun. The reduced production or shutdown of customer facilities could substantially reduce Cleco Power’s base revenue and Cleco Cajun’s revenue in such cases.
Energy conservation, energy efficiency efforts, and other factors that reduce energy demand could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Regulatory and legislative bodies have proposed or introduced requirements and incentives to reduce energy consumption. Conservation and energy efficiency programs are designed to reduce energy demand. Future electricity sales could be impacted by customers switching to alternative sources of energy, such as solar and wind, on-site power generation, and retail customers purchasing less electricity due to increased conservation efforts or expanded energy efficiency measures. Declining usage could result in an under-recovery of fixed costs at Cleco Power’s rate regulated business. An increase in energy conservation, energy efficiency efforts, and other
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efforts that reduce energy demand without the ability for Cleco Power to recover lost revenue could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Weather and Climate Vulnerabilities
Cleco’s operations and power generation could be harmed due to the impact of severe weather events, other natural disasters, or climate change, which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Severe weather, including hurricanes, winter storms, tropical storms, and other natural disasters, such as floods and wildfires, can affect transportation of fuel to plant sites and can be destructive, causing outages, blackouts or disruptions of interconnected transmission systems, and property damage that can potentially result in additional expenses, lower revenue, and additional capital restoration costs. Extreme drought conditions can impact the availability of cooling water to support the operations of generating plants, which can also result in additional expenses and lower revenue. Extreme weather conditions could also increase commodity prices, including fuel, which could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows.
Climate change that results in more frequent and more severe weather events in Cleco’s service territory could result in one or more physical risks that could cause damage to its generation, transmission, and distribution assets. These physical risks include an increase in sea level, wind and storm surge damages, wetland and barrier island erosion, flooding, wildfires, changes in temperature and precipitation patterns, and potential increased impacts of extreme weather conditions, including ice storms and prolonged droughts, The Registrants’ assets are in and serve communities that are at risk from sea level rise, changes in weather conditions, and loss of the protection offered by coastal wetlands. In addition, a significant portion of the nation’s oil and gas infrastructure is located in these areas and is susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to fuel supply interruptions and price spikes.
For example, during 2020 and 2021, Cleco’s service territory sustained substantial damage from four separate hurricanes and two winter storms that resulted in damage to Cleco Power’s distribution and transmission assets, electricity generation supply shortages, natural gas supply shortages, increases in prices of natural gas in the U.S., and significant outages for Cleco Power’s customers.
Any future severe weather, other natural disaster, or physical changes resulting from climate change could cause damage to, or the loss of, Cleco’s equipment and facilities, which could result in Cleco incurring additional costs, such as the cost to restore service, repair damaged facilities, or obtain replacement power. Any future severe weather, other natural disaster, or physical changes resulting from climate change could also result in changes in demand for and usage of electricity in Cleco’s service territory and the service territory of Cleco’s wholesale customers. The delivery of equipment and supplies necessary to Cleco’s business could also be disrupted. Cleco Power’s recovery of costs associated with these events is subject to LPSC review and approval, and the LPSC could disallow timely and full recovery of the costs
incurred. These risks and other possible effects of severe weather, other natural disasters, and climate change could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The operating results of Cleco are affected by weather conditions and may fluctuate on a seasonal basis.
Weather conditions directly influence the demand for electricity, particularly with respect to residential customers. In Cleco’s service territory, demand for power typically peaks during the hot summer months. As a result, Cleco’s financial results typically fluctuate on a seasonal basis. In addition, Cleco has sold less power and, consequently, earned less income when weather conditions were mild. Unusually mild weather in the future could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Workforce
Failure to attract, retain, and develop an appropriately qualified workforce could have a negative impact on business operations and a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Certain events, such as employee resignations and retirements without appropriate replacements, labor shortages, wage inflation, a lack of equivalent or enhanced skill sets to fulfill future needs, or unavailability of contract resources, may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge, difficulty in finding highly skilled, qualified candidates, specifically due to the location of Cleco’s corporate office and potential employee relocation challenges even with a hybrid work option, and a lengthy time period associated with skill development. Costs may increase as a result of contractors replacing employees, productivity slowdown, and safety incidents. Failure to hire and adequately develop replacement employees, maintain an inclusive work environment, transfer functional knowledge and expertise to the next generation of employees, ensure the availability of skilled new hires, or accept hybrid or remote work options may adversely affect the ability to manage and safely operate the Registrants’ business. If the Registrants are unable to successfully attract, retain, and develop an appropriately qualified workforce, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected.
Technology and Terrorism Threats
The operational and information technology systems on which Cleco relies to conduct its business and serve customers could fail to function properly due to technological problems, cyberattacks, physical attacks on Cleco’s assets, acts of terrorism, severe weather, solar events, electromagnetic events, natural disasters, the age and condition of information technology assets, human error, or other reasons that could disrupt Cleco’s operations and cause Cleco to incur unanticipated losses and expense.
The operation of Cleco’s extensive electrical systems relies on evolving operational and information technology systems and network infrastructures that are becoming extremely complex as new technologies and systems are implemented to more safely and reliably deliver electric services. Cleco’s business is highly dependent on its ability to process and monitor, on a real-time basis, a large number of tasks and transactions,
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many of which are highly complex. Cleco’s flexible working environment makes protecting distributed assets more challenging, and there is a greater opportunity for successful cyberattacks. The failure of Cleco’s operational and information technology systems and networks due to a physical attack or other event, including the inability to detect malicious software that has infected Cleco’s systems, could significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s systems, including its financial information, operational, advanced metering, and billing systems, require constant maintenance, monitoring, security patches, modification or configuration of systems, and update and upgrade of systems, which can be costly and increase the risk of errors and malfunction. Any disruptions or deficiencies in existing systems, or disruptions, delays, or deficiencies in the modification, transition to, or implementation of new systems, could result in increased costs, the inability to track or collect revenues and the diversion of management’s and employees’ attention and resources, and could adversely affect the effectiveness of Cleco’s control environment, and/or its ability to accurately or timely file required regulatory reports.
Despite implementation of security and mitigation measures, Cleco’s technology systems and those of Cleco’s vendors are vulnerable to inoperability, impaired operations, or failures due to physical attacks or cyberattacks on the facilities and equipment needed to operate the technology systems, viruses, human errors, acts of war or terrorism, and other events. If Cleco’s or its vendor’s information technology systems or network infrastructure were to fail, Cleco might be unable to fulfill critical business functions and serve its customers, which could have a material adverse effect on the financial conditions, results of operations, or cash flows of the Registrants. The potential consequences of a future material cyberattack include reputational damage, litigation with third parties, government enforcement actions, penalties, disruption to systems and facilities, unauthorized release of confidential or otherwise protected information, corruption of data and increased cybersecurity protection and remediation costs, which in turn could adversely affect Cleco’s competitiveness, results of operations and financial condition. Due to the evolving nature of such cybersecurity threats, the potential impact of any future incident cannot be predicted. Further, the amount of insurance coverage Cleco maintains may be inadequate to cover claims or liabilities related to a cyberattack.
In addition, in the ordinary course of its business, Cleco collects and retains sensitive information including personal identification information about customers and employees, customer energy usage, and other confidential information. The theft, damage, or improper disclosure of sensitive electronic data could subject Cleco to both penalties for violation of applicable privacy laws and claims from third parties, or harm Cleco’s reputation. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
Cleco’s Generation, Transmission, and Distribution Facilities
Cleco’s generation facilities are susceptible to unplanned outages, significant maintenance requirements, and interruption of fuel deliveries.
The operation of power generation facilities involves many risks, including breakdown or failure of equipment, fuel supply interruption, and performance below expected levels of output or efficiency. Aging equipment, even if maintained in accordance with good engineering practices, may require significant expenditures to operate at peak efficiency, or to comply with environmental permits. Newer equipment can also be subject to unexpected failures. Accordingly, Cleco may incur more frequent unplanned outages, higher than anticipated operating and maintenance expenditures, higher replacement costs of purchased power, increased fuel costs, MISO related costs, and the loss of potential revenue related to competitive opportunities. The costs of such repairs, maintenance, and purchased power may not be fully recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s generating facilities are currently fueled primarily by coal, natural gas, and petroleum coke. The deliverability of these fuel sources may be constrained due to such factors as higher demand, decreased regional supply, production shortages, weather-related disturbances, railroad constraints or disruptions, waterway levels, labor strikes, or lack of transportation capacity. If suppliers are unable to deliver the contracted volume of fuel and associated inventories are depleted, Cleco may be unable to operate its generating units which may cause Cleco Power to incur higher costs, which in turn could increase the cost to customers. Cleco Power’s fuel and MISO-procured/settled energy expenses, which are recovered from its customers through the FAC, are subject to refund until either a prudency review or a periodic fuel audit is conducted by the LPSC.
Cleco Power could be indirectly liable for the impacts of other companies’ activities on lands that have been mined and reclaimed by Cleco Power. The liability for impacts on reclaimed lands may not be recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The construction of and capital improvements to power generation, transmission, and distribution facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful or significantly more expensive than planned, the financial condition, results of operations, or liquidity of the Registrants could be materially affected.
Cleco’s ability to complete construction of or capital improvements to power generation, transmission, and distribution facilities in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include engineering and project execution risk and escalating costs for materials, labor, and environmental compliance. Delays in obtaining permits, shortages in materials and qualified labor, suppliers and contractors not performing as set forth under their contracts, changes in the scope and timing of projects, inaccurate cost estimates, the inability to raise capital or secure funding on favorable terms or at all, changes in commodity prices affecting revenue, fuel or material costs, changes in the economy, changes in laws or regulations, including
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environmental compliance requirements, and other events beyond the control of Cleco may materially affect the schedule and cost of these projects. If these projects are significantly delayed or become subject to cost overruns or cancellation, Cleco could incur additional costs including termination payments, face increased risk of potential write-off of the investment in the project, or be unable to recover such costs in rates. Furthermore, failure to maintain various levels of generating unit availability or transmission and distribution reliability may result in various disallowances of Cleco Power’s investments.
Alternative Generation Technology
Changes in technology may have a material adverse effect on the value of Cleco Power’s and Cleco Cajun’s generating facilities.
A basic premise of Cleco’s business is that generating electricity at central power plants achieves economies of scale and produces electricity at a relatively low price. There are alternative technologies to produce electricity, most notably wind turbines, photovoltaic cells, and other solar-generated power. Many companies and organizations conduct research and development activities to seek improvements in alternative technologies. As new technologies are developed and become available, the quantity and pattern of electricity purchased by customers could decline, with a corresponding decline in revenues derived by generating assets. In addition, to the extent Cleco is slow to adopt viable alternative generation technologies, employs technology that is problematic to operate, and/or under or over relies on these alternative technologies, the value of Cleco Power’s and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun’s generating facilities could be reduced.
Litigation
Cleco is subject to litigation and a negative outcome could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The Registrants are parties to various litigation matters arising out of the ordinary operations of their business. The ultimate outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability that the Registrants may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters and, as a result, these matters may have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Additionally, in connection with the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. See Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — 2016 Merger” for a discussion of these actions.
Regulatory Compliance
Cleco operates in a highly regulated environment and adverse regulatory decisions or changes in applicable regulations could have a material adverse effect on the Registrants’ business or result in significant additional costs.
Cleco’s business is subject to extensive federal, state, and local energy, environmental, and other laws and regulations. Should Cleco be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on Cleco, Cleco’s business could be adversely affected. Existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to Cleco or Cleco’s facilities, including decisions by the U.S. Supreme Court that could affect the operation of federal agencies, that may have a material adverse effect on the Registrants’ business or result in significant additional costs.
As a result of the 2016 Merger, Cleco Holdings and Cleco Power made the 2016 Merger Commitments to the LPSC including, but not limited to, maintaining employee headcount, salaries, and benefits for ten years, and a limitation from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. Additionally, upon approval of the Cleco Cajun Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail customers harmless for any adverse impacts, increased costs of debt or equity, credit rating downgrades attributable to the Cleco Cajun Acquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by the end of 2024. For information about Cleco Holdings’ repayment schedule, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Cleco.”
Cleco Power’s Rates
The LPSC and FERC regulate the retail rates and wholesale transmission tariffs, respectively, that Cleco Power can charge its customers.
Cleco Power’s ongoing financial viability depends on its ability to recover its costs in a timely manner from its LPSC-jurisdictional customers through LPSC-approved rates and its ability to recover its FERC-authorized revenue requirements from its FERC-jurisdictional wholesale transmission customers. Cleco Power’s financial viability also depends on its ability to recover in rates an adequate return on capital, including long-term debt and equity. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. If Cleco Power is unable to recover any material amount of its costs in rates in a timely manner or recover an adequate return on capital, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected. Recovery of these costs could result in rising utility bills threatening the affordability of such costs by Cleco Power’s customers in certain demographic areas, which in turn could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases or, in
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some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of subject expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow recovery of costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of just and reasonable rates.
Retail Electric Service
Cleco Power’s retail electric rates and business practices are regulated by the LPSC and reviews may result in refunds to customers.
Cleco Power’s retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC. Cleco Power’s current retail rate plan became effective on July 1, 2021. If a refund of previously recorded revenue is required as a result of the LPSC’s review, the refund could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the current retail rate plan, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements —Note 14 — Regulation and Rates — FRP.”
On June 30, 2023, Cleco Power filed an application with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024. The outcome of any future base rate case could have a material adverse effect on the results of operations, financial condition, and cash flows of the Registrants.
Dolet Hills Prudency Review
Cleco Power’s ability to recover costs associated with the retirement of the Dolet Hills Power Station and lignite mine closure is subject to a prudency review by the LPSC that could result in significant refunds to customers or disallowance of recovery.
Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. Initial testimony by the LPSC Staff and intervenors filed in August 2022 indicated disagreement with the recoverability of these incurred costs, quantifying up to $228.0 million of related costs as potentially unrecoverable. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power’s management has estimated that a loss resulting from a potential disallowance is
probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023.
Due to the nature of the regulatory process, Cleco Power is currently unable to determine the outcome and timing of resolution of this matter. If costs are disallowed for recovery or a refund is required as a result of the LPSC’s review, this could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the Dolet Hills prudency review, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”
LPSC Audits
The LPSC conducts fuel audits that could result in Cleco Power making substantial refunds of previously recorded revenue.
Generally, Cleco Power’s cost of fuel used for electric generation and cost of purchased power are recovered through the LPSC-established FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. For more information about Cleco Power’s current fuel audit, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Management is unable to predict or give a reasonable estimate of the possible range of the disallowance by the LPSC, if any, related to FAC filings. If a disallowance of fuel costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The LPSC conducts audits of environmental costs that could result in Cleco Power making substantial refunds of previously recorded revenue.
Cleco Power has an EAC that is used to recover from customers certain costs of environmental compliance. The costs eligible for recovery are prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. These costs are subject to periodic review by the LPSC.
Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to EAC filings. If a disallowance of environmental costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about LPSC audits related to environmental costs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements
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— Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
FERC Audit
FERC conducts audits that could result in Cleco Power making refunds of previously recorded revenue.
Generally, Cleco Power records wholesale transmission revenue through approved formula rates, Attachment O of the MISO tariff, and certain grandfathered agreements. The calculation of the rate formulas, as well as FERC accounting and reporting requirements, are subject to periodic audits by FERC. Management is unable to predict the timing of future audits and whether or not the outcome of such future audits will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
MISO
MISO market operations could have a material adverse effect on the results of operations, generation revenues, energy supply costs, financial condition, or cash flows of the Registrants.
Cleco is a member of the MISO market region referred to as “MISO South,” which encompasses parts of Arkansas, Louisiana, Mississippi, and Texas. Dispatch of generation resources and generation volumes to the market is determined by MISO. Costs in the MISO South region are heavily influenced by commodity fuel prices, transmission congestion, dispatch of the generating assets owned not only by Cleco, but by all market participants in the MISO South region, and the overall demand and generation availability in the region.
On June 1, 2023, due to generation resource retirements, increased reliance on intermittent resources, significant weather events with correlated generator outages, and declining excess reserve margins that are expected to profoundly impact future grid reliability, MISO transitioned from a traditional annual unforced capacity value to a seasonal accreditation capacity (“SAC”) value. MISO evaluates SAC values to assess generating unit capacity for Cleco’s planning reserve margin for each season. If Cleco is subject to a significant number of outages during critical instances, Cleco may not possess sufficient planning reserves to serve its needs and could be forced to purchase capacity from the MISO resource adequacy auction. Generally, Cleco Power recovers these costs through its FAC. Recovery of these costs is subject to audit by the LPSC. If a disallowance of recovery is ordered, it could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Because of the recentness of the transition, management is unable to predict the long-term potential impact the transition will have, and any such refund resulting from a disallowance could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows of the Registrants.
Reliability and CIP Standards Compliance
Cleco is subject to mandatory reliability and CIP standards. Fines and civil penalties are imposed on those who fail to comply with these standards.
NERC serves as the ERO with authority to establish and enforce mandatory reliability and CIP standards, subject to FERC approval, for users of the nation’s transmission system.
FERC enforces compliance with these standards. New standards are being developed and existing standards are continuously being modified.
As these standards continue to be adopted and modified, they may impose additional compliance requirements on Cleco Power and Cleco Cajun separately, which may result in increased capital expenditures and related matters,operating expenses for Cleco Power and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun. Failure to comply with these standards can result in the imposition of material fines and civil penalties.
A NERC Reliability Standards audit and NERC CIP Audit are conducted every three years for Cleco Power and Cleco Cajun. For more information on Cleco’s current and future audits, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — LiquidityRegulatory and Capital ResourcesOther Matters — Cash Generation and Cash RequirementsMarket Structure — Capital Expenditures.Wholesale Electric Markets — ERO.”
Management is unable to predict the financial outcome of any future audits or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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REGULATORY MATTERS, INDUSTRY DEVELOPMENTS, AND FRANCHISES |
Environmental Compliance
Rates
Cleco Power’s electric operationsCleco’s costs of compliance with environmental laws and regulations are subjectsignificant. The costs of compliance with new environmental laws and regulations, as well as the incurrence of incremental environmental liabilities, could be significant to the jurisdiction of the LPSC with respect to retail rates, standards of service, accounting, and other matters. Registrants.
Cleco Power is subject to extensive environmental oversight by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations related to air quality, water quality, waste management, natural resources, and health and safety. Cleco also is required to obtain and comply with numerous governmental permits in operating its facilities. Existing environmental laws, regulations, and permits could be revised or reinterpreted, and new laws and regulations could be adopted or become applicable to Cleco. As a result, some of Cleco’s EGUs could be rendered uneconomical to maintain or operate and could prompt early retirement of certain generation units. Any legal obligation that would require Cleco to substantially reduce its emissions beyond present levels could require extensive mitigation efforts and could raise uncertainty about the jurisdictionfuture viability of FERCsome fossil fuels as fuel for new and existing EGUs. Cleco will evaluate potential solutions to comply with respectsuch regulations and monitor rulemaking and any legal matters impacting the proposed regulations. Cleco may incur significant capital expenditures or additional operating costs to transmission tariffs, accounting, interconnectionscomply with other utilities, reliability,such revisions, reinterpretations, and new requirements. If Cleco were to fail to comply, it could be subject to civil or criminal liabilities and fines or may be forced to shut down or reduce production from its facilities. Cleco cannot predict the timing or the outcome of pending or future legislative and rulemaking proposals.
Cleco Power may request from its customers recovery of its costs to comply with new environmental laws and regulations. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, there could be a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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Wholesale Electric Service
Cleco’s business practices are regulated by FERC, and the transmissionwholesale rates of power. Periodically, Cleco Power has sought and received from both the LPSC and FERC increases in retail rates and transmission tariffs, respectively, to cover increases in operating costs and costs associated with additions to generation, transmission, and distribution facilities.
Cleco Cajun is subject to the jurisdiction of FERC with respect to transmission tariffs, interconnections with other utilities, reliability, and the transmission of power. The rates Cleco, through Cleco Power and Cleco Cajun charges its wholesale customers are subject to FERC’s triennial market power analysis. Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates.
FERC requires a utility to pass a screening test as a condition for securing and/or retaining approval to sell electricity in wholesale markets at market-based rates. An updated market power analysis must be filed with FERC every three years or upon the occurrence of a change in status as defined by FERC regulation. Cleco filed its most recent triennial market power analysis in December 2020,2023, and it is currently pending FERC approval. The next triennial market power analysis is expected to be filed in December 2023.2026. In the future, if FERC determines Cleco Power and/or Cleco Cajun possesses generation market power in excess of certain thresholds, Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates, which could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Commodity and Commercial Transactions
Cleco may enter into fuel supply contracts, energy hedge transactions, and/or commercial transactions, including sales to wholesale customers. If risks related to these transactions are not managed effectively, they may have a material adverse effect on the liquidity, results of operations, or financial condition of the Registrants.
During its normal course of business, Cleco is exposed to uncertain market prices of electricity, natural gas, coal, and other commodities. Market price volatility can impact costs of fuel supply for generation, generation revenue, cost to serve Cleco’s contracted wholesale electricity customers, customer utility bills, and revenue from customers. To manage market price volatility, Cleco Power and Cleco Cajun may each enter into purchases or sales of certain physical and financial commodity contracts within established risk management guidelines.
For Cleco Power, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance are deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. At settlement, realized gains or losses are included in Cleco Power’s FAC and reflected on customer’s bills as a component of the fuel charge. Recovery of these costs included in Cleco Power’s FAC is subject to, and may be disallowed as part of, a prudency review or a periodic fuel audit conducted by the LPSC. For Cleco Cajun, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance as well as the realized gains and losses at settlement are recorded on the income statement as either a component of fuel expense, for gas-related derivatives, or purchased power expense, for FTRs.
Because Cleco is subject to significant fluctuations caused by changes in market prices, Cleco is unable to accurately predict the effect that these transactions could have on its results of operations, financial condition, or cash flows. All risks associated with these transactions cannot be fully
eliminated. Therefore, the judgements and assumptions made in the underlying decisions related to these transactions could have a material adverse effect on the liquidity, results of operations, financial condition, or cash flows of the Registrants.
Transmission Congestion
Transmission congestion could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have a higher LMP. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power and Cleco Cajun’s pricing zones or result in transmission curtailments. Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. However, insufficient FTR allocations or increased FTR costs, due to negative congestion flows, may result in an unexpected increase in energy costs to Cleco’s customers. For Cleco Power, if a disallowance of additional fuel costs associated with congestion is ordered by the LPSC resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Counterparty Risk and Guarantees
Cleco may be required to provide credit support to its counterparties, which could have a material adverse effect on the Registrants’ liquidity.
Cleco may guarantee the performance of all or some of its commercial transaction obligations and may also be required to provide counterparty credit support in the form of cash or cash equivalent collateral to secure all or part of those obligations. Downgrades in Cleco’s credit quality or changes in the market prices of transaction-related energy commodities could increase the collateral or margin required to be on deposit with the counterparty or clearing house. The required credit support or increase in credit support could have a material adverse effect on the Registrants’ liquidity.
Cleco is exposed to the risk that counterparties may not meet their performance obligations, which could have a material adverse effect on the operating and financial performance of the Registrants.
Counterparties may fail to perform on their physical or financial obligations. Currently, Cleco has industry accepted master agreements in place with counterparties that provide credit default language. Some master agreements with counterparties contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Cleco. If the counterparties to these arrangements fail to perform, Cleco may enforce and recover the proceeds from the credit support provided; however, in the event of a default, credit support may not always be adequate to cover the related obligations. In such event, Cleco may incur losses in excess of amounts already paid, if any, to the counterparties or due to an adverse replacement cost of the transaction and may be unable to collect liquidated damages.
The credit commitments of Cleco’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such
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| CLECO POWER | | 20222023 FORM 10-K |
lenders, which could materially affect the adequacy of its liquidity sources. In no case would Cleco Power bear any commodity or credit risk of Cleco Cajun.
Global Economic Environment and Uncertainty
Adverse capital market performance could result in reductions in the fair value of benefit plan assets and increase the Registrants’ liabilities related to such plans. Sustained declines in the fair value of the plan’s assets or sustained increases in plan liabilities could result in significant increases in funding requirements, which could adversely affect the Registrants’ liquidity and results of operations.
Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under Cleco’s defined benefit pension plan. Sustained adverse market performance could result in lower rates of return for these assets than projected by Cleco and could increase Cleco’s funding requirements related to the pension plan. Additionally, changes in interest rates affect the present value of Cleco’s liabilities under the pension plan. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
Cleco Credit Ratings
A downgrade in Cleco Holdings’ or Cleco Power’s credit ratings could result in an increase in their respective borrowing costs, a reduced pool of potential investors and funding sources, and a restriction on Cleco Power making distributions to Cleco Holdings.
Neither Cleco Holdings nor Cleco Power can assure that its current debt ratings will remain in effect for any given period of time or that one or more of its debt ratings will not be lowered or withdrawn entirely by a rating agency. If S&P, Moody’s, or Fitch were to downgrade Cleco Holdings’ or Cleco Power’s long-term ratings, particularly below investment grade, the value of their debt securities could be adversely affected. Downgrades of either Cleco Holdings’ or Cleco Power’s credit ratings could result in additional fees and higher interest rates for borrowings under their respective credit facilities and term loans. In addition, Cleco Holdings or Cleco Power, as the case may be, would likely be required to pay higher interest rates in future debt financings, may be subject to more onerous debt covenants, and their pool of potential investors and funding sources could decrease. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings in the event of a ratings downgrade below investment grade.
Cleco Power LLC’s Unsecured and Unsubordinated Obligations
Cleco Power LLC’s unsecured and unsubordinated obligations, including, without limitation, its senior notes, will be effectively subordinated to any secured debt of Cleco Power LLC and structurally subordinated to indebtedness and other liabilities and preferred equity of any of Cleco Power LLC’s subsidiaries.
Cleco Power LLC’s senior notes and its obligations under various loan agreements and refunding agreements with the Rapides Finance Authority, the Louisiana Public Facilities Authority, and other issuers of tax-exempt bonds for the benefit of Cleco Power LLC are unsecured and rank equally with all of Cleco Power LLC’s existing and future unsecured and
unsubordinated indebtedness. As of December 31, 2023, Cleco Power LLC had an aggregate of $1.47 billion of unsecured and unsubordinated indebtedness net of debt discount and debt expense. The unsecured and unsubordinated indebtedness of Cleco Power LLC will be effectively subordinated to, and thus have a junior position to, any secured debt that Cleco Power LLC may have outstanding from time to time (including any mortgage bonds) with respect to the assets securing such debt. Certain agreements entered into by Cleco Power LLC with other lenders that are unsecured provide that if Cleco Power LLC issues secured debt, Cleco Power LLC is obligated to grant these lenders the same security interest in certain assets of Cleco Power LLC. If such a security interest were to arise, it would further subordinate Cleco Power LLC’s unsecured and unsubordinated obligations.
As of December 31, 2023, Cleco Power LLC had no secured indebtedness outstanding. Cleco Power LLC may issue mortgage bonds in the future under any future Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power LLC material assets upon dissolution, winding up, liquidation, or reorganization. Additionally, neither Cleco Power LLC nor its creditors, including holders of its senior notes, can use the assets of Cleco Securitization I to settle debts of Cleco Power LLC.
Presidential Administration
The Presidential administration has made and may continue to make substantial changes to environmental, fiscal, and tax policies that could have a material adverse effect on the Registrants’ business.
The Presidential administration may propose substantial changes to environmental, fiscal, and tax policies, which may include comprehensive tax reform, more stringent and onerous requirements for reducing GHG emissions and other pollutants from existing fossil fuel-fired power plants, and other objectives that may impact the results of operations, financial condition, or cash flows of the Registrants. Since taking office in January 2021, the current President has issued several executive orders designed to address climate change and GHG emissions, as well as an executive order requiring agencies to review past environmental actions. Furthermore, the current President has recommitted the U.S. to the Paris Agreement and announced the U.S.’s nationally determined contribution under the Paris Agreement at the summit on climate change in April 2021. The target aims to reduce U.S. emissions by 50-52% compared to a 2005 baseline by 2030. The current Presidential administration has also issued a memorandum to departments and agencies to refrain from proposing or issuing rules until a departmental or agency head appointed or designated by the administration has reviewed and approved the rule. The executive orders may result in the development of additional regulations or changes to existing regulations, and it is possible that these changes could adversely affect Cleco’s business. Until any such changes are enacted, management is unable to determine the impact of any such changes on the Registrants’ business, results of operations, financial condition, or cash flows.
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| CLECO POWER | | 2023 FORM 10-K |
Taxes
Changes in taxation due to July 1, 2021,uncertain effects of various tax reform legislation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The Registrants make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate their obligations to taxing authorities. Tax obligations include income, franchise, property, sales and use, and employment-related taxes. These judgments may include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken by the Registrants could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The IRA of 2022 was signed into law on August 16, 2022. Management is still monitoring any potential impact the legislation could have on the Registrants. For more information related to the IRA of 2022’s tax and renewable provisions, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Tax Reform.”
Insurance
Cleco’s insurance coverage may not be sufficient and may become more costly to maintain.
Cleco currently has property, casualty, cybersecurity, and liability insurance policies in place to protect its employees, board of managers, and assets in amounts that it considers appropriate. Such policies are subject to certain limits and deductibles. Insurance coverage may not be available in the future at current costs, on commercially reasonable terms, or at all, and the insurance proceeds received for any loss of, or any damage to, any of Cleco’s facilities may not be sufficient to restore the loss or damage without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Like other utilities that serve coastal regions, Cleco Power does not have insurance covering its transmission and distribution system, other than substations, because it believes such insurance to be cost prohibitive. In the future, Cleco Power may not be able to recover the costs incurred in restoring transmission and distribution properties following hurricanes or other natural disasters through issuance of storm recovery bonds or a change in Cleco Power’s annualregulated rates or otherwise, or any such recovery may not be timely granted. Therefore, Cleco Power may not be able to restore any loss of, or damage to, any of its transmission and distribution properties without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Global Economic Uncertainty and Access to Capital
Disruptions in the capital and credit markets may adversely affect the Registrants’ cost of capital and ability to meet liquidity needs or access capital to operate and grow the business.
The Registrants’ business is capital intensive and dependent upon the Registrants’ respective abilities to access capital at reasonable rates and other terms. The Registrants’ liquidity needs could significantly increase in the event of a hurricane
or other weather-related or unforeseen disaster or when there are spikes in the price of natural gas and other commodities. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel, purchased power, or storm restoration costs; higher than expected required pension contributions; an acceleration of payments or decreased credit lines; less cash flow from operations than expected; or other unexpected events, could cause the financing needs of the Registrants to increase materially.
Events beyond the Registrants’ control, such as political uncertainty in the U.S. (including the ongoing debates related to the U.S. federal government budget), volatility and disruption in global capital and credit markets, (including those resulting from geopolitical events, such as the Russian invasion of Ukraine or the continued conflict in the Middle East), uncertainty regarding increases or decreases in interest rates resulting from changes in the federal funds rate range targeted by the Federal Reserve, pandemics, epidemics and other outbreaks (such as COVID-19), or other adverse developments that affect financial institutions (such as bank failures) may create uncertainty that could increase the cost of capital for the Registrants or impair their ability to access the capital markets, including the ability to draw on their respective bank credit facilities. Additionally, upon approval of the Cleco Cajun Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail earnings werecustomers harmless for any adverse impacts, increased costs of debt or equity, and credit rating downgrades attributable to the Cleco Cajun Acquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by 2024. At December 31, 2023, the remaining balance of Cleco Holdings’ debt to be repaid by 2024 was $66.7 million. The Registrants may be unable to predict the degree of success they will have in renewing or replacing their respective credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If the Registrants are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities, and/or bear an unfavorable cost of capital, which, in turn, could have a material adverse effect on the Registrants’ ability to fund capital expenditures or to service debt, or on the Registrants’ flexibility to react to changing economic and business conditions.
Inflation may negatively impact the results of operations, financial condition, or cash flows of the Registrants.
While the pace of inflation has moderated during the course of 2023, Cleco has observed that prices for equipment, materials, supplies, employee labor, and contractor services have increased. Long-term inflationary pressures may result in such prices continuing to increase more quickly than expected. Increases in inflation raises costs for labor, materials, and services, and Cleco may be unable to secure these resources on economically acceptable terms or offset such costs with increased revenues, operating efficiencies, or cost savings, which may adversely impact the results of operations, financial condition, or cash flows of the Registrants.
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| CLECO POWER | | 2023 FORM 10-K |
ESG
Increased focus on and changing expectations regarding ESG programs, as well as failure to achieve ESG goals, may adversely impact the Registrants’ access to capital, results of operations, financial condition, and cash flows.
Stakeholder scrutiny of companies’ ESG practices has been increasing across numerous industries. In recent years, certain stakeholders, including an increasing number of investors and lenders, have started placing more importance on ESG criteria when making lending and investment decisions. The increased focus on and activism related to ESG may limit the Registrants’
access to capital or financing and/or increase the cost of capital or financing as some investors or lenders may elect to increase their required returns on capital offered to the Registrants or reallocate or not commit capital based on their assessment of the Registrants’ ESG profile. Additionally, the Registrants’ failure to address and meet stakeholders’ ESG expectations, which continue to evolve, failure to report progress on ESG initiatives, or failure to achieve the ESG goals may negatively impact the Registrants’ reputation and business and, as a result, could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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ITEM 1B.UNRESOLVED STAFF COMMENTS |
None.
Risk Management, Strategy, and Governance
Cybersecurity Integration with overall risk management
Cleco’s business operations rely on complex and evolving operational and information technology systems and network infrastructures. Digital information, information technology, and automation are essential components of Cleco’s operations and growth strategy. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. These cybersecurity tools and assessments are embedded in Cleco’s overall enterprise risk management system. Cleco utilizes the following tools, methodologies, and standards to assess, identify, and manage material cybersecurity risks:
•NERC CIP standards, which protect Cleco’s operational technology,
•National Institute of Standards and Technology Cybersecurity Framework (NIST CSF), which protects Cleco’s operational and information technology,
•Sarbanes-Oxley Act (SOX) regulations, which require Cleco to maintain access and security controls for certain systems that are essential to the completeness and accuracy of financial reporting,
•internal and third-party assessments to identify and prioritize risks,
•Cybersecurity Incident Response Plans (CSIRPs), and
•a security operations center managed 24 hours a day by a third party.
Processes to assess, identify, and manage material risks
Cleco has processes and procedures in place to ensure its cybersecurity program is operating effectively and members of Cleco’s EMT routinely review its cybersecurity strategy, policy, program effectiveness, standards enforcement, and cybersecurity issue management. Cleco conducts risk assessments and compliance audits against standards including the NIST CSF, NERC CIP, and SOX. Cleco also engages with a variety of independent third parties, such as assessors, consultants, and auditors, for periodic audits and reviews of cybersecurity threats and related controls, including review of periodic penetration tests, regular patch reviews from vendors listing relevant risks, industry alerts and forums, and tabletop exercises. These assessment results are used to
develop appropriate cybersecurity controls and risk mitigation strategies, which are implemented throughout the organization. Cleco also utilizes its Internal Audit department to review its cybersecurity program, in which findings are reported to the Audit Committee.
Cleco’s CSIRPs help ensure a timely, consistent, and compliant response to actual or attempted cybersecurity incidents impacting Cleco. These response plans include detection, analysis, containment, eradication, recovery, post-incident review, and timely notice to relevant stakeholders, including Cleco’s Audit Committee, once an incident is deemed to be potentially significant or material.
Cleco maintains a formal cybersecurity training program for all employees that includes training on matters such as phishing and email security best practices. Employees are also required to complete compulsory training on data privacy. Cleco also provides specialized security training for certain other employee roles.
Processes to oversee and identify material risks associated with use of third-party service providers
Cleco is implementing processes to manage the cybersecurity risks associated with its use of third-party service providers. Additionally, Cleco is actively reviewing and updating all third-party service contracts upon renewal for potential amendments related to security, confidentiality, and recourse in the event of a negligent incident, such as a breach, loss, or unauthorized use of Cleco’s data. These measures provide the structure for managing Cleco’s cyber-related risks.
Management’s oversight
Cleco maintains a cybersecurity program overseen by its Chief Administrative and Sustainability Officer, EMT, and Audit Committee that uses a risk-based methodology to support the security, confidentiality, integrity, and availability of information. This program is integrated within Cleco’s enterprise risk management program, which utilizes the Enterprise Risk Management Committee to collaboratively manage and advance enterprise-wide risk management processes. Cleco’s Disclosure Committee, which is comprised of EMT and the Chief Accounting Officer, is the means in which cybersecurity matters are assessed for disclosure requirements. Cleco’s EMT sets enterprise risk strategies and makes risk-informed decisions that include the assessment and response to
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| CLECO POWER | | 2023 FORM 10-K |
cybersecurity risk. In March 2024, management began engaging in quarterly discussions with the Audit Committee regarding incidents of any magnitude experienced during the quarter, strategies and significant risk exposures, as well as the measures implemented to monitor and control these risks. These discussions may include the results of internal and third party risk assessments and audit results, and management’s plans to improve its cybersecurity posture using a risk-based approach.
Cleco’s cybersecurity team, overseen by the Chief Administrative and Sustainability Officer, has decades of experience selecting, deploying, and operating cybersecurity technologies, initiatives, and processes. Members of this team have extensive technical and leadership experience in federal and/or private sector environments as well as industry-recognized cybersecurity certifications. This team relies on threat intelligence as well as other information obtained from governmental, public or private sources, including external consultants engaged by Cleco. Cleco’s Audit Committee oversees the management of its cybersecurity risk and is responsible for communicating cyber-related incidents to its Boards of Managers.
Risks and previous events with material effects
It is possible that Cleco’s information technology systems and networks, or those managed by third parties, could have vulnerabilities and those vulnerabilities could go unnoticed for a period of time. Cleco may also be exposed to, and adversely affected by, interruptions to its computer and information technology systems, and sophisticated cyberattacks, including cybersecurity threats and vulnerabilities in its systems, malware, and attacks targeting its information technology systems and networks. Any such prior events, to date, have not had a material impact on Cleco’s results of operations, financial condition or cash flows. While various procedures and controls have been and are being utilized to mitigate such risks, there can be no guarantee that the actions and controls Cleco has implemented and is implementing, or which Cleco causes or has caused third party providers to implement, will be sufficient to protect its systems, information or other property. For more discussion of potential cyber threats that may affect Cleco, see Item 1A, “Risk Factors — Operational Risks — Technology and Terrorism Threats.”
All of Cleco Power’s electric generating stations and electric operating properties are located in Louisiana. Cleco Power considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Generating Stations
As of December 31, 2023, Cleco Power either owned or had an ownership interest in five steam electric generating stations, three combined cycle units, and one gas turbine with a combined rated capacity of 3,035 MW, and a combined electric net generating capacity of 2,822 MW. The net generating capacity is the result of capacity tests and operational tests performed during 2023, as required by MISO. This amount reflects the maximum production capacity these units can sustain over a specified period of time. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Substations
As of December 31, 2023, Cleco Power owned 93 active transmission substations and 250 active distribution substations.
Electric Lines
As of December 31, 2023, Cleco Power’s transmission system consisted of 67 circuit miles of 500-kiloVolt (kV) lines; 609 circuit miles of 230-kV lines; 682 circuit miles of 138-kV lines; and 29 circuit miles of 69-kV lines. Cleco Power’s distribution system consisted of 3,431 circuit miles of 34.5-kV lines and 8,843 circuit miles of other lines.
General Properties
Cleco Power owns various properties throughout Louisiana, which include a headquarters office building, regional offices,
service centers, telecommunications equipment, and other general-purpose facilities.
Title
Cleco Power’s electric generating plants and certain other principal properties are owned in fee simple. 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 under Cleco Power’s Indenture of Mortgage, which does not impair the use of such properties in the operation of its business. As of December 31, 2023, no mortgage bonds were outstanding under the Indenture of Mortgage. Some of the unsecured and unsubordinated indebtedness of Cleco Power will be effectively subordinated to, and thus have a junior position to, any mortgage bonds that Cleco Power may have outstanding from time to time with respect to the assets subject to the lien of the Indenture of Mortgage. Cleco Power may issue mortgage bonds in the future under its Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power material assets upon dissolution, winding up, liquidation, or reorganization.
Cleco Cajun has electric generating stations and electric operating properties located in Louisiana and Texas. Cleco Cajun considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. As a result, the Cleco Cajun Sale Group is presented as discontinued
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| CLECO POWER | | 2023 FORM 10-K |
operations. For more information, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — “Discontinued Operations.”
Electric Generating Stations
As of December 31, 2023, Cleco Cajun has ownership interest in four electric generating stations which, combined, consist of five gas turbine units and five steam electric generating units located in Louisiana as well as four combined cycle units located in Texas. These generating facilities have a combined rated capacity of 3,379 MW. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
General Properties
Cleco Cajun owns various properties throughout Louisiana, which include a regional office, telecommunications equipment, and other general-purpose assets.
Title
Cleco Cajun’s assets are owned in fee simple and are not subject to non-ordinary course of business liens or encumbrances.
For information on legal proceedings affecting Cleco, see Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
For information on legal proceedings affecting Cleco Power, see Item 1, “Business — Environmental Matters — Air Quality” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
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ITEM 4. MINE SAFETY DISCLOSURES |
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| CLECO POWER | | 2023 FORM 10-K |
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ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
There is no established public trading market for Cleco Holdings’ membership interests. All of Cleco Holdings’ outstanding membership interests are owned by Cleco Group.
Cleco Holdings’ credit facility requires a total indebtedness of less than or equal to 65.0% of total capitalization in order to declare dividend payments. Additionally, in accordance with the 2016 Merger Commitments, Cleco Holdings is subject to certain provisions limiting the amount of distributions that may be paid from Cleco Holdings to Cleco Group or Cleco Partners, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings.
Cleco Holdings made $53.5 million and $219.6 million of distributions to Cleco Group during 2023 and 2022, respectively. Cleco Holdings made no distributions to Cleco Group during 2021.
Cleco Holdings received no equity contributions from Cleco Group during 2023, 2022, and 2021.
There is no market for Cleco Power’s membership interests. All of Cleco Power’s outstanding membership interests are owned
by Cleco Holdings. Distributions on Cleco Power’s membership interests are paid when and if declared by Cleco Power’s Board of Managers. Any future distributions also may be restricted by any credit or loan agreements into which Cleco Power may enter.
Some provisions in Cleco Power’s debt instruments restrict the amount of equity available for distribution to Cleco Holdings by Cleco Power by requiring Cleco Power’s total indebtedness to be less than or equal to 65.0% of total capitalization. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings.
Cleco Power made $94.8 million and $105.5 million of distributions to Cleco Holdings in 2023 and 2022, respectively. Cleco Power made no distributions to Cleco Holdings in 2021.
Cleco Power received no equity contributions from Cleco Holdings in 2023, 2022 and 2021.
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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion is intended to assist in understanding Cleco’s results of operations and Cleco’s present financial condition. Cleco’s historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material.
Cleco uses its website, https://www.cleco.com, as a routine channel for distribution of important information, including news releases and financial information. Cleco’s website is the primary source of publicly disclosed news about Cleco. Cleco is providing the address to its website solely for informational purposes and does not intend for the address to be an FRP establishedactive link. The contents of the website are not incorporated into this Annual Report on Form 10-K.
Cleco is a regional energy company that conducts substantially all of its business operations through its principal operating business segment, Cleco Power. Cleco Power is a regulated electric utility company that owns nine generating units with a total rated capacity of 3,035 MW and serves approximately 295,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana.
Many factors affect Cleco’s primary business of generating, delivering, and selling electricity. These factors include the ability to increase energy sales while containing
costs and the ability to successfully perform in MISO while subject to the related operating challenges and uncertainties, including increased wholesale competition. In addition, factors affecting Cleco Power include weather and the presence of a stable regulatory environment, which impacts the ROE and the current rate case, as well as the recovery of costs related to storms, growing energy demand, and volatile fuel prices; the ability to reliably deliver power to its jurisdictional customers; and the ability to comply with increasingly stringent regulatory and environmental standards. Significant events and major initiatives impacting Cleco and Cleco Power are discussed below.
Cleco Cajun Divestiture
In 2022, Cleco Holdings began a strategic review process related to its investment in Cleco Cajun. In March 2023, Cleco Holdings’ management, with the support of its Board of Managers, committed to a plan of action for the disposition of the Cleco Cajun Sale Group. On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers for the purchase price of $600.0 million. Cleco Holdings’ management determined that the criteria under GAAP for the Cleco Cajun Sale Group to be classified as held for sale were met and the sale will represent a strategic shift
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| CLECO POWER | | 2023 FORM 10-K |
that will have a major effect on Cleco’s future operations and financial results. Therefore, the results of operations and financial position of the Cleco Cajun Sale Group are presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
Dolet Hills
On January 31, 2022, Cleco Power filed an application with the LPSC requesting recovery of stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other costs associated with the closure of the Oxbow mine. These costs are currently under a prudency review by the LPSC. Pending the completion of the prudency review, Cleco Power intends to seek a financing order to securitize the unrecovered Dolet Hills Power Station closure costs, Oxbow mine closure costs, and deferred fuel costs. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power believes and continues to assert that the related costs were prudently incurred and should be recoverable. However, management has estimated that a loss resulting from a potential disallowance is probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on Cleco’s and Cleco Power’s Balance Sheets and Electric customer credits on Cleco’s and Cleco Power’s Statements of Income. Cleco Power is seeking a settlement to resolve this matter and move forward with the securitization process. Due to the nature of the regulatory process, the outcome and timing of resolution of this matter is uncertain. For more information on the prudency review, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”
ESG
Cleco is accelerating its efforts to protect the environment, manage social relationships, govern responsibly, and ensure accountability. To protect the environment, Cleco is increasing its renewable and electrification initiatives. Cleco is also aiming to reduce GHG emissions in ways such as incorporating renewable energy resources into its generating fleet, as it replaces coal-fired generation units retired after serving their useful lives. Cleco aims to sustainably reduce its GHG emissions by approximately 60.0% by 2030 with aspirations of net zero emissions by 2050. To manage social relationships, Cleco plans to ensure that the electricity that it generates is affordable, reliable, and sustainable. Cleco also continues to support community investment opportunities across its service territory and has created a workforce culture that rewards inclusion, safety, and innovation. To govern responsibly, Cleco plans to continue operating according to policies and practices that support the governance framework. To ensure accountability, Cleco has created an ESG Steering Committee and appointed a Chief Sustainability Officer to oversee the
continued implementation of ESG initiatives. Currently, management is unable to predict the impact of implementing these ESG initiatives on the Registrants. For more information on these ESG goals, see Part I, Item 1, “Business — Human Capital — Diversity and Inclusion,” “— Communities,” and “— Oversight and Governance.” For more information about Cleco’s environmental initiatives, see “— Renewable and Electrification Initiatives.”
Tax Reform
On August 16, 2022, the IRA of 2022 became law. The IRA of 2022 seeks to lower gasoline and electricity prices, increase energy security, and help consumers afford emissions-cutting technologies. In addition, the IRA of 2022 provides tax credits for clean electricity sources and energy storage, as well as creates programs to enable states and electric utilities to transition to clean power. There are several tax and renewables provisions in this legislation that could have a material effect on the results of operations, financial condition, or cash flows of the Registrants. These include provisions related to direct pay and credit transferability, enhanced carbon capture and sequestration credits, new technology-neutral clean energy investment credits, and new technology-neutral clean energy production credits. These credits are expected to help fund Cleco Power’s Project Diamond Vault as well as future renewable and electrification projects. Management continues to monitor any potential impact the IRA of 2022 could have on the Registrants. In addition, the IRA of 2022 could increase business growth in Cleco’s service territory.
Decarbonization Initiatives
Cleco Power is exploring multiple decarbonization initiatives predominantly associated with Madison Unit 3, with the primary initiative currently being Project Diamond Vault.
Project Diamond Vault
On April 11, 2022, Cleco Power announced Project Diamond Vault, a carbon capture and sequestration facility that is anticipated to be constructed at the Brame Energy Center. This facility is expected to capture and compress carbon dioxide produced by the combustion of fuel at Madison Unit 3 and store the compressed gas permanently in deep geological formations located beneath the Brame Energy Center. Cleco Power expects to reduce the carbon dioxide output of Madison Unit 3 by up to 95% with the implementation of this technology. Through this project, Cleco Power plans to leverage technology advancements and Louisiana’s natural resources to create a clean power solution.
Total development costs for Project Diamond Vault are expected to be approximately $58.0 million, of which the FEED study is projected to cost approximately $13.0 million. The FEED study has begun and a $9.0 million congressional appropriation has been secured to help offset costs of this study. As of December 31, 2023, Cleco Power has incurred $12.0 million for Project Diamond Vault development efforts, including the FEED study and received $2.8 million of the congressional appropriation from the U.S. Department of Energy to partially offset these costs. On March 1, 2024, Cleco Power received an additional $1.4 million of the congressional appropriation. The FEED study is expected to be completed in late 2024, and major permitting is expected to be completed in the second half of 2025. Construction of the project is expected to begin in the second half of 2026. Management
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| CLECO POWER | | 2023 FORM 10-K |
expects the total project will be completed in mid to late 2030. After the cost of the FEED study, the remaining project cost is currently estimated to be between $1.70 billion and $2.00 billion. This estimate will be refined throughout the FEED study process as additional information and cost estimates become available. Cleco anticipates funding this project through one or more sources including tax credits provided by the IRA of 2022, U.S. Department of Energy grants or loans, debt financing, private equity investment, and partnership interests.
Renewable and Electrification Initiatives
On July 22, 2022, Cleco Power entered into a long-term agreement to purchase, among other things, the output, capacity, and current and future environmental resource credits of a 240-MW solar electric generation facility to be constructed in DeSoto Parish, Louisiana and owned by a third party. The agreement is subject to LPSC approval and other conditions precedent. If approved, Cleco Power expects to begin receiving output from this facility in 2026.
Cleco Power is also pursuing electrification initiatives such as gas compression, e-trucking, green tariffs, residential heating programs, and increasing the supply of light duty electric vehicles and forklifts, among others.
Cleco Power is seeking available funds from the U.S. government for funding of these electrification initiatives. Cleco Power cannot predict the likelihood that any funding from the U.S. government ultimately will be approved.
DSMART Project
The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment to utilize new and emerging technologies to facilitate automatic fault isolation, service restoration, and fault location. The project is expected to provide savings through a reduction in outage restoration time and improve operational efficiencies and time to locate faults. The project is also expected to improve safety and reliability of Cleco Power’s distribution assets by minimizing outage patrols and improving situational awareness in the distribution operations center. The total estimated project cost is $90.2 million. The project implementation will be completed in phases, and management expects the total project will be completed by the end of 2028. Cleco Power is currently in the second phase of the project. As of December 31, 2023, Cleco Power had spent $55.1 million on the project.
Other
Cleco Power is working to secure load growth opportunities that include renewing existing franchises, pursuing new franchises, and adding new retail load opportunities with large industrial, commercial, and residential customers. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government, military, wood. paper, health care, information technology, transportation, and other manufacturing.
In 2021 through a request for proposal process, a significant wholesale customer currently under contract with Cleco Power informed Cleco Power that it was not selected as a provider of capacity and energy after the first quarter of 2024, and on October 19, 2022, the LPSC certified these results. Cleco Power’s failure to recontract this agreement is expected to affect jurisdictional retail rates that is subject to review by the LPSC in June 2014. The 2014 FRP allowed Cleco Power to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60.0% of retail earnings between 10.9% and 11.75%, and all retail earnings over 11.75%, were required to be refunded to customers. On June 16, 2021, the LPSC approvedconjunction with Cleco Power’s current rate case. On June 30, 2023, Cleco Power filed an application
with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Comparison of the Years Ended December 31, 2023, and 2022
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| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,238,791 | | | $ | 1,604,480 | | | $ | (365,689) | | | (22.8) | % |
| Operating expenses | 1,179,323 | | | 1,205,091 | | | 25,768 | | | 2.1 | % |
| Operating income | 59,468 | | | 399,389 | | | (339,921) | | | (85.1) | % |
| Interest income | 5,393 | | | 5,250 | | | 143 | | | 2.7 | % |
| Allowance for equity funds used during construction | 5,747 | | | 3,740 | | | 2,007 | | | 53.7 | % |
| Other expense, net | (694) | | | (11,240) | | | 10,546 | | | 93.8 | % |
| Interest charges | 164,856 | | | 143,956 | | | (20,900) | | | (14.5) | % |
| Federal and state income tax (benefit) expense | (65,073) | | | 20,035 | | | 85,108 | | | 424.8 | % |
| (Loss) income from continuing operations, net of income taxes | (29,869) | | | 233,148 | | | (263,017) | | | (112.8) | % |
| Income (loss) from discontinued operations, net of income taxes | 14,642 | | | (44,337) | | | 58,979 | | | 133.0 | % |
| Net (loss) income | $ | (15,227) | | | $ | 188,811 | | | $ | (204,038) | | | (108.1) | % |
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The change in Cleco’s results of operations are primarily attributable to the following:
•lower gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $217.3 million included in continuing operations.
•activity of its reportable segment, Cleco Power. For detailed discussions of those impacts, see “— Cleco Power.”
•the effects of the presentation of the Cleco Cajun Sale Group as discontinued operations and, as a result, Cleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Significant Factors Affecting Cleco Power
Revenue is primarily affected by the following factors:
As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors influencing the electric utility industry. These factors, among others, include:
•an increasingly competitive business environment;
•the ability to recover costs through rate-setting proceedings,
•the ability to successfully perform in MISO and the related operating challenges,
•the cost of compliance with environmental and reliability regulations,
•conditions in the credit markets and global economy,
•changes in the federal and state regulation of generation, transmission, and the sale of electricity, and
•the increasing uncertainty of future federal and state regulatory and environmental policies.
For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see “Cautionary Note Regarding Forward-Looking Statements,” Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises,” and “— Financial Condition — Regulatory and Other Matters — Market Structure.” For a discussion of risk factors affecting Cleco Power’s business, see Part I, Item 1A, “Risk Factors.”
Cleco Power’s residential customers’ demand for electricity is affected largely by weather. Weather is generally measured in cooling degree-days and heating degree-days. A high number of cooling degree-days may indicate consumers will use more air conditioning, while a high number of heating degree-days may indicate consumers will use more 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 readily available and winter energy is typically priced below the rate charged for energy used in the summer. 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.
Over the last five years, Cleco Power’s non-industrial retail sales have been relatively steady; however, there have been fluctuations in industrial retail sales. Cleco Power anticipates moderate growth in retail sales over the next five years. Cleco Power expects to begin providing service to expansions of current customers’ operations, as well as service to new retail customers. Cleco Power’s expectations and projections regarding retail sales are dependent 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. Cleco Power is pursuing load growth opportunities that include renewal of existing franchises as well as adding new franchises. For more information on other expectations of future energy sales on Cleco Power, see “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Other issues facing the electric utility industry that could affect sales include:
•imposition of federal and/or state renewable portfolio standards,
•imposition of energy efficiency mandates without recovery of lost revenues,
•legislative and regulatory changes,
•increases in environmental regulations and compliance costs,
•cost of power impacted by the price movement of fuels and the addition of new generation capacity,
•transmission congestion costs,
•increases in capital and operations and maintenance costs due to higher construction and labor costs,
•changes in electric rates compared to customers’ ability to pay,
•changes in the credit markets and local and global economies, and
•the LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities.
For more information on energy legislation in regulatory matters that could affect Cleco, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Legislative and Regulatory Changes and Matters.”
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases, or in some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. Effective July 1, 2021, under the terms of the current FRP, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, are required to be refunded to customers. The amount of credits due to customers, if any, is determined byOn June 30, 2023, Cleco Power and the LPSC annually. Credits are typically included on customers’ bills the following summer, but the amount and timing of the refunds are ultimately subject to LPSC approval. Cleco Power’s next base rate case is required to be filed an application with the LPSC for its current rate case, with anticipated new rates being effective July 1, 2024. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of limiting rate increases or reducing rates.
Expenses are primarily affected by the following factors:
The majority of Cleco Power’s non-fuel cost recovery expenses include:
•other operations expenses that are affected by, among other things, the cost of employee benefits, insurance expense,
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| CLECO POWER | | 2023 FORM 10-K |
and the costs associated with energy delivery and customer service,
•maintenance expenses for Cleco Power’s generating plants, which generally depend upon the plant’s physical characteristics, maintenance practices, and effectiveness of preventive maintenance programs,
•maintenance expenses of transmission and distribution assets, which are generally affected by the level of repair and rehabilitation of lines to maintain reliability,
•depreciation and amortization expense, which is primarily affected by the cost of the facilities in service, the time the facilities were placed in service, and the estimated useful life of the facilities,
•taxes other than income taxes, which generally include payroll taxes, franchise taxes, and property taxes, and
•interest charges, which are generally affected by interest rates on or before March 31,outstanding debt.
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 692,866 | | | $ | 685,419 | | | $ | 7,447 | | | 1.1 | % |
| Fuel cost and purchased power recovery | 504,503 | | | 837,647 | | | (333,144) | | | (39.8) | % |
| Electric customer credits | (60,689) | | | (7,674) | | | (53,015) | | | (690.8) | % |
| Other operations | 111,561 | | | 98,759 | | | 12,802 | | | 13.0 | % |
| Affiliate revenue | 8,904 | | | 6,377 | | | 2,527 | | | 39.6 | % |
| Operating revenue, net | 1,257,145 | | | 1,620,528 | | | (363,383) | | | (22.4) | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 504,512 | | | 837,647 | | | 333,135 | | | 39.8 | % |
| Non-recoverable fuel and purchased power | 45,485 | | | 59,846 | | | 14,361 | | | 24.0 | % |
| Other operations and maintenance | 233,863 | | | 216,851 | | | (17,012) | | | (7.8) | % |
| Depreciation and amortization | 191,745 | | | 178,231 | | | (13,514) | | | (7.6) | % |
| Taxes other than income taxes | 60,676 | | | 55,075 | | | (5,601) | | | (10.2) | % |
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| Regulatory disallowance | — | | | 13,841 | | | 13,841 | | | 100.0 | % |
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| Total operating expenses | 1,036,281 | | | 1,361,491 | | | 325,210 | | | 23.9 | % |
| Operating income | 220,864 | | | 259,037 | | | (38,173) | | | (14.7) | % |
| Interest income | 5,011 | | | 5,082 | | | (71) | | | (1.4) | % |
| Allowance for equity funds used during construction | 5,747 | | | 3,740 | | | 2,007 | | | 53.7 | % |
| Other expense, net | (28) | | | (7,081) | | | 7,053 | | | 99.6 | % |
| Interest charges | 98,879 | | | 88,218 | | | (10,661) | | | (12.1) | % |
| Federal and state income tax (benefit) expense | (4,434) | | | 2,503 | | | 6,937 | | | 277.1 | % |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | (32,908) | | | (19.4) | % |
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The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (MILLION kWh) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,772 | | | 3,787 | | | (0.4) | % |
| Commercial | 2,723 | | | 2,674 | | | 1.8 | % |
| Industrial | 2,229 | | | 2,282 | | | (2.3) | % |
| Other retail | 124 | | | 121 | | | 2.5 | % |
| Total retail | 8,848 | | | 8,864 | | | (0.2) | % |
| Sales for resale | 2,980 | | | 3,061 | | | (2.6) | % |
| Total retail and wholesale customer sales | 11,828 | | | 11,925 | | | (0.8) | % |
The following table shows the components of Cleco Power’s base revenue:
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (THOUSANDS) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,729 | | | $ | 322,545 | | | 0.1 | % |
| Commercial | 201,270 | | | 200,031 | | | 0.6 | % |
| Industrial | 95,707 | | | 90,243 | | | 6.1 | % |
| Other retail | 11,663 | | | 11,032 | | | 5.7 | % |
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| Total retail | 631,369 | | | 623,851 | | | 1.2 | % |
| Sales for resale | 61,497 | | | 61,568 | | | (0.1) | % |
| Total base revenue | $ | 692,866 | | | $ | 685,419 | | | 1.1 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
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| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2023 CHANGE |
| | 2023 | | 2022 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,707 | | | 3,095 | | | 2,920 | | | 19.8 | % | | 27.0 | % |
| Heating degree-days | 1,057 | | | 1,650 | | | 1,477 | | | (35.9) | % | | (28.4) | % |
Base
Base revenue increased $7.4 million primarily due to $4.9 million of higher industrial demand. Industrial demand increased primarily due to new industrial customers in 2023. Also contributing to the increase was $1.4 million of higher rates, largely related to the infrastructure and incremental cost recovery rider. Although higher than normal temperatures were experienced during the summer of 2023 which contributed to an increase in base revenue, the lower usage from milder winter weather during 2023 offset this increase resulting in no meaningful impact to the overall base revenue variance for 2023.
For more information on the current FRP,effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part II,I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to recover from its customers substantially all such prudently incurred charges. Approximately 77% of Cleco Power’s total fuel cost during 2023 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. Cleco Power’s incremental recoverable fuel and purchased power expenses for the year ended December 31, 2023, were impacted primarily by lower natural gas costs as compared to the year ended December 31, 2022. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 132 — Regulation and RatesSummary of Significant Accounting Policies — FRP.Accounting for MISO Transactions.”
From June 1, 2021, through August 31, 2022, Cleco Power recovered from retail customers certain incurred costs associated with Hurricanes Laura, Delta, and Zeta through an interim storm recovery rate. Effective September 1, 2022, those costs are being recovered through a new storm recovery surcharge resulting from the storm recovery securitization financing. For more information on Cleco Power’s most current fuel audits, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 19 — Securitization.”
Generally, Cleco Power’s cost of fuel used for electric generation and the cost of purchased power are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC. For more information on the FAC and the most recent fuel audits, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Electric Customer Credits
Electric customer credits increased $53.0 million primarily due to $58.7 million for the accrual of an estimated contingency loss related to the probability of a partial disallowance of the recovery of incurred fuel costs associated with the Dolet Hills prudency review. This increase was partially offset by $5.7 million for the absence of a 2022 refund to Cleco Power has an EAC that is usedPower’s retail customers related to recover from its customers certainthe St. Mary Clean Energy Center for costs of environmental compliance. These costs are subjectrecovered in periods prior to periodic review by the LPSC.September 30, 2022. For more information on the EAC and the most recent environmental audit,Dolet Hills prudency review, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.Dolet Hills Prudency Review.”
For more information onabout the regulatory impacts of the TCJA on Cleco Power,2022 refund, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1314 — Regulation and Rates — Regulatory RefundsDisallowance — TCJA.St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $12.8 million primarily due to $20.8 million for a full year of storm recovery collection in 2023 compared to four months of storm recovery collection in 2022, partially offset by $6.7 million of lower MISO transmission revenue from lower usage.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power decreased $14.4 million primarily due to $8.6 million for the timing of recovery of transmission costs and $4.7 million of lower fuel expense primarily due to the expiration of wholesale contracts in December 2022 and May 2023.
Other Operations and Maintenance
Other operations and maintenance increased $17.0 million primarily due to $14.7 million of higher employee-related expenses largely related to employee benefits. Also contributing to the increase was $3.1 million of higher routine distribution maintenance expenses, $2.8 million of higher outside service costs primarily related to information technology support and consulting, $2.2 million of higher distribution operations expenses, and $2.1 million of higher reserve for credit losses. These increases were partially offset by $8.2 million of lower generating outage maintenance expenses and $1.4 million of lower generating routine maintenance expenses.
Depreciation and Amortization
Depreciation and amortization increased $13.5 million primarily due to $11.6 million for the amortization of the securitized intangible asset that began in November 2022, $6.5 million related to changes in the estimated useful lives of internal software, and $4.2 million for higher normal recurring additions to fixed assets. These increases were partially offset by $7.4 million for the absence of amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta and $2.1 million for the absence of amortization related to costs associated with lignite mining. For more information on Cleco Power’s and Cleco Cajun’s transmission rates,the securitized intangible asset, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 418 — Revenue RecognitionIntangible Assets and Goodwill — Transmission Revenue.Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.6 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
Regulatory disallowance decreased $13.8 million due to the absence of the impairment charge resulting from the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information about the regulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Expense, Net
Other expense, net decreased $7.1 million primarily due to the absence of non-service pension costs amortization as a result of an increase in the discount rate which caused actuarial gains.
Interest Charges
Interest charges increased $10.7 million primarily due to $8.8 million for interest on storm recovery bonds issued in June 2022 by Cleco Securitization I and $4.3 million for higher rates on variable rate debt. These increases were partially offset by $2.8 million for the absence of interest on floating rate senior notes that were redeemed at par in June 2022.
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| CLECO POWER | | 2023 FORM 10-K |
Income Taxes
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco Power.”
Comparison of the Years Ended December 31, 2022, and 2021
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| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,604,480 | | | $ | 1,226,324 | | | $ | 378,156 | | | 30.8 | % |
| Operating expenses | 1,205,091 | | | 934,321 | | | (270,770) | | | (29.0) | % |
| Operating income | 399,389 | | | 292,003 | | | 107,386 | | | 36.8 | % |
| Interest income | 5,250 | | | 3,297 | | | 1,953 | | | 59.2 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
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| Other expense, net | (11,240) | | | (15,061) | | | 3,821 | | | 25.4 | % |
| Interest charges | 143,956 | | | 128,798 | | | (15,158) | | | (11.8) | % |
| Federal and state income tax expense | 20,035 | | | 1,333 | | | (18,702) | | | * |
| Income from continuing operations, net of income taxes | 233,148 | | | 160,013 | | | 73,135 | | | 45.7 | % |
| (Loss) income from discontinued operations, net of income taxes | (44,337) | | | 34,953 | | | (79,290) | | | (226.8) | % |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | (6,155) | | | (3.2) | % |
| *Not Meaningful | | | | | | |
The change in Cleco’s results of operations are primarily attributable to the following:
•activity of its reportable segment, Cleco Power. For detailed discussions of those impacts, see “— Cleco Power.”
•higher gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $33.9 million included in continuing operations.
•the effects of the presentation of the Cleco Cajun Sale Group as discontinued operations and, as a result, Cleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
For information on regulatory risks that could have an impact on Cleco,Cleco’s effective income tax rates, see Item 1A, “Risk Factors8, “Financial Statements and Supplementary Data — Regulatory Risks.Notes to the Financial Statements — Note 12 — Income Taxes — Cleco.”
Franchises
Cleco Power operates under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state law. These franchises are for fixed terms that vary in length. Historically, Cleco Power has been substantially successful in the timely renewal of franchises as each neared the end of its term. | | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 685,419 | | | $ | 652,573 | | | $ | 32,846 | | | 5.0 | % |
| Fuel cost and purchased power recovery | 837,647 | | | 549,676 | | | 287,971 | | | 52.4 | % |
| Electric customer credits | (7,674) | | | (40,878) | | | 33,204 | | | 81.2 | % |
| Other operations | 98,759 | | | 74,625 | | | 24,134 | | | 32.3 | % |
| Affiliate revenue | 6,377 | | | 5,641 | | | 736 | | | 13.0 | % |
| Operating revenue, net | 1,620,528 | | | 1,241,637 | | | 378,891 | | | 30.5 | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 837,647 | | | 549,677 | | | (287,970) | | | (52.4) | % |
| Non-recoverable fuel and purchased power | 59,846 | | | 41,420 | | | (18,426) | | | (44.5) | % |
| Other operations and maintenance | 216,851 | | | 223,257 | | | 6,406 | | | 2.9 | % |
| Depreciation and amortization | 178,231 | | | 173,498 | | | (4,733) | | | (2.7) | % |
| Taxes other than income taxes | 55,075 | | | 49,598 | | | (5,477) | | | (11.0) | % |
| Regulatory disallowance | 13,841 | | | — | | | (13,841) | | | (100.0) | % |
| | | | | | | |
| | | | | | | |
| Total operating expenses | 1,361,491 | | | 1,037,450 | | | (324,041) | | | (31.2) | % |
| Operating income | 259,037 | | | 204,187 | | | 54,850 | | | 26.9 | % |
| Interest income | 5,082 | | | 3,294 | | | 1,788 | | | 54.3 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
| Other expense, net | (7,081) | | | (19,561) | | | 12,480 | | | 63.8 | % |
| Interest charges | 88,218 | | | 73,090 | | | (15,128) | | | (20.7) | % |
| Federal and state income tax expense (benefit) | 2,503 | | | (9,353) | | | (11,856) | | | (126.8) | % |
| Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 35,969 | | | 26.8 | % |
| | | | | | | |
Industry DevelopmentsThe following table shows the components of Cleco Power’s retail and Competitionwholesale customer sales related to base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (MILLION kWh) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,787 | | | 3,653 | | | 3.7 | % |
| Commercial | 2,674 | | | 2,564 | | | 4.3 | % |
| Industrial | 2,282 | | | 2,170 | | | 5.2 | % |
| Other retail | 121 | | | 125 | | | (3.2) | % |
| Total retail | 8,864 | | | 8,512 | | | 4.1 | % |
| Sales for resale | 3,061 | | | 2,880 | | | 6.3 | % |
| Total retail and wholesale customer sales | 11,925 | | | 11,392 | | | 4.7 | % |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table shows the components of Cleco Power’s base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (THOUSANDS) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,545 | | | $ | 304,761 | | | 5.8 | % |
| Commercial | 200,031 | | | 189,802 | | | 5.4 | % |
| Industrial | 90,243 | | | 88,661 | | | 1.8 | % |
| Other retail | 11,032 | | | 10,984 | | | 0.4 | % |
| | | | | |
| Total retail | 623,851 | | | 594,208 | | | 5.0 | % |
| Sales for resale | 61,568 | | | 58,365 | | | 5.5 | % |
| Total base revenue | $ | 685,419 | | | $ | 652,573 | | | 5.0 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2022 CHANGE |
| | 2022 | | 2021 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,095 | | | 3,141 | | | 2,779 | | | (1.5) | % | | 11.4 | % |
| Heating degree-days | 1,650 | | | 1,314 | | | 1,547 | | | 25.6 | % | | 6.7 | % |
Base
Base revenue increased $32.8 million primarily due to $19.3 million of higher usage as a result of weather and $18.0 million of higher rates as a result of the implementation of Cleco Power’s current retail rate plan.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 78% of Cleco Power’s total fuel cost during 2022 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. In February 2021, Cleco Power’s incremental fuel and purchased power costs were impacted significantly as a result of Winter Storms Uri and Viola. On March 29, 2021, Cleco Power received approval from the LPSC to recover a portion of the incremental fuel and purchased power costs resulting from Winter Storms Uri and Viola through Cleco Power’s FAC over a period of 12 months beginning with the May 2021 bills. Cleco Power’s incremental fuel and purchased power costs during 2021 were also impacted by higher costs of lignite at the Dolet Hills Power Station, which are being recovered through Cleco Power’s
FAC. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.” For more information on lignite costs at the Dolet Hills Power Station, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”
Electric Customer Credits
Electric customer credits decreased $33.2 million primarily due to $39.9 million of lower credits to retail customers for the federal tax-related benefits of the TCJA now being a component of rates as a result of Cleco Power’s current retail rate plan. After the implementation of Cleco Power’s current retail rate plan, these credits offset base revenue on Cleco Power’s Consolidated Statement of Income. Partially offsetting this decrease was $7.1 million for refunds to Cleco Power’s retail customers as a result of the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— TCJA.” For more information about the LPSC settlement and disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $24.1 million primarily due to $13.2 million for storm recovery securitization revenue, $11.6 million of higher transmission revenue from increased usage at higher rates, $1.9 million of higher forfeited discounts, and $1.0 million of higher pole attachment rental income. Partially offsetting these increases was $3.8 million of lower revenue as a result of the expiration of a utility contract in September 2021.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power increased $18.4 million primarily due to $10.9 million for higher volumes of power purchased from MISO at higher prices, $4.6 million for lower amounts deferred to a regulatory asset associated with the Northlake Transmission Agreement, and $1.8 million of higher amortization to the Northlake Transmission Agreement regulatory asset. For more information on the Northlake Transmission Agreement regulatory asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Other.”
Other Operations and Maintenance
Other operations and maintenance decreased $6.4 million primarily due to $6.9 million of lower generating routine maintenance expenses largely due to the absence of expenses related to the Dolet Hills Power Station as a result of
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
its retirement in December 2021, $6.3 million of lower generating outage maintenance expenses, and $5.7 million of lower distribution maintenance expenses which was largely the result of fewer storms in 2022. These decreases were partially offset by $6.8 million of higher administrative and general employee related expenses and $3.1 million of higher routine distribution operations expense.
Depreciation and Amortization
Depreciation and amortization increased $4.7 million primarily due to $4.3 million for the amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta, $2.8 million for the amortization of the securitized intangible asset that began in November 2022, and $1.3 million for the absence of a 2021 adjustment to the corporate franchise tax regulatory asset. These increases were partially offset by $5.3 million of lower normal recurring additions to fixed assets. For more information on the securitized intangible asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill— Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.5 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
In September 2022, Cleco Power recognized a regulatory disallowance of $13.8 million for the impairment charge resulting from a portion of planning and construction costs incurred for the St. Mary Clean Energy Center that were deemed imprudent and not recoverable by the LPSC. For more information about the regulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction decreased $6.2 million primarily due to the absence of a December 2021 adjustment driven by the timing of the election and LPSC approval of the FERC modified formula.
Other Expense, Net
Other expense, net decreased $12.5 million primarily due to $8.4 million of lower pension non-service costs largely due to lower amortization of net losses, $2.4 million for the absence of a special termination benefit, and $1.0 million of disallowed costs as a result of the settlement of Cleco Power’s current retail rate plan.
Interest Charges
Interest charges increased $15.1 million primarily due to $10.0 million for interest on storm recovery bonds issued in June
2022 by Cleco Securitization I, $2.0 million for higher rates on variable rate debt, and $1.3 million for higher interest on floating rate senior notes issued in September 2021.
Income Taxes
For information on developmentsCleco Power’s effective income tax rates, see Item 8, “Financial Statements and competitionSupplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco Power.”
Non-GAAP Measure
The financial results in the following table is presented on an accrual basis. EBITDA is a key non-GAAP financial measure used by the CEO to assess the operating performance of Cleco’s segment however, it is not indicative of future performance. Management evaluates the performance of Cleco’s segment and allocates resources to it based on segment profit and the requirements to implement strategic initiatives and projects to meet current business objectives. EBITDA is defined as net income adjusted for interest, income taxes, depreciation, and amortization.
The financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect the presentation of the Cleco Cajun Sale Group as discontinued operations. Cleco’s segment structure and its allocation of corporate expenses were updated to reflect how management makes financial decisions and allocates resources. Cleco has recast data from prior periods to reflect this change to conform to the current year presentation. For more information, see item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
The following table sets forth a reconciliation of net income, the nearest comparable GAAP financial performance measure, to EBITDA for the Cleco Power reportable segment for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | 134,088 | |
| Add: Depreciation and amortization | 191,745 | | | 178,231 | | | 173,498 | |
| Less: Interest income | 5,011 | | | 5,082 | | | 3,294 | |
| Add: Interest charges | 98,879 | | | 88,218 | | | 73,090 | |
| Add: Federal and state income tax expense (benefit) | (4,434) | | | 2,503 | | | (9,353) | |
| EBITDA | $ | 418,328 | | | $ | 433,927 | | | $ | 368,029 | |
|
Selected Financial Data
The information set forth in the following table should be read in conjunction with Cleco’s Consolidated Financial Statements and the related Notes in Item 8, “Financial Statements and Supplementary Data.”
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, | | | | |
| (THOUSANDS, EXCEPT PER SHARE AND PERCENTAGES) | 2023 | | 2022 | | 2021 | | | | |
| Operating revenue, net (excluding intercompany revenue) | | | | | | | | | |
Cleco Power (1) | $ | 1,248,241 | | | $ | 1,614,151 | | | $ | 1,235,996 | | | | | |
| | | | | | | | | |
| Other | (9,450) | | | (9,671) | | | (9,672) | | | | | |
| Total | $ | 1,238,791 | | | $ | 1,604,480 | | | $ | 1,226,324 | | | | | |
| (Loss) income from continuing operations before income taxes | $ | (94,942) | | | $ | 253,183 | | | $ | 161,346 | | | | | |
| Income (loss) from discontinued operations, net of income taxes | $ | 14,642 | | | $ | (44,337) | | | $ | 34,953 | | | | | |
| Net income | $ | (15,227) | | | $ | 188,811 | | | $ | 194,966 | | | | | |
| Capitalization | | | | | | | | | |
| Member’s equity | 47.77 | % | | 48.42 | % | | 46.56 | % | | | | |
Long-term debt and finance leases (2) | 52.23 | % | | 51.58 | % | | 53.44 | % | | | | |
| Member’s equity | $ | 2,873,173 | | | $ | 2,947,067 | | | $ | 2,954,156 | | | | | |
Long-term debt and finance leases (2) | $ | 3,141,924 | | | $ | 3,139,094 | | | $ | 3,390,033 | | | | | |
| Total assets | $ | 8,100,393 | | | $ | 8,253,749 | | | $ | 8,125,018 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1) Includes revenue for transmission services provided to Cleco Cajun that are no longer eliminated on Cleco’s Consolidated Statements of Income as a result of discontinued operations presentation. For more information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
(2) Excludes long-term debt and finance leases due within one year.
| | | | | | | | | | | | | | |
| CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS |
For a narrative analysis of the electric utility industry,results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2023, and 2022, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and“— Results of Operations — Comparison of the Years Ended December 31, 2023, and 2022 — Cleco Power.”
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2022, and 2021, see “— Results of Operations — Comparison of the Years Ended December 31, 2022, and 2021 — Cleco Power.”
The narrative analysis referenced above should be read in combination with Cleco Power’s Financial Condition — RegulatoryStatements and Other Matters — Market Structure.”the Notes contained in this Annual Report on Form 10-K.
Legislative
| | | | | | | | | | | | | | |
| CRITICAL ACCOUNTING ESTIMATES |
The preparation of Cleco’s and Regulatory ChangesCleco Power’s Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and Matters
Various federalto make estimates and state legislative and regulatory bodies are considering a number of issuesjudgments that could shape the future of the electric utility industry. Such issues include, among others:
•the ability of electric utilities to recover stranded costs,
•the role of electric utilities, independent power producers, and competitive bidding in the purchase, construction, and operation of new generating capacity,
•the role of electric utilities and independent transmission providers in competitive bidding in the construction of new transmission facilities,
•the pricing of transmission service on an electric utility’s transmission system, or the cost of transmission services provided by an RTO/ISO,
•FERC’s assessment of market power andhave a utility’s ability to buy generation assets,
•mandatory transmission reliability standards,
•NERC’s imposition of additional reliability and cybersecurity standards,
•the authority of FERC to grant utilities the power of eminent domain,
•increasing requirements for renewable energy sources,
•demand response and energy efficiency standards,
•comprehensive environmental regulation in the areas of air, water, and waste,
•FERC’s ability to impose financial penalties, and
•the LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities.
At this time, management is unable to predict the outcome of such issues or the effects thereofmaterial impact on the results of operations, financial condition, or cash flows of the Registrants.
For more information on Cleco’s accounting policies, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies.”
Cleco believes that the following accounting estimates are the most significant in understanding reported financial results:
•Regulatory Accounting: A significant portion of Cleco’s businesses are subject to regulation. This results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. Cleco Power is allowed to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Future regulatory matterschanges or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of Cleco’s businesses. Cleco’s management believes that currently available facts support
the continued use of regulatory accounting affecting Cleco,assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment. For more information on regulatory assets and liabilities, see Part II, Item 7, “Management’s Discussion8, “Financial Statements and AnalysisSupplementary Data — Notes to the Financial Statements — Note 2 — Summary of Financial Condition and Results of OperationsSignificant Accounting Policies — Financial ConditionRegulation,” “Note 6 — Regulatory Assets and Other Matters.Liabilities,” and “Note 14 — Regulation and Rates.”
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ENVIRONMENTAL MATTERS•Goodwill: On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion, all of which was assigned to the Cleco Power reporting unit. Goodwill is required to be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires management to make significant assumptions and estimates, including the identification of reporting units, assignments of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of the reporting units, in which independent valuation experts are often used. Changes in management’s assumptions and estimates could materially affect the determination of fair value and goodwill impairment. For more information on goodwill recorded in connection with the 2016 Merger, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill — Goodwill.” |
Environmental Quality
Cleco is subject•Pension and Other Postretirement Benefits: To determine assets, liabilities, and expenses relating to federal, state,pension and localother postretirement benefits, management must make assumptions about future trends. Assumptions and estimates include, but are not limited to, discount rates, expected return on plan assets, mortality rates, future rate of compensation increases, and medical inflation trend rates. These assumptions are reviewed and updated on an annual basis. Changes in the rates from year-to-year and newly-enacted laws could have a material effect on Cleco’s financial condition and regulations governingresults of operations by changing the protectionrecorded assets, liabilities, expense, or required funding of the environment. Violations of these laws and regulations may result in substantial fines and penalties. Cleco has obtained the environmental permits necessary for its operations, and management believes Cleco is in compliance in all material
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
respects with these permits, as well as all applicable environmental lawsthe pension plan obligation. One component of pension expense is the expected return on plan assets. It is an assumed percentage return on the market-related value of plan assets. The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and regulations. Environmental requirements affecting electric power facilities are complex, change frequently,recognized in the market-related value of assets on a straight-line basis over a five-year period. The 2023 return on plan assets was 9.23% compared to an expected long-term return of 6.60%. For 2022, the plan assets had a return of (19.94)% compared to an expected long-term return of 5.25%. For the calculation of the 2024 periodic expense, Cleco decreased the discount rate to 5.13% and have become more stringent over time asincreased the expected long-term return on plan assets to 6.68%.
Management uses a theoretical bond portfolio in order to calculate the discount rate for the measurement of liabilities. As a result of new legislation, administrative actions,the annual review of assumptions, the pension plan discount rate decreased from 5.44% to 5.13% for the December 31, 2023, measurement of liabilities.
A change in the assumed discount rate creates a deferred actuarial gain or loss. Generally, when the assumed discount rate decreases compared to the prior measurement date, a deferred actuarial loss is created. When the assumed discount rate increases compared to the prior measurement date, a deferred actuarial gain is created. Actuarial gains and judicial interpretations. Therefore,losses also are created when actual results, such as compensation increases, differ from assumptions. On December 31, 2023, Cleco recognized a $17.1 million net actuarial loss primarily due to updated demographic assumptions resulting from the capital costscompletion of an experience study in 2023, a decrease in the discount rate and higher than expected return on assets. Historically, Cleco Power has been allowed to recover pension plan expenses; therefore, deferred actuarial gains and losses are recorded as a regulatory asset or liability. The net of the deferred gains and losses is amortized to pension expense over the average service life of the remaining plan participants (approximately five years as of December 31, 2023, for Cleco’s plan) when it exceeds certain thresholds. This approach of amortizing gains and losses has the effect of reducing the volatility of pension expense. Over time, it is not expected to reduce or increase the pension expense relative to an approach that immediately recognizes losses and gains.
The following table shows the impact of a 0.5% change in Cleco’s pension plan discount rate, salary scale, and rate of return on plan assets:
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ACTUARIAL ASSUMPTION
(THOUSANDS) | CHANGE IN ASSUMPTION | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | CHANGE IN ESTIMATED BENEFIT COST |
| Discount rate | 0.5% increase | | $ | (28,459) | | | $ | 561 | |
| 0.5% decrease | | $ | 31,391 | | | $ | (660) | |
| Salary scale | 0.5% increase | | $ | 3,261 | | | $ | 314 | |
| 0.5% decrease | | $ | (3,058) | | | $ | (293) | |
| Expected return on assets | 0.5% increase | | $ | — | | | $ | (2,278) | |
| 0.5% decrease | | $ | — | | | $ | 2,278 | |
Cleco was not required to make contributions to the pension plan in 2023, 2022, or 2021. Based on funding assumptions at December 31, 2023, management estimates that $94.2 million of pension contributions will be required
through 2028. Cleco expects to make $25.7 million of required contributions to the pension plan in 2024. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Future required contributions are driven by liability funding target percentages set by law which could cause the required contributions to change from year-to-year. The ultimate amount and timing of the contributions will be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
For more information on pension and other expenditures necessarypostretirement benefits, see Item 8, “Financial Statements and Supplementary Data — Notes to comply with existingthe Financial Statements — Note 11 — Pension Plan and new environmental requirementsEmployee Benefits.”
•Income Taxes: For more information on income taxes, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Income Taxes” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes.”
•Loss Contingencies: Cleco is currently involved in certain legal and regulatory proceedings and management has estimated the probable costs for the resolution of these matters. These estimates are difficultbased on an analysis of potential results, assuming a combination of litigation and settlement assumptions. For more information on legal and regulatory proceedings affecting Cleco, see Part I, Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Item 8, “Financial Statements and Supplementary Data — Notes to determine.the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees.”
•Discontinued Operations: Cleco Power may request recoverycalculated an estimated impairment on the disposition of its Cleco Cajun Sale Group as of December 31, 2023. Cleco determined that the estimated fair value less the estimated cost to sell the Cleco Cajun Sale Group was less than the carrying value of the costsCleco Cajun Sale Group at December 31, 2023. The fair value estimates involved a number of judgements and assumptions including the future performance of the Cleco Cajun Sale Group through the expected divestiture date, the expected net working capital adjustment to comply with certain environmental lawsthe sale proceeds from the Cleco Cajun Divestiture Purchase and regulations from its retail customers.Sale Agreement, and the weighted average cost of capital or discount rate. The estimated fair value was determined using the income approach. If recovery werea significant change occurs in the fair value less cost to sell the Cleco Cajun Sale Group, the actual impairment on the disposition of the Cleco Cajun Sale Group could be approved bymaterially different than the LPSC, then current estimated loss recorded at December 31, 2023. For more on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
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| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Cleco Power’s retail rates could increase. Ifare regulated by the LPSC were to deny Cleco Power’s request to recover all or part ofand its environmental compliance costs, thentariffs for transmission services are regulated by FERC, while rates for wholesale power sales are based on market-based rates and ultimately reviewed by FERC. Cleco Power would bear those costs directly. Suchmust evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral and the recoverability and refund of certain assets. Future rate changes could have a decision could negativelymaterial impact on the results of operations, financial condition, or cash flows of Cleco Power. Areas that could be materially impacted by future actions of regulators are described below:
•The LPSC allows Cleco Power to recover prudent costs incurred in developing long-lived assets. If the Registrants.LPSC were to rule that the cost of current or future long-lived assets was imprudent and not recoverable, Cleco Power could be required to write down the asset and incur a corresponding impairment loss.
On September 21, 2022, the LPSC approved a settlement regarding the St. Mary Clean Energy Center disallowing recovery of $15.0 million, which resulted in a net $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value.
•The LPSC determines the amount and type of fuel and purchased power expenses that Cleco Power can charge customers through the FAC. Changes in the determination of allowable costs already incurred by Cleco Power could cause material changes in fuel revenue. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, by the LPSC related to these filings. For more information on current LPSC fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees —Litigation — LPSC Audits and Reviews — Fuel Audits.” For information on fuel revenue, see “— Results of Operations — Comparison of the Years Ended December 31, 2023, and 2022 — Cleco Power — Significant Factors Affecting Cleco Power — Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Power Purchased.”
Liquidity and Capital Resources
General Considerations and Credit-Related Risks
Credit Ratings and Counterparties
Financing for operational needs and capital expenditure requirements not satisfied by operating cash flows depends upon the cost and availability of external funds through both short- and long-term financing. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain or expand its businesses. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, Cleco Holdings’ and Cleco Power’s credit ratings, cash flows
from routine operations, and credit ratings of project counterparties. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. The following table presents the credit ratings of Cleco Holdings and Cleco Power at December 31, 2023:
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| SENIOR UNSECURED DEBT | | CORPORATE/LONG-TERM ISSUER |
| S&P | MOODY’S | FITCH | | S&P | MOODY’S | FITCH |
| Cleco Holdings | BBB- | Baa3 | BBB- | | BBB- | Baa3 | BBB- |
| Cleco Power | BBB+ | A3 | BBB+ | | BBB+ | A3 | BBB |
Credit ratings are not recommendations to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
On December 5, 2023, following the announcement of the proposed sale of the Cleco Cajun Sale Group, S&P placed all their ratings for Cleco Holdings and Cleco Power on CreditWatch with positive implications of the expected improvement in business risk from having a fully regulated utility business following the completion of the transaction.
Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest rating held. If Cleco Holdings’ or Cleco Power’s credit ratings were to be downgraded, Cleco Holdings or Cleco Power, respectively, could be required to pay additional fees and incur higher interest rates for borrowings under their respective revolving credit facilities.
Cleco may be required to provide credit support with respect to bilateral transactions and contracts that Cleco has entered into or may enter into in the future. The amount of credit support required may change based on margining formulas, changes in credit agency ratings, or liquidity ratios.
Cleco Power and Cleco Cajun participate in the MISO market. MISO requires Cleco Power and Cleco Cajun to provide credit support which may increase or decrease due to the timing of the settlement schedules and MISO margining formulas. For more information about MISO, see “— Regulatory and Other Matters — Transmission Rates.” For more information about credit support, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees and “Note 9 — Derivative Instruments.”
Global and U.S. Economic Environment
Global and domestic economic conditions may have an impact on Cleco’s business and financial condition. Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. During periods of capital market volatility, the availability of capital could be limited and the costs of capital may increase for many companies. Although the Registrants have not experienced restrictions in the financial markets, their ability to access the capital markets may be restricted at a time when the Registrants would like, or need, to do so. Any restrictions could have a material impact on the Registrants’ ability to fund capital expenditures or debt service, or on their flexibility to react to changing economic and business conditions. Credit constraints could have a material, negative impact on the Registrants’ lenders or customers, causing them
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
to fail to meet their obligations to the Registrants or to delay payment of such obligations. The higher interest rate environment the Registrants have been exposed to has negatively affected interest expense on variable rate debt and positively affected interest income for the Registrants’ short-term investments.
In recent years, inflationary pressures have increased substantially. Under established regulatory practice, historical costs have traditionally formed the basis for recovery from customers. As a result, Cleco Power’s future cash flows designed to provide recovery of historical plant costs may not be adequate to replace property, plant, and equipment in future years. For information on the impacts of inflation and market price volatility of natural gas on credit loss reserves related to customer accounts receivable, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Reserves for Credit Losses” and Part I, Item 1A, “Risk Factors — General Risk Factors — Global Economic Uncertainty and Access to Capital.”
TCJA
The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan, which included the settlement of the TCJA protected and unprotected excess ADIT. As a result of this settlement, all retail customers will continue receiving bill credits resulting from the TCJA. For more information on the regulatory impact of the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — TCJA.”
Fair Value Measurements
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. For more information about fair value instruments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 8 — Fair Value Accounting Instruments.”
Cash Generation and Cash Requirements
Restricted Cash and Cash Equivalents
For information on Cleco’s and Cleco Power’s restricted cash and cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”
Working Capital and Debt
Cleco
At December 31, 2023, and 2022, Cleco had $110.0 million and $109.0 million, respectively, of short-term debt for outstanding borrowings under its aggregate $475.0 million revolving credit facilities. For more information on Cleco’s credit facilities, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
At December 31, 2023, Cleco’s long-term debt and finance leases outstanding, excluding fair value adjustments resulting from the 2016 merger, was $3.30 billion, of which $256.8 million was due within one year. The long-term debt due within one year at December 31, 2023, primarily
represents Cleco Power’s $125.0 million bank term loan due in May 2024, $66.7 million of principal payments made on Cleco Holdings’ bank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun Acquisition commitments to the LPSC, $50.0 million of Cleco Power’s senior notes due in December 2024, and $14.5 million of Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. For more information on Cleco’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.”
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes due in 2023. As a result, the interest rate of the senior notes changed to a floating interest rate equal to SOFR plus 1.725% and the maturity date was extended from May 1, 2023, to May 1, 2025.
Proceeds from the divestiture of the Cleco Cajun Sale Group, which is subject to customary regulatory approvals, must be used to satisfy the LPSC commitment related to the debt that funded the Cleco Cajun Acquisition. For more information, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 3 —Discontinued Operations.”
Cash and cash equivalents available at December 31, 2023, were $122.6 million combined with $365.0 million available revolving credit facility capacity ($65.0 million from Cleco Holdings and $300.0 million from Cleco Power) for total liquidity of $487.6 million.
At December 31, 2023, and 2022, Cleco had a working capital deficit of $17.5 million and $88.8 million, respectively. The $71.3 million decrease in the working capital deficit is primarily due to:
•an $84.1 million decrease in long-term debt due within one year primarily due to the reclassification of Cleco Holdings’ $165.0 million senior notes due in May 2025 and the refinancing of Cleco Power’s $100.0 million senior notes due in December 2026. These decreases were partially offset by Cleco Power’s $125.0 million bank term loan due in May 2024, Cleco Power’s $50.0 million senior notes due in December 2024, and $4.9 million of additional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024,
•a $68.0 million increase in cash and cash equivalents,
•a $53.6 million increase in net assets and liabilities held for sale primarily due to the reclassification of all assets and liabilities related to the Cleco Cajun Sale Group,
•a $24.7 million increase in materials and supplies inventory primarily due to higher purchases of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $21.0 million decrease in regulatory liabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory liability,
•a $15.8 million decrease in accounts payable, excluding FTRs, primarily due to lower accruals related to enterprise resource planning (ERP) system upgrades, various substation projects, natural gas, and solid fuels, and
•an $11.3 million increase in fuel inventory primarily due to higher coal volume with higher transportation costs driven by lower usage from a decrease in market gas prices, partially offset by lower petroleum coke volume at a lower price per ton.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
These decreases in the working capital deficit were partially offset by:
•a $57.8 million increase in the provision for rate refund primarily due to the accrual of an estimated contingent loss related to the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $46.2 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to lower fuel costs,
•a $41.7 million decrease in energy risk management assets, excluding FTRs, primarily due to market value changes of gas-related derivative contracts,
•a $25.8 million increase in the current portion of postretirement benefit obligations primarily due to the accrual of pension contributions expected to be made in 2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $12.9 million decrease in regulatory assets primarily due to withdrawing the remaining balance of the Hurricane Ida regulatory asset from the related storm reserve following settlement of the prudency review and due to the reclassification of the short-term portion of the TCJA regulatory liability.
At December 31, 2023, Cleco’s Consolidated Balance Sheets reflected $5.23 billion of total liabilities compared to $5.31 billion at December 31, 2022. The $79.5 million decrease in total liabilities during 2023 was primarily due to:
•an $81.2 million decrease in total long-term debt primarily due to the $65.6 million principal payment on Cleco Holdings’ debt, as required by the Cleco Cajun Acquisition commitments to the LPSC, and $9.6 million of Cleco Securitization I storm recovery bond principal payments,
•a $48.1 million decrease in liabilities held for sale primarily due to the reclassifications of liabilities related to the Cleco Cajun Sale Group,
•a $21.0 million decrease in regulatory liabilities, as previously discussed,
•a $18.9 million decrease in accumulated deferred income tax primarily due to an associated decrease in deferred fuel and market value changes of gas-related derivative contracts, and
•a $15.8 million decrease in accounts payable, as previously discussed.
These decreases in total liabilities were partially offset by:
•a $57.7 million increase in the provision for rate refund, as previously discussed,
•a $25.8 million increase in the current portion of postretirement benefit obligations, as previously discussed,
•a $17.0 million increase in customer advances for construction of substation expansions, and
•a $12.6 million increase in energy risk management liabilities, excluding FTRs, primarily due to market value changes on gas-related derivative contracts.
Cleco Holdings
At December 31, 2023, and 2022. Cleco Holdings had $110.0 million and $64.0 million, respectively, of short-term debt outstanding, which represented borrowings under its $175.0 million revolving credit facility. For more information on Cleco Holdings’ credit facility, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
At December 31, 2023, Cleco Holding’s long-term debt outstanding was $1.41 billion, $66.5 million of which was due within one year. The long-term debt due within one year at December 31, 2023, primarily represents $66.7 million of principal payments on Cleco Holdings’ bank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun Acquisition commitments to the LPSC. For Cleco Holdings, long-term debt decreased $64.2 million primarily due to the $65.6 million principal payment on Cleco Holdings’ debt as required by the Cleco Cajun Acquisition commitments to the LPSC, paid in 2023.
Cleco Holdings has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Power’s similar line of credit, to support its working capital needs. At December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit.
Cash and cash equivalents available at Cleco Holdings at December 31, 2023, were $5.2 million, combined with $65.0 million available revolving credit facility capacity for a total liquidity of $70.2 million.
Cleco Power
At December 31, 2023, Cleco Power had no short-term debt. At December 31, 2022, Cleco Power had $45.0 million of short-term debt for outstanding borrowings under its $300.0 million revolving credit facility. For more information on Cleco Power’s expectedcredit facility, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt — Credit Facilities.”
Cleco Power has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Holdings’ similar line of credit, to support their working capital expendituresneeds. At December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit.
At December 31, 2023, Cleco Power’s long-term debt and finance leases outstanding was $1.89 billion, of which $190.3 million was due within one year. The long-term debt due within one year at December 31, 2023, primarily represents a $125.0 million bank term loan due in May 2024, $50.0 million of Cleco Power’s senior notes due in December 2024, and $14.5 million of Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. For more information on Cleco Power’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.”
On December 14, 2023, Cleco Power entered into a note
purchase agreement for the issuance and sale in a private placement of $100.0 million aggregate principal amount of senior notes at a fixed interest rate of 5.96% and a maturity date of December 14, 2026. The proceeds of the issuance were used to pay Cleco Power’s $100.0 million aggregate principal amount of senior notes due December 2023.
Cash and cash equivalents available at December 31, 2023, were $49.2 million combined with $300.0 million
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| CLECO POWER | | 2023 FORM 10-K |
available revolving credit facility capacity for total liquidity of $349.2 million.
At December 31, 2023, and 2022, Cleco Power had a working capital deficit of $66.2 million and a working capital surplus of $35.9 million, respectively. The $102.1 million decrease in the working capital surplus is primarily due to:
•an $80.0 million increase in long-term debt due within one year primarily due to the reclassification of a $125.0 million bank term loan due in May 2024, $50.0 million of senior notes due in December 2024, and $4.9 million of additional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in 2024. These increases were offset by the refinancing of $100.0 million senior notes with a maturity date of December 2026,
•a $57.7 million increase in the provision for rate refund primarily due to the accrual of an estimated contingent loss related to environmental compliance,the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $46.2 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to lower fuel costs,
•a $25.8 million increase in the current portion of postretirement benefit obligations primarily due to the accrual of pension contributions expected to be made in 2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $14.3 million increase in risk management liability, excluding FTRs, primarily due to market value changes on gas-related derivative contracts.
These decreases in the working capital surplus were partially offset by:
•a $45.0 million decrease in short-term debt due to payments on the revolving credit facility,
•a $34.5 million increase in cash and cash equivalents,
•a $24.7 million increase in materials and supplies inventory primarily due to higher purchases of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $23.8 million decrease in accounts payable, excluding FTRs, primarily due to lower accruals related to ERP system upgrades, various substation projects, natural gas, and solid fuels, and
•a $21.0 decrease in regulatory liabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory liability.
At December 31, 2023, Cleco Power’s Consolidated Balance Sheets reflected $3.37 billion of total liabilities compared to $3.32 billion at December 31, 2022. The $45.0 million increase in total liabilities during 2023 was primarily due to:
•a $57.7 million increase in the provision for rate refund, as previously discussed,
•a $36.4 million increase in accumulated deferred income tax primarily due to the utilization of the loss carryforward,
•a $25.8 million increase in the current portion of postretirement benefit obligations, as previously discussed,
•a $17.0 million increase in customer advances for construction primarily due to multiple substation expansions, and
•a $14.3 million increase in risk management liability, excluding FTRs, as previously discussed.
These increases in total liabilities were partially offset by:
•a $45.0 million decrease in short-term debt, as previously discussed,
•a $23.8 million decrease in accounts payable, as previously discussed, and
•a $21.0 million decrease in regulatory liabilities, as previously discussed.
Concentrations of Credit Risk
At December 31, 2023, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Part II, Item 7, “Management’s Discussion8, “Financial Statements and Analysis ofSupplementary Data — Notes to the Financial Condition and Results of OperationsStatements — Financial ConditionNote 8 — Liquidity and Capital Resources — Cash Generation and Cash Requirements — Capital Expenditures.Fair Value Accounting Instruments.”
Debt and Distribution Limitations
The 2016 Merger Commitments include provisions for limiting the amount of distributions that can be made from Cleco Holdings to Cleco Group, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings. Cleco Holdings may not make any distribution unless, after giving effect to such distribution, Cleco Holdings’ debt to EBITDA ratio is equal to or less than 6.50 to 1.00 and Cleco Holdings’ corporate credit rating is investment grade with one or more of the three credit rating agencies. At December 31, 2023, Cleco Holdings was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. Additionally, in accordance with the 2016 Merger Commitments, Cleco Power is subject to certain provisions limiting the amount of distributions that may be paid to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings. Cleco Power may not make any distribution unless, after giving effect to such distribution, Cleco Power’s common equity ratio would not be less than 48% and Cleco Power’s corporate credit rating is investment grade with two of the three credit rating agencies. At December 31, 2023, Cleco Power was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. The 2016 Merger Commitments also prohibit Cleco from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. For more information on the 2016 Merger Commitments, see Part I, Item 1A, “Risk Factors — Structural Risks — Holding Company” and “— Regulatory Risks — Regulatory Compliance.”
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| CLECO POWER | | 2023 FORM 10-K |
Cash Flows Comparison for the Years Ended December 31, 2023, and 2022
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2023, and 2022:
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| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | 2023 | | 2022 | | VARIANCE |
| Net cash provided by operating activities | $ | 421,192 | | | $ | 344,912 | | | $ | 76,280 | | | $ | 399,943 | | | $ | 274,265 | | | $ | 125,678 | |
| Net cash used in investing activities | $ | (227,816) | | | $ | (193,257) | | | $ | (34,559) | | | $ | (218,657) | | | $ | (220,693) | | | $ | 2,036 | |
| Net cash (used in) provided by financing activities | $ | (128,881) | | | $ | (111,065) | | | $ | (17,816) | | | $ | (150,352) | | | $ | 6,731 | | | $ | (157,083) | |
Cleco – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $76.3 million from 2022 primarily due to:
•$53.8 million of higher collections from Cleco Power and Cleco Cajun’s customers and
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$21.0 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by $37.1 million of higher purchased power costs from MISO at Cleco Power and Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities increased $34.6 million primarily due to lower life insurance proceeds of $41.3 million.
This increase was partially offset by lower additions to property, plant, and equipment, excluding AFUDC, of $6.5 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $17.8 million during 2023 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds and
•$101.0 million of lower draws on credit facilities.
These increases were partially offset by:
•$242.5 million of lower repayments on long-term debt,
•$166.1 million of lower distributions to Cleco Group, and
•$100.0 million of proceeds from the refinancing of Cleco Power’s senior notes due in 2023.
Cleco Power – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income,
and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $125.7 million from 2022 primarily due to:
•$50.6 million of higher collections from customers,
•$45.8 million of higher receipts for affiliate settlements,
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$16.7 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by:
•$18.9 million of higher fuel inventory costs due to purchases at a higher price per unit for petroleum coke and natural gas and
•$9.8 million of higher purchased power costs from MISO.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2023 decreased$2.0 million from 2022 primarily due to lower additions to property, plant, and equipment, excluding $8.0 million of AFUDC, and
These decreases were partially offset by lower life insurance proceeds received of $6.5 million.
Cleco Power – Net Financing Cash Flow
Net cash used in financing activities during 2023 increased $157.1 million from 2022 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s senior secured storm recovery bonds and
•$137.0 million of lower draws on revolving credit facilities.
These increases were partially offset by:
•$240.4 million of lower repayments on long-term debt,
•$100.0 million of proceeds from the refinancing of senior notes due in 2023,
•$47.0 million of lower payments on the credit facility,
•$10.7 million of lower distributions to Cleco Holdings, and
•$6.9 million of lower payments for debt financing costs.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cash Flows Comparison for the Years Ended December 31, 2022, and 2021
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2022, and 2021:
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| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | 2022 | | 2021 | | VARIANCE |
| Net cash provided by operating activities | $ | 344,912 | | | $ | 182,640 | | | $ | 162,272 | | | $ | 274,265 | | | $ | 102,518 | | | $ | 171,747 | |
| Net cash used in investing activities | $ | (193,257) | | | $ | (300,833) | | | $ | 107,576 | | | $ | (220,693) | | | $ | (290,745) | | | $ | 70,052 | |
| Net cash (used in) provided by financing activities | $ | (111,065) | | | $ | 178,910 | | | $ | (289,975) | | | $ | 6,731 | | | $ | 246,177 | | | $ | (239,446) | |
Cleco – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $162.3 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs at Cleco Power,
•higher recoveries of net fuel and purchased power costs at Cleco Power of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million at Cleco Power.
These increases were partially offset by:
•higher payments for affiliate settlements of $58.1 million and
•higher payments for fuel inventory of $29.8 million primarily due to purchases of coal at a higher price per ton at Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities decreased $107.6 million primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $74.4 million and
•higher life insurance proceeds of $40.9 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $290.0 million during 2022 primarily due to:
•the absence of the issuance of Cleco Power’s $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Group of $219.6 million, and
•the repayment of Cleco Power’s $25.0 million senior notes in December 2022.
These increases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022,
•lower payments on credit facilities of $143.0 million, and
•higher draws on credit facilities of $41.0 million.
Cleco Power – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $171.7 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs,
•higher recoveries of net fuel and purchased power costs of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million.
These increases were partially offset by higher payments for affiliate settlements of $46.9 million.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2022 decreased$70.1 million from 2021 primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $72.0 million and
•higher life insurance proceeds of $5.7 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco Power — Net Financing Cash Flow
Net cash provided by financing activities during 2022 decreased $239.4 million from 2021 primarily due to:
•the absence of issuance of $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Holdings of $105.5 million,
•the repayment of $25.0 million senior notes in December 2022, and
•lower draws on revolving credit facilities of $23.0 million.
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These decreases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022, and
•lower payments on credit facilities of $143.0 million.
Air Quality
Air emissions from each of Cleco’s generating units are strictly regulated by the EPA and the LDEQ. The LDEQ has authority over and implements certain air quality programs established by the EPA under the federal CAA, as well as its own air quality
regulations. The LDEQ establishes standards of performance and requires permits for EGUs in Louisiana. All of Cleco’s generating units are subject to these requirements.
The EPA has proposed and adopted rules under the authority of the CAA relevant to the emissions of SO2 and NOx from Cleco’s generating units.
Regional Haze SIP
The CAA contains a regional haze program with the goal of returning Class I Federal areas of the nation to natural visibility by 2064. StatesTo attain this goal, states are required to develop a SIP, and revise it every ten years. The SIPwhich, among other things, must include requirements for the installation of Best Available Retrofit Technology (BART) for applicable EGUs in Louisiana. The EPA issued a final approval of the LouisianaEGUs. Louisiana’s SIP for the first planning phase was approved by the EPA in December 2017. Although the approval was appealed to the U.S. Court of Appeals for the Fifth Circuit by multiple organizations, the court denied all the challenges to the EPA’s approval of the Louisiana Regional Haze SIP. Because the Louisiana SIP mandates use of existing controls and participation in the CSAPR as BART, Cleco does not believe the Louisiana SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants. The second planning periodIn April 2021, the LDEQ issued for the regional haze program covers the period from 2018 through 2028 and requires states to adopt SIPs that make reasonable further progress toward achieving natural visibility conditions in Class I Federal areas. The LDEQ publishedpublic comment, a proposed SIP for the second planning period, in April 2021 for public comment andbut never submitted it may be subject to revision upon further review by the LDEQ before it is submitted to the EPA. The proposal does not call for new controls on any state sources, but instead, it relies upon existing consent decrees and expected source retirements to achieve reasonable progress in reducing emissions and improving visibility in Class I Federal areas. The SIP forIn August, 2022, the second planning phase has not been submitted to the EPA. The EPA
published in the Federal Register on August 30, 2022, thea finding that Louisiana and fourteen other states failed to submit a regional haze SIP for the second planning period. TheSuch finding requires the EPA mustto issue a federal implementation planFederal Implementation Plan (FIP) within two years of the effective date of thisthe finding, if a SIP is not provided by LDEQ before then. Until the LDEQ determines what the reasonable progress requirements are for Cleco units, and completes its update of the SIP, and the EPA approvesSIP is approved by the SIP,EPA, Cleco is unable to predict if the second phase SIP will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Acid Rain Program
The CAA also established the Acid Rain Program to address the effects of acid rain and imposed restrictions on acid rain-causing SO2 emissions from certain generating units. The CAA requires all of the regulated EGUs to possess a regulatory allowance for each ton of SO2 emitted beginning in 2000. The EPA allocates a set number of allowances to each affected unit based on its historic emissions. Cleco had sufficient allowances for operations in 20222023 and expects to have sufficient allowances for 2023 operations under the Acid Rain Program.2024 operations.
The Acid Rain Program also established emission rate limits on NOx emissions for certain generating units. ComplianceCleco’s management believes that compliance with the acid rain emission limits for NOx has been achieved at all affected facilities.
CSAPR
In July 2011, the EPA adopted CSAPR, a cap-and-trade type program requiring utilities to make substantial reductions in NOx emissions that contribute to ozone to reduce interstate transport of such pollution. In October 2016, the EPA published the finalized a rule updating CSAPR update for theto maintain 2008 ozone NAAQSemission limitations in the Federal Registerdownwind states by addressing summertime transport of ozone pollution (CSAPR Update). The CSAPR Update, Rule). As a result, the EPA proposed Federal Implementation Plans (FIP) that update the EGU CSAPRwhich commenced in May 2017, set stricter NOXx ozone season emission budgets and implemented the budgets through the existing CSAPR NOX ozone season allowance trading program. The FIP required implementation beginning with the 2017 ozone season.in 22 states.
On September 13, 2019, the D.C. Circuit Court of Appeals partially remanded the CSAPR Update Rule to the EPA because the rule did not set a deadline by which upwind states must eliminate their significant contribution to downwind states’ NAAQS nonattainment. OnIn April 30, 2021, the EPA issued in the Federal Register the final reviseda Revised CSAPR updateUpdate rule to address states with interstate pollution transport obligations for the 2008 ozone NAAQS. Cleco does not expect the final regulation to have a material impact on the results of operations, financial condition, or cash flow of the Registrants.
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In October 2015, the EPA promulgated a revision to the 2015 ozone NAAQS, lowering the level of both the primary and secondary ground-level ozone standards from 75 ppb to 70 ppb. Under the CAA, each state is required to submit a SIP that provides for the implementation, maintenance and enforcement of each primary and secondary NAAQS. In particular, each SIP must contain adequate provisions prohibiting emissions activity within the state, which will contribute significantly to non-attainment or interfere with maintenance by any other state with respect to any such primary or secondary ambient air quality standard. On October 15, 2021, the EPA published in the Federal Register a proposed consent decree that would establish a deadline for the EPA to approve or disapprove “good neighbor” SIP submittals by April 30, 2022, for a number of states including Louisiana. On January 12, 2022, the U.S. District Court for the Northern District of California entered the final consent decree and onIn February 22, 2022,2023, the EPA issued a proposed disapproval of the “good neighbor” SIP submitted by Louisiana,
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and a number of other states, for the 2015 ozone NAAQS. On April 6, 2022,In May 2023, the U.S. Court of Appeals for the Fifth Circuit responded to a petition for review of the EPA decision and temporarily stayed the disapproval of the “good neighbor” SIP pending judicial review. In June 2023, the EPA published a final FIP for regulation of emission transport in the Federal Register a proposed federal implementation plan (FIP) that if finalized would be applied to address the “good neighbor” requirements for the 2015 ozone NAAQS for those states that do not have an approved SIP. If the EPA finalizes its proposed disapproval of the Louisiana SIP, the EPA would apply a finalized FIP to address the “good neighbor” provision for Louisiana, for the 2015 ozone NAAQS, which might result in the allocation of fewer emission allowances to generating units and may cause Cleco to buy additional allowances and/or take other measures to comply. ManagementHowever, since the EPA’s disapproval of the Louisiana SIP is stayed, the EPA is unable to apply the FIP in Louisiana. Until the Court opines on the challenge to the SIP disapproval, Cleco’s management is unable to predict or give a reasonable estimate of the outcome of the EPA’s decision regarding the “good neighbor” provision.
In July 2023, the EPA issued an interim final rule addressing the judicial stays of several states’ interstate transport SIP disapprovals. The interim final rule stayed the effectiveness of the FIP addressing interstate transport for the states with judicially stayed SIP disapprovals, such as Louisiana. The interim final rule revised existing regulations for the Group 2 trading program to require the EGUs in each state covered by a stay order for the SIP disapproval action to participate in the Group 2 trading program instead of the Group 3 trading program while the stay for that state remains in place. Louisiana is in the Group 3 trading program under the Revised CSAPR Update and will be subject to a modified Group 2 trading program. Louisiana will be subject to the same state emissions budgets, unit-level allocation provisions, and banked allowance holdings from the Revised CSAPR Update but will be moved under the umbrella of the Group 2 trading program. The interim final rule also creates two non-interchangeable subtypes of Group 2 allowances, which are the CSAPR NOx Ozone Season Original Group 2 allowances and CSAPR NOx Ozone Season Expanded Group 2 allowances. States that are part of the Group 2 trading program will use Original Group 2 allowances for compliance. Louisiana will use Expanded Group 2 allowances for compliance. The rule also states that the EPA will deduct banked 2021 and 2022 CSAPR NOx Ozone Season Group 3 allowances and convert them to Expanded Group 2 allowances on September 18, 2023. It is unclear if sufficient allowances will be available in the Expanded Group 2 allowance market for purchase should Cleco experience a shortage of allowances to cover the 2023 ozone season.
MATS
For information about MATS, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
CPP/ACE and NSPS
In August 2015, the EPA releasedissued a final rule under Section111(d) of the final guidelinesCAA, referred to as the CPP. TheseThe rule included state-specific goals as well as guidelines provided each state with standards for states to develop plans for meeting those goals. In July 2019, the EPA repealed the CPP rule and finalized the ACE rule as a replacement. The ACE rule established emission guidelines for states to develop plans to address GHG emissions from existing coal-fired plants. In January 2021, the U.S. Court of Appeals for the District of Columbia Circuit vacated the ACE rule and remanded the rule to the EPA for reconsideration. In February 2021, the EPA issued a memorandum notifying states that it will not require the submittal of plans to the EPA under Section 111(d) because the court vacated the ACE rule without reinstating the CPP. In October 2021, the U.S. Supreme Court granted petitions to review the District of Columbia Circuit Court of Appeals’ decision and, in June 2022, found that the EPA lacked clear congressional authorization to require generation shifting under Section 111(d). In October 2022, the D.C. Circuit recalled its partial mandate vacating the ACE rule and granted a motion by the EPA to hold pending challenges to the ACE rule in abeyance while the EPA develops a replacement rule.
In May 2023, the EPA published a proposed rule titled New Source Performance Standards for Greenhouse Gas Emissions From New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions From Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule. The proposed rule would repeal the ACE Rule, revise the NSPS under Section 111(b) for GHG emissions from new fossil fuel-fired stationary combustion turbine EGUs and from fossil-fuel fired steam generating units that undertake a large modification, and establish emissions guidelines under Section 111(d) for GHG emissions from existing fossil fuel-fired steam generating EGUs and from the largest, most frequently operating stationary combustion turbines. The proposal utilizes the application of the “best system of emission reduction” that can be demonstrated taking into account costs, energy requirements, and other statutory factors. In November 2023, the EPA issued a Supplemental Notice of Proposed Rulemaking regarding mechanisms to help ensure that the proposed Section 111(d) regulations can be implemented without adversely affecting the reliability of the electrical grid. The EPA has indicated that it anticipates issuing a final rule in April 2024. A final rule that requires significant reductions in CO2 emissions from thefor existing unitsEGUs could require significant capital expenditures or curtailment of the state’s utility industry. The EPA derived the limits for each state through a strategy involving a combinationoperations of unit efficiency improvements, dispatching away from boilerscertain EGUs to combined cycle units, and applying renewable energy. The CPP required significant reductions of CO2 emissions and set interim and final CO2 emission goals for each state. The interim emission goals were scheduled to begin in 2022, with final emission goals required by 2030. In February 2016, the U.S. Supreme Court issued a stay of the CPP to remain in place until the D.C. Circuit Court of Appeals ruled on the merits and any ruling from the U.S. Supreme Court.achieve compliance.
In August 2015, the EPA released the NSPS rules for CO2 emissions from new, modified, or reconstructed units. The rules set requirements and conditions with respect to CO2 emission standards for new units and those that are modified or reconstructed. Cleco does not anticipate a modification or reconstruction of its existing sources that would trigger the application of the CO2 emission limits.
In March 2017, the executive order of Energy Independence was issued. Among other measures, the order directed the EPA to review the CPP, the proposed Federal Implementation Plan for the CPP, and the GHG NSPS. On July 8, 2019, the EPA published in the Federal Register a final rule repealing the CPP and issuing a replacement to the CPP, informally known as the ACE Rule. The ACE Rule requires state agencies to set standards of performance for each affected generating unit and submit the implementation plan to the EPA for approval by July 8, 2022, with compliance expected within 24 months thereafter. On January 19, 2021, the D.C. Circuit Court of Appeals ruled that the EPA’s repeal of the CPP and its 2019 promulgation of ACE were unlawful. Therefore, the court issued an order to vacate and remand the ACE Rule to the EPA. On February 22, 2021, the court granted the EPA’s unopposed motion for a partial stay of the issuance of the mandate on vacating the CPP repeal, ordering that it will withhold issuance of the mandate with respect to the vacatur of the CPP repeal until the EPA responds to the court’s remand by promulgating a new rule to regulate GHG emissions from
existing electric generating units. Therefore, the CPP will not take effect during the EPA’s rulemaking process. In addition, on March 5, 2021, the D.C. Circuit Court of Appeals issued the partial mandate effectuating the court’s vacatur of the ACE Rule that makes effective the court’s decision to vacate the ACE Rule. In April 2021, multiple parties filed petitions for a writ of certiorari asking the U.S. Supreme Court to review the decision by the D.C. Circuit Court of Appeals. On October 29, 2021, the U.S. Supreme Court granted four petitions for certiorari asking the D.C. Circuit Court of Appeals to review its decision to vacate and remand the ACE Rule. On June 30, 2022, the U.S. Supreme Court released its opinion on the D.C. Circuit Court of Appeals vacating and remanding the ACE rule. The U.S. Supreme Court indicated in its opinion that the EPA does not have the authority to apply generation shifting in the regulation of GHG emissions as in the CPP. The case was returned to the D.C. Circuit Court of Appeals. It is expected that the EPA will issue a new GHG rule taking the Court’s opinion into consideration.
On January 20, 2021, the Presidential administration issued an executive order directing federal agency heads to review regulations and other actions over the past four years to determine if they are inconsistent with the policies announced in the executive order. The administration also released a non-exhaustive list of agency actions to be reviewed, which includes the ACE Rule. Until the D.C. Circuit Court of Appeals opinion has been determined to be final and the EPA has responded to the court’s opinion and the executive order to review the ACE Rule, management cannot determine the future regulatory requirements for GHGs for the utility industry and the potential impact on Cleco’s existing affected units. However, any new rules that require significant reductions in CO2 emissions for existing EGUs could require significant capital expenditures or curtailment of operations of certain EGUs to achieve compliance.
In December 2018, the EPA published proposed rules to replace the August 2015 NSPS rules, but did not take further action. In May 2023, the EPA proposed to update and establish more protective rules for CO2 emissions from new, modified, orand reconstructed units. As with the current NSPS rules, the proposed rules set requirements and conditions with respect to CO2 emission standards for new, modified, or reconstructed units.EGUs. Cleco does not anticipate a future modification or future reconstruction of its existing units, as defined in the proposal, which would trigger the application of the proposed CO2 emission limits. Until the EPA finalizes the rule,rules, Cleco’s management cannot state what the final standards will entail or if the new rulerules will have a material
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impact on the results of operations, financial condition, or cash flows of the Registrants.
NAAQS
AIn April 2010, the EPA promulgated a 100 ppb one-hour primary NAAQS for NO2 promulgated by the EPA became effective in April 2010. The EPA established a new one-hour standard at a level of 100 ppb to supplement the existing annual standard. In 2012, the EPA determined that no area in the country was violating the standard.. In April 2018, the EPA published, followingissued a decision to retain the required review of the NAAQS, a final action that retains the ambient air standards for NO2. The EPA may redesignate areas based on new data it receives from states. NAAQS. Due to the fact that fossil fuel-fired EGUs are a significant source of NO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their NO2 emissions. However, because the EPA has not yet completed any new
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designations, ClecoCleco’s management cannot predict the likelihood or potential impacts of such a ruleredesignation on its generating units at this time.
The EPA revised the NAAQS for SO2 in June 2010. The new standard is now2010 to a one-hour health standard of 75 ppb, designed to reduce short-term exposures to SO2 ranging from five minutes to 24 hours. An important aspect of the new SO2 standard is a revised emission monitoring network combined with a new ambient air modeling approach to determine compliance with the new standard.ppb. In January 2018, the EPA published a final rule designatingdesignated all areas containing Cleco generation facilities as either attainment/unclassifiable or unclassifiable. Therefore, there is no adverse impact to Cleco’s generating units.
On In March 18, 2019, the EPA published following the required review of the NAAQS, a final action that retains the ambient air standardsNAAQS for SO2. The EPA may redesignate areas based on new data it receives from states. Due to the fact that fossil fuel-fired EGUs are a significant source of SO2 emissions in the country, a non-attainment designation could result in utilities such as Cleco being required to substantially reduce their SO2 emissions. However, because the EPA has not yet completed any new designations, Cleco cannot predict the likelihood or potential impacts of such a ruleredesignation on its generating units at this time.
OnIn December 21, 2020, after a required review, the EPA published a final rule that retains the NAAQS for ozone, which was last revised in 2015. Cleco’s generation facilities are not located in areas designated as nonattainment of the ozone NAAQS.
In January 2023, the EPA published a proposed rule titled Reconsideration of the National Ambient Air Quality Standards for Particulate Matter that would reduce the annual primary fine particulate matter ambient air concentration standard (PM2.5 standard) from the current 12 micrograms/cubic meter (mg/m3) to somewhere in the EPA-preferred range of 9-10 mg/m3 while also entertaining comments from the public on setting the standard at 8 mg/m3 or 11 mg/m3. Cleco cannot predict the likelihood or potential impacts of such a rule on its generating units at this time.
Other
OnIn May 2, 2019, Louisiana Generating notified the EPA and the LDEQ that it has elected not to Retrofit (as such term is defined in the Consent Decree) Big Cajun II, Unit 1.
OnIn December 15, 2022, Louisiana Generating notified the EPA and the LDEQ that it had elected to Refuel (as such term is defined in the Consent Decree) Big Cajun II, Unit 1, in accordance with certain provisions of the Consent Decree.
Water Quality
Cleco’s facilities are subject to federal and state laws and regulations regarding wastewater discharges. Cleco has received, from the EPA and the LDEQ, permits required under the federal Clean Water Act (CWA) for wastewater discharges from its generating stations. Wastewater discharge permits have fixed dates of expiration, and Cleco applies for renewal of these permits within the applicable time periods.
In March 2011, the EPA proposed regulations that would establish standards for cooling water intake structures at existing power plants and other facilities pursuant to Section 316(b) of the CWA. The EPA published its final rule in August
2014. The standards are intended to protect fish and other aquatic wildlife by minimizing capture, both in screens attached to intake structures (impingement mortality) and in the actual intake structures themselves (entrainment mortality). The final rule (1) sets a performance standard, dealing with fish impingement mortality or reducing the flow velocity at cooling water intakes to less than 0.5 feet per second and (2) requires entrainment standards to be determined on a case-by-case basis by state-delegated permitting authorities. Facilities subject to the standards are required to complete a number of studies within a 45-month period and then comply with the rule as soon as possible after the next discharge permit renewal, by a date determined by the permitting authorities. Portions of
the final rule could apply to a number of Cleco’s fossil fuel steam electric generating stations. Until the required studies are conducted, including technical and economic evaluations of the control options available, and regulatory agency officials have reviewed the studies and made determinations, Cleco remains uncertain as to which technology options or retrofits will be required to be installed on its affected facilities. The costs of required technology options and retrofits may be significant, particularly if closed cycle cooling is required.
The CWA requires the EPA to periodically review and, if appropriate, revise technology-based effluent limitations guidelines for categories of industrial facilities, including power generating facilities. In November 2015, the EPA released the Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category Rule (ELG Rule). The rule is, which focused on reducing the discharge of metals in wastewater from generating facilities to surface waters.
On October 13,In 2020, the EPA published final revisions to the ELG Rule that revised the technology-based effluent limitation guidelines and standards applicable to flue gas desulfurization and bottom ash transport waste waters. The 2020 revised ELG Rule, known as the Reconsideration Rule, also allows a unit to come into compliance with the ELG Rule by qualifying as an electric generating unit that will achieve permanent cessation of coal combustion by December 31, 2028. Under this compliance option, Cleco submitted a Notice of Planned Participation by the October 13, 2021 submittal deadline for the Dolet Hills Power Station, Rodemacher Unit 2, and Big Cajun II, Unit 1.
On January 20, 2021,March 29, 2023, the Presidential administration releasedEPA published a non-exhaustive list of agency actionsproposed rule, Supplemental Guidelines and Standards for the Steam Electric Power Generating Point Source Category, to be reviewed, which includesstrengthen certain discharge limits in the ELG Rule and issued a direct final rule to extend the deadline for plants to opt-in to the 2028 early retirement provision promulgated in the 2020 revised ELG Rule. Cleco cannot predict the potential impacts of these rules on its generating units at this time.
On November 27, 2023, the EPA published draft guidance addressing how the Supreme Court of the United States opinion in County of Maui v. Hawaii Wildlife Fund (2020) applies to the NPDES wastewater discharge permit program for discharges through groundwater to waters of the United States. Until finalized, Cleco cannot predict the potential impacts of the guidance on its operations at this time.
Solid Waste Disposal
In the course of operations, Cleco’s facilities generate solid and hazardous waste materials requiring eventual disposal. The Solid Waste Division of the LDEQ has adopted 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.
In April 2015, the EPA published a final rule in the Federal Register for regulating the disposal and management of CCRs from coal-fired power plants (CCR Rule). The CCR Rule establishes extensive requirements for existing and new CCR landfills and surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria, groundwater monitoring and corrective action, closure requirements and post closure care, and recordkeeping, notification, and internet posting requirements. In August 2018, the D.C. Circuit Court of Appeals vacated several requirements in the CCR Rule, which
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included eliminating the previous acceptability of compacted clay material as a liner for impoundments. As a result, in December 2019,August 2020, the EPA published a proposedfinal rule that would set deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impoundments. The CCR Rule was finalized and published in the Federal Register on August 28, 2020. In November 2020, Cleco submitted demonstrations to the EPA specifying its intended course of action for the ash disposal facilities at Rodemacher Unit 2, Dolet Hills Power Station, and Big Cajun II in order to comply with the final CCR Rule. On January 11, 2022, the EPA communicated that Cleco’s demonstrations have been
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deemed complete,complete. Cleco Power withdrew the Dolet Hills demonstration due to the cessation of receiving waste. The two remaining demonstrations are still subject to the EPA’sEPA approval based on pending technical reviews. During
On May 18, 2023, the third quarterEPA published a proposed rule titled Hazardous and Solid Waste Management System: Disposal of 2022, Cleco ceased placing allCoal Combustion Residuals from Electric Utilities; Legacy Surface Impoundments. This proposed rule expands the scope of units regulated under the CCR and non-CCR waste streams in the bottom ashregulations to include inactive surface impoundments at inactive generating facilities. In addition, the Dolet Hills Power Station. A Noticeproposed rule would regulate CCR Management Units, which include inactive and closed landfills as well as other non-containerized accumulations of IntentCCR at facilities otherwise subject to Close was postedfederal CCR regulations. Cleco cannot predict the potential impacts of such a rule on the Dolet Hills CCR website, updated closure plans were submitted to the LDEQ, and Cleco notified the EPA that it withdrew its Part A demonstration for the Dolet Hill’s impoundments.
On January 20, 2021, the Presidential administration released a nonexhaustive list of agency actions to be reviewed, which includes the CCR rules promulgated in July 2018, August 2020, and November 2020. The EPA has completed its review of the three CCR rules and has determined that the most environmentally protective course is to implement the rules.generating units at this time.
As a result of solid waste disposal regulations, Cleco Power and Cleco Cajun have AROs for the retirement of certain ash disposal facilities. All costs of the CCR Rule for Cleco Power are expected to be recovered from its customers in future rates. The actual asset retirement costs related to the CCR Rule requirements may vary substantially from the estimates used to record the increased obligation due to the uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. Cleco will continue to gather additional data in future periods and will make decisions about compliance strategies and the timing of closure activities. As additional information becomes available and management makes decisions about compliance strategies and the timing of closure activities, Cleco will update the ARO balances to reflect these changes in estimates.obligation. For more information on Cleco’s compliance strategies and financial impacts of the CCR Rule, see Part II, Item 8, “Financial Statements and Supplementary Data—Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments.” For more information on the regulatory treatment of Cleco Power’s AROs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 56 — Regulatory Assets and Liabilities — AROs.”
In December 2016, the Water Infrastructure Improvements for the Nation Act (WIIN Act), including the WIIN Act’s provisions regarding CCRs, was signed into law. The WIIN Act’s CCR provisions requirelaw, which gave the EPA the authority to establishimplement a CCR permitting program. It also allows for implementation of the federalprogram as well as authorize state CCR Rule through a state-based permit program. On February 20,permitting programs. In 2020, the EPA published in the Federal Register a proposed rule establishing the federal CCR permit program for CCRs in states without approved CCR permitting programs. In October 2023, LDEQ published a proposed rulemaking, Disposal of Coal Combustion Residuals, to regulate CCR units under a state permit program. Permits will be required for all CCR units in states that do not have state permit programs. Until the state of Louisiana has evaluatedfinalized its CCR permit program rule and such program has been approved by the WIIN Act and made a decision on implementing a state-based option,EPA, Cleco cannot determine if there will be a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Cleco produces certain wastes that are classified as hazardous at its electric generating stations and at other locations. Cleco does not treat, store long-term, or disposelocations, which are disposed of these wastes on-site; therefore, no permits are required. Hazardous wastes produced by Cleco are properly disposed ofoff-site at permitted hazardous waste disposal sites.facilities.
Toxic Substances Control Act (TSCA)
The TSCA directs the EPA to regulate the marketing, disposing, manufacturing, processing, distributing in
commerce, and usage of various toxic substances, including PCBs. Cleco operates and may continue to operate equipment containing PCBs regulated under the TSCA. Once the equipment reaches the end of its useful life, the EPA regulates handling and disposingthe disposal of the equipment and fluids containing PCBs. Within these regulations, handling and disposing is allowed only through facilities approved and permitted by the EPA. Cleco properly disposes of its PCB waste material at TSCA-permitted disposal facilities.
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
The CERCLA imposes strict liability on parties responsible for in whole or in part, the presence of hazardous substances at a site. In 2007, Cleco received a Special Notice for Remedial Investigation and Feasibility Study (RI/FS) from the EPA for a facility known as the Devil’s Swamp Lake site located just northwest of Baton Rouge, Louisiana. The notice requested that Cleco and Cleco Power, along with many other listed potentially responsible parties (PRP), enter into negotiations with the EPA for the performance of an RI/FS at the Devil’s Swamp Lake site. In 2008, the EPA identified Cleco as one of many companies that sent PCB wastes for disposal to the site. The EPA proposed to add the Devil’s Swamp Lake site to the National Priorities List, based on the release of PCBs to fisheries and wetlands located on the site, but no final listing decision has been made. The EPA issued a Unilateral Administrative Order to two PRPs, Clean Harbors, Inc. and Baton Rouge Disposal, to conduct an RI/FS in 2009. The Tier 1 part of the study was completed in June 2012. The tier 2 remedial investigation report was made public in December 2015. In September 2019, the EPA publicly announced a proposed cleanup strategy for the Superfund Site. In August 2020, the EPA signed a Record of Decision for the Devil’s Swamp Lake site that defines a remediation approach for cleaning up the site and monitoring the natural recovery of certain areas of the lake. With the Record of Decision signed, the EPA has started the enforcement negotiations for the next phase of the project. Management is unable to determine how significant Cleco’s share of the costs associated with a possible response action at the site, if any, may be and whether this will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
Emergency Planning and Community Right-to-Know Act (EPCRA)
Section 313 of the EPCRA requires certain facilities that manufacture, process, or otherwise use minimum quantities of listed toxic chemicals to file an annual report with the EPA called a Toxic Release Inventory (TRI) report. The TRI report requires industrial facilities to report on approximately 650 substances that the facilities release into the air, water, and land. The TRI report ranks companies based on the amount of a particular substance they release on a state and parish (county) level. Annual reports are due to the EPA on July 1 following the reporting year-end. Cleco has submitted required 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.
Electric and Magnetic Fields (EMFs)
The possibility that exposure to EMFs emanating from electric power lines, household appliances, and other electric devices may result in adverse health effects and damage to the
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environment has been a subject of some public attention.
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Lawsuits alleging that the presence of electric power transmission and distribution lines has an adverse effect on
health and/or property values have arisen in several states.
Neither Cleco nor Cleco Power are parties in any lawsuits related to EMFs.
The following risk factors could have a material adverse effect on results and cause results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Registrants.
Holding Company
Cleco Holdings is a holding company and its ability to meet its debt obligations is dependent on the cash generated by its subsidiaries.
Cleco Holdings is a holding company and conducts its operations primarily through its subsidiaries. Accordingly, Cleco Holdings’ ability to meet its debt obligations is largely dependent upon the cash generated by these subsidiaries. Cleco Holdings’ subsidiaries are separate and distinct entities and have no obligations to pay any amounts due on Cleco Holdings’ debt or to make any funds available for such payment. In addition, Cleco Holdings’ subsidiaries’ ability to make dividend payments or other distributions to Cleco Holdings may be restricted by their obligations to holders of their outstanding securities and to other general business creditors. Substantially all of Cleco’s consolidated assets are held by either Cleco Power or Cleco Cajun.Cajun (pending consummation of the Cleco Cajun Divestiture). Cleco Holdings’ right to receive any assets of any subsidiary, and therefore the right of its creditors to participate in those assets, will be structurally subordinated to the claims of that subsidiary’s creditors, including trade creditors. In addition, even if Cleco Holdings were a creditor of any subsidiary, its rights as a creditor would be effectively subordinated to any security interest in the assets of that subsidiary and any indebtedness of the subsidiary ranking senior to that held by Cleco Holdings. Cleco Power is subject to regulation by the LPSC. The 2016 Merger Commitments also provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings.
Cleco Cajun Divestiture
The divestiture of the unregulated electric utility business by subsidiaries of Cleco Holdings may not occur on the initial terms agreed to by the parties, in the expected time frame, or at all and, as a result, could adversely affect the Registrants’ business and financial condition.
On November 22, 2023, the Cleco Cajun Sellers entered into the Cleco Cajun Divestiture Purchase and Sale Agreement with the Cleco Cajun Purchasers in which the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. The closing of the transaction is subject to customary closing conditions, including (i) the expiration or
termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) approval of FERC, (iii) approval of the Federal Communication Commission, and (iv) customary conditions regarding the accuracy of the representations and warranties and compliance by the parties with their respective obligations under the Cleco Cajun Divestiture Purchase and Sale Agreement. The Cleco Cajun Divestiture Purchase and Sale Agreement includes customary termination provisions, including if the closing of the transaction does not occur within nine months of November 22, 2023.
If the transaction fails to close, Cleco’s business and financial condition may be adversely affected and Cleco will continue to be responsible for any transaction costs incurred. Additionally, in the event the transaction fails to occur, Cleco’s business and financial condition will continue to depend on its ability to manage and operate the unregulated electric utility business through service to electric cooperative customers and other wholesale customers. In the event the transaction fails to occur pursuant to the terms of the Cleco Cajun Divestiture Purchase and Sale Agreement, failure by Cleco Cajun to successfully manage its unregulated electric utility business could have a material adverse effect on Cleco’s results of operations, financial condition, cash flows and liquidity.
Future Electricity Sales
Cleco Power’sCleco’s future electricity sales and corresponding base revenue and cash flows and Cleco Cajun’s future wholesale revenue and cash flows could be negatively affected by adverse macroeconomic conditions.
Adverse macroeconomic conditions resulting in low economic growth can negatively impact the businesses of Cleco Power’s residential, commercial, wholesale, and industrial customers and Cleco Cajun’s wholesale customerscustomers. Such resulting in decreased power consumption, which causescould cause a corresponding decrease in base revenue for Cleco Power and, in the event the Cleco Cajun Divestiture fails to close pursuant to the Cleco Cajun Divestiture Purchase and Sale Agreement, a decrease in the revenue for Cleco Cajun. ReducedThe reduced production or the shutdown of customer facilities
could substantially reduce Cleco Power’s base revenue and Cleco Cajun’s revenue.revenue in such cases.
Energy conservation, energy efficiency efforts, and other factors that reduce energy demand could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Regulatory and legislative bodies have proposed or introduced requirements and incentives to reduce energy consumption. Conservation and energy efficiency programs are designed to reduce energy demand. Future electricity sales could be impacted by customers switching to alternative sources of energy, such as solar and wind, on-site power generation, and retail customers purchasing less electricity due to increased conservation efforts or expanded energy efficiency measures. Declining usage could result in an under-recovery of fixed costs at Cleco Power’s rate regulated business. An increase in energy conservation, energy efficiency efforts, and other
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efforts that reduce energy demand without the ability for Cleco Power to recover lost revenue could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Weather Sensitivityand Climate Vulnerabilities
Cleco’s operations and power generation could be harmed due to the impact of severe weather events, other natural disasters, or climate change, which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Severe weather, including hurricanes, winter storms, tropical storms, and other natural disasters, such as floods and wildfires, can affect transportation of fuel to plant sites and can be destructive, causing outages, blackouts or disruptions of interconnected transmission systems, and property damage that can potentially result in additional expenses, lower revenue, and additional capital restoration costs. Extreme drought conditions can impact the availability of cooling water to support the operations of generating plants, which can also result in additional expenses and lower revenue. Extreme weather conditions could also increase commodity prices, including fuel, which could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows.
Climate change that results in more frequent and more severe weather events in Cleco’s service territory could result in one or more physical risks such asthat could cause damage to its generation, transmission, and distribution assets. These physical risks include an increase in sea level, wind and storm surge damages, wetland and barrier island erosion, risks of flooding, and changes in weather conditions, such aswildfires, changes in temperature and precipitation patterns, and potential increased impacts of extreme winter weather conditions, including ice storms any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.and prolonged droughts, The Registrants’ assets are in and serve communities that are at risk from sea level rise, changes in weather conditions, and loss of the protection offered by coastal wetlands. In addition, a significant portion of the nation’s oil and gas infrastructure is
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located in these areas and is susceptible to storm damage that could be aggravated by wetland and barrier island erosion, which could give rise to fuel supply interruptions and price spikes.
For example, during 2020 and 2021, Cleco’s service territory sustained substantial damage from four separate hurricanes and two winter storms that resulted in damage to Cleco Power’s distribution and transmission assets, electricity generation supply shortages, natural gas supply shortages, increases in prices of natural gas in the U.S., and significant outages for Cleco Power’s customers.
Any future severe weather, other natural disaster, or physical changes resulting from climate change could cause damage to, or the loss of, Cleco’s equipment and facilities, which could result in Cleco incurring additional costs, such as the cost to restore service, repair damaged facilities, or obtain replacement power. Any future severe weather, other natural disaster, or physical changes resulting from climate change could also result in changes in demand for and usage of electricity in Cleco’s service territory and the service territory of Cleco’s wholesale customers. The delivery of equipment and supplies necessary to Cleco’s business could also be disrupted. Cleco Power’s recovery of costs associated with these events is subject to LPSC review and approval, and the LPSC could disallow timely and full recovery of the costs
incurred. These risks and other possible effects of severe weather, other natural disasters, and climate change could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The operating results of Cleco are affected by weather conditions and may fluctuate on a seasonal basis.
Weather conditions directly influence the demand for electricity, particularly with respect to residential customers. In Cleco’s service territory, demand for power typically peaks during the hot summer months. As a result, Cleco’s financial results maytypically fluctuate on a seasonal basis. In addition, Cleco has sold less power and, consequently, earned less income when weather conditions were milder.mild. Unusually mild weather in the future could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Workforce
Failure to attract, retain, and develop an appropriately qualified workforce could have a negative impact on business operations and a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Certain events, such as employee resignations and retirements without appropriate replacements, labor shortages, wage inflation, an aging workforce without appropriate replacements, a lack of equivalent or enhanced skill sets to fulfill future needs, or unavailability of contract resources, may lead to operating challenges and increased costs. The challenges include lack of resources, loss of knowledge, difficulty in finding highly-skilled,highly skilled, qualified candidates, specifically due to the location of Cleco’s corporate office and potential employee relocation challenges even with a hybrid work option, and a lengthy time period associated with skill development. Costs may increase as a result of contractors replacing employees, productivity slowdown, and safety incidents. Failure to hire and adequately develop replacement employees, maintain an inclusive work environment, transfer functional knowledge and expertise to
the next generation of employees, ensure the availability of skilled new hires, or accept hybrid or remote work options may adversely affect the ability to manage and safely operate the Registrants’ business. If the Registrants are unable to successfully attract, retain, and develop an appropriately qualified workforce, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected.
Technology and Terrorism Threats
The operational and information technology systems on which Cleco relies to conduct its business and serve customers could fail to function properly due to technological problems, cyberattacks, physical attacks on Cleco’s assets, acts of terrorism, severe weather, solar events, electromagnetic events, natural disasters, the age and condition of information technology assets, human error, or other reasons that could disrupt Cleco’s operations and cause Cleco to incur unanticipated losses and expense.
The operation of Cleco’s extensive electrical systems relies on evolving operational and information technology systems and network infrastructures that are becoming extremely complex as new technologies and systems are implemented to more safely and reliably deliver electric services. Cleco’s business is highly dependent on its ability to process and monitor, on a real-time daily basis, a large number of tasks and transactions,
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many of which are highly complex. Cleco’s hybrid remoteflexible working environment makes protecting distributed assets more challenging, and there is a greater opportunity for successful cyberattacks. The failure of Cleco’s operational and information technology systems and networks due to a physical attack cyberattack, or other event, wouldincluding the inability to detect malicious software that has infected Cleco’s systems, could significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s systems, including its financial information, operational, advanced metering, and billing systems, require constant maintenance, monitoring, security patches, modification or configuration of systems, and update and upgrade of systems, which can be costly and increase the risk of errors and malfunction. Any disruptions or deficiencies in existing systems, or disruptions, delays, or deficiencies in the modification, transition to, or implementation of new systems, could result in increased costs, the inability to track or collect revenues and the diversion of management’s and employees’ attention and resources, and could adversely affect the effectiveness of Cleco’s control environment, and/or its ability to accurately or timely file required regulatory reports.
Despite implementation of security and mitigation measures, Cleco’s technology systems and those of Cleco’s vendors are vulnerable to inoperability, impaired operations, or failures due to physical attacks or cyberattacks on the facilities and equipment needed to operate the technology systems, viruses, human errors, acts of war or terrorism, and other events. If Cleco’s or its vendor’s information technology systems or network infrastructure were to fail, Cleco might be unable to fulfill critical business functions and serve its customers, which could have a material adverse effect on the financial conditions, results of operations, or cash flows of the Registrants.
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In addition, in the ordinary course of its business, Cleco collects and retains sensitive information including personal identification information about customers and employees, customer energy usage, and other confidential information. The theft, damage, or improper disclosure of sensitive electronic data could subject Cleco to both penalties for violation of applicable privacy laws and claims from third parties, or harm Cleco’s reputation. In addition, new laws and regulations governing data privacy and the unauthorized disclosure of confidential information pose increasingly complex compliance challenges and potentially elevate costs, and any failure to comply with these laws and regulations could result in significant penalties and legal liability.
Pandemics, Epidemics, and Other Outbreaks
Cleco faces risks related to pandemics, epidemics, and outbreaks, including economic, regulatory, legal, workforce, and cybersecurity risks, that could have a material adverse impact on the results of operations, financial condition, cash flows, or liquidity of the Registrants.
The COVID-19 pandemic (and other pandemics, epidemics, and outbreaks) has adversely affected global economic activities and conditions. There is considerable uncertainty associated with pandemics, epidemics, and outbreaks regarding the extent and duration of governmental and other measures implemented to try to slow the spread of any of these occurrences, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders, and business and government shutdowns that could reduce the availability and productivity of Cleco employees, key contractors, and vendors. Cleco’s ability to timely satisfy regulatory requirements, such as recordkeeping and/or timely reporting requirements, could be affected.
On December 4, 2020, Cleco Power made a filing with the LPSC requesting recovery of the expenses incurred as a result of an LPSC executive order issued in response to the COVID-19 pandemic, prohibiting the disconnection of utilities for nonpayment, as well as the lost revenue associated with the disconnection fees and incremental costs. At December 31, 2022, Cleco Power had a regulatory asset of $3.0 million for expenses incurred related to the executive order. Approval of the recovery of these expenses by the LPSC is expected in the second quarter of 2023. For more information regarding the regulatory asset associated with the LPSC’s executive order, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 5 — Regulatory Assets and Liabilities — COVID-19 Executive Order.”
Cleco cannot predict the duration, extent, effect, or ultimate impact of any pandemic, epidemic, outbreak, or governmental responsive measure may have on the global, national, or local economy, the capital markets, or Cleco’s suppliers or customers. Any of the foregoing events or other unforeseen consequences could have a material adverse effect on the results of operations, financial condition, cash flows, or liquidity of the Registrants.
Transmission Constraints
Transmission constraints could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have a higher LMP. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power and Cleco Cajun’s pricing zones or result in transmission curtailments. Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. However, insufficient FTR allocations or increased FTR costs, due to negative congestion flows, may result in an unexpected increase in energy costs to Cleco’s customers. For Cleco Power, if a disallowance of additional fuel costs associated with congestion is ordered by the LPSC resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s Generation, Transmission, and Distribution Facilities
Cleco’s generation facilities are susceptible to unplanned outages, significant maintenance requirements, and interruption of fuel deliveries.
The operation of power generation facilities involves many risks, including breakdown or failure of equipment, fuel supply interruption, and performance below expected levels of output or efficiency. Aging equipment, even if maintained in accordance with good engineering practices, may require significant expenditures to operate at peak efficiency, or to comply with environmental permits. Newer equipment can also be subject to unexpected failures. Accordingly, Cleco may incur more frequent unplanned outages, higher than anticipated operating and maintenance expenditures, higher replacement costs of purchased power, increased fuel costs, MISO related costs, and the loss of potential revenue related to competitive opportunities. The costs of such repairs, maintenance, and purchased power may not be fully recoverable in rates and could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco’s generating facilities are currently fueled primarily by coal, natural gas, and petroleum coke. The deliverability of these fuel sources may be constrained due to such factors as higher demand, decreased regional supply, production shortages, weather-related disturbances, railroad constraints or disruptions, waterway levels, labor strikes, or lack of transportation capacity. If suppliers are unable to deliver the contracted volume of fuel and associated inventories are depleted, Cleco may be unable to operate its generating units which may cause Cleco Power to incur higher costs, which in turn could increase the cost to customers. Cleco Power’s fuel and MISO-procured/settled energy expenses, which are recovered from its customers through the FAC, are subject to refund until either a prudency review or a periodic fuel audit is conducted by the LPSC.
Cleco Power could be indirectly liable for the impacts of other companies’ activities on lands that have been mined and reclaimed by Cleco Power. The liability for impacts on reclaimed lands may not be recoverable in rates and could
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have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The construction of and capital improvements to power generation, transmission, and distribution facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful or significantly more expensive than planned, the financial condition, results of operations, or liquidity of the Registrants could be materially affected.
Cleco’s ability to complete construction of or capital improvements to power generation, transmission, and distribution facilities in a timely manner and within budget is contingent upon many variables and subject to substantial risks. These variables include engineering and project execution risk and escalating costs for materials, labor, and environmental compliance. Delays in obtaining permits, shortages in materials and qualified labor, suppliers and contractors not performing as set forth under their contracts, changes in the scope and timing of projects, inaccurate cost estimates, the inability to raise capital or secure funding on favorable terms or at all, changes in commodity prices affecting revenue, fuel or material costs, changes in the economy, changes in laws or regulations, including
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environmental compliance requirements, and other events beyond the control of Cleco may materially affect the schedule and cost of these projects. If these projects are significantly delayed or become subject to cost overruns or cancellation, Cleco could incur additional costs including termination payments, face increased risk of potential write-off of the investment in the project, or be unable to recover such costs in rates. Furthermore, failure to maintain various levels of generating unit availability or transmission and distribution reliability may result in various disallowances of Cleco Power’s investments.
Alternative Generation Technology
Changes in technology may have a material adverse effect on the value of Cleco Power’s and Cleco Cajun’s generating facilities.
A basic premise of Cleco’s business is that generating electricity at central power plants achieves economies of scale and produces electricity at a relatively low price. There are alternative technologies to produce electricity, most notably wind turbines, photovoltaic cells, and other solar generatedsolar-generated power. Many companies and organizations conduct research and development activities to seek improvements in alternative technologies. As new technologies are developed and become available, the quantity and pattern of electricity purchased by customers could decline, with a corresponding decline in revenues derived by generating assets. In addition, to the extent Cleco is slow to adopt viable alternative generation technologies, employs technology that is problematic to operate, and/or under or over relies on these alternative technologies, the value of Cleco Power’s and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun’s generating facilities could be reduced.
Litigation
Cleco is subject to litigation related toand a negative outcome could have a material adverse effect on the 2016 Merger.
In connection with results of operations, financial condition, or cash flows of the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. See Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Litigation, Other Commitments and
Contingencies, and Disclosures about Guarantees — Litigation — 2016 Merger” for a discussion of these actions.
It is possible that additional claims beyond those that have already been filed will be brought by the current plaintiffs or by others in an effort to seek monetary relief from Cleco’s former directors and officers. Cleco is not able to predict the outcome of these actions, or others, nor can Cleco predict the amount of time and expense that will be required to resolve the actions. In addition, the cost to Cleco of defending the actions, even if resolved in the defendants’ favor, could be substantial. Such actions could also divert the attention of Cleco’s management and resources from day-to-day operations.Registrants.
The Registrants are parties to various litigation matters arising out of the ordinary operations of their business. The ultimate outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case presently be reasonably estimated. The liability that the Registrants may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters and, as a result, these matters may have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Cajun
The success — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — 2016 Merger” for a discussion of Cleco Cajun depends, in part, on Cleco’s ability to manage the acquired business and realize anticipated benefits.
On February 4, 2019, Cleco acquired all of the membership interests of South Central Generating upon the closing of the Cleco Cajun Transaction. The success of Cleco Cajun will depend, in part, on Cleco’s ability to manage and operate the unregulated business through service to electric cooperative customers and other wholesale customers. The majority of Cleco Cajun’s capacity is contracted through the first quarter of 2025.
Cleco Cajun’s cooperative customers have finalized their recontracting decisions beyond the first quarter of 2025 and all have notified Cleco Cajun that it was not selected as a provider. The regulatory certification process for the new supply contracts has been finalized by the LPSC for all but three cooperative customers. This non-selection is believed to be the result of a trend toward cooperatives favoring shorter-term, market-based solutions and intermittent renewables rather than asset-backed, long-term full-service contracts. Cleco is exploring options related to its investment in Cleco Cajun, including the potential sale of part or all of Cleco Cajun’s assets. Cleco Cajun’s failure to recontract these agreements, the failure to enter into new contracts with other counterparties, or failure to take other mitigating measures for the loss of existing contracts could have a material adverse effect on Cleco’s results of operations, financial condition, cash flows, and liquidity as early as the second quarter of 2025.actions.
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Regulatory Compliance
Cleco operates in a highly regulated environment and adverse regulatory decisions or changes in applicable regulations could have a material adverse effect on the Registrants’ business or result in significant additional costs.
Cleco’s business is subject to extensive federal, state, and local energy, environmental, and other laws and regulations. Should Cleco be unsuccessful in obtaining necessary licenses or permits or should these regulatory authorities initiate any investigations or enforcement actions or impose penalties or disallowances on Cleco, Cleco’s business could be adversely affected. Existing regulations may be revised or reinterpreted and new laws and regulations may be adopted or become applicable to Cleco or Cleco’s facilities in a manner, including decisions by the U.S. Supreme Court that could affect the operation of federal agencies, that may have a material adverse effect on the Registrants’ business or result in significant additional costs.
As a result of the 2016 Merger, Cleco Holdings and Cleco Power made the 2016 Merger Commitments to the LPSC including, but not limited to, the extension of Cleco Power’s FRP for an additional two years, maintaining employee headcount, salaries, and benefits for ten years, and a limitation from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. Additionally, upon approval of the Cleco Cajun Transaction,Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail customers harmless for any adverse impacts, increased costs of debt or equity, and credit rating downgrades attributable to the Cleco Cajun TransactionAcquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by the end of 2024. For information about Cleco Holdings’ repayment schedule, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt — Cleco.”
Cleco Power’s Rates
The LPSC and FERC regulate the retail rates and wholesale transmission tariffs, respectively, that Cleco Power can charge its customers.
Cleco Power’s ongoing financial viability depends on its ability to recover its costs in a timely manner from its LPSC-jurisdictional customers through LPSC-approved rates and its ability to recover its FERC-authorized revenue requirements from its FERC-jurisdictional wholesale transmission customers. Cleco Power’s financial viability also depends on its ability to recover in rates an adequate return on capital, including long-term debt and equity. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. If Cleco Power is unable to recover any material amount of its costs in rates in a timely manner or recover an adequate return on capital, the results of operations, financial condition, or cash flows of the Registrants could be materially adversely affected. Recovery of these costs could result in rising utility bills threatening the affordability of such costs by Cleco Power’s customers in certain demographic areas, which in turn could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases or, in
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some cases, a request for extension of an FRP. During those
cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of subject expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow recovery of costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of just and reasonable rates.
Transmission rates that MISO transmission owners may collect are regulated by FERC. In November 2019, FERC voted to adopt new methodology for evaluating base ROE for public utilities under the Federal Power Act. Cleco Power is unable to determine when a binding FERC order will be issued. Any reduction to the ROE component of the transmission rates could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Retail Electric Service
Cleco Power’s retail electric rates and business practices are regulated by the LPSC and reviews may result in refunds to customers.
Cleco Power’s retail rates for residential, commercial, and industrial customers and other retail sales are regulated by the LPSC. Cleco Power’s current retail rate plan became effective on July 1, 2021. If a refund of previously recorded revenue is required as a result of the LPSC’s review, the refund could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the current retail rate plan, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements —Note 13 — Regulation and Rates — Regulatory Refunds14 — Regulation and Rates — FRP.”
On June 30, 2023, Cleco Power’s next base rate case is required to bePower filed an application with the LPSC on or before March 31, 2023.for its current rate case, with anticipated new rates being effective July 1, 2024. The outcome of any future base rate case could have a material adverse effect on the results of operations, financial condition, and cash flows of the Registrants.
Dolet Hills Prudency Review
Cleco Power’s ability to recover costs associated with the retirement of the Dolet Hills Power Station and lignite mine closure is subject to a prudency review by the LPSC that could result in significant refunds to customers or disallowance of recovery.
Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. Initial testimony by the LPSC Staff and intervenors filed in August 2022 indicated disagreement with the recoverability of these incurred costs, quantifying up to $228.0 million of related costs as potentially unrecoverable. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power’s management has estimated that a loss resulting from a potential disallowance is
probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023.
Due to the nature of the regulatory process, Cleco Power is currently unable to determine the outcome and timing of resolution of this matter. If costs are disallowed for recovery or a refund is required as a result of the LPSC’s review, this could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about the Dolet Hills prudency review, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.”
LPSC Audits
The LPSC conducts fuel audits that could result in Cleco Power making substantial refunds of previously recorded revenue.
Generally, Cleco Power’s cost of fuel used for electric generation and cost of purchased power are recovered through the LPSC-established FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. For more information about Cleco Power’s current fuel audit, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies,
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and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Management is unable to predict or give a reasonable estimate of the possible range of the disallowance by the LPSC, if any, related to FAC filings. If a disallowance of fuel costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The LPSC conducts audits of environmental costs that could result in Cleco Power making substantial refunds of previously recorded revenue.
Cleco Power has an EAC that is used to recover from customers certain costs of environmental compliance. The costs eligible for recovery are prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. These costs are subject to periodic review by the LPSC.
Cleco Power has EAC filings for January 2020 and thereafter that remain subject to audit.Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to theseEAC filings. If a disallowance of environmental costs is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For more information about LPSC audits related to environmental costs, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements
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— Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Environmental Audit.”
FERC Audit
FERC conducts audits that could result in Cleco Power making refunds of previously recorded revenue.
Generally, Cleco Power records wholesale transmission revenue through approved formula rates, Attachment O of the MISO tariff, and certain grandfathered agreements. The calculation of the rate formulas, as well as FERC accounting and reporting requirements, are subject to periodic audits by FERC. Management is unable to predict the timing of future audits and whether or not the outcome of such future audits will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
MISO
MISO market operations could have a material adverse effect on the results of operations, generation revenues, energy supply costs, financial condition, or cash flows of the Registrants.
Cleco is a member of the MISO market region referred to as “MISO South,” which encompasses parts of Arkansas, Louisiana, Mississippi, and Texas. Dispatch of generation resources and generation volumes to the market is determined by MISO. Costs in the MISO South region are heavily influenced by commodity fuel prices, transmission congestion, dispatch of the generating assets owned not only by Cleco, but by all market participants in the MISO South region, and the overall demand and generation availability in the region.
On June 1, 2023, due to generation resource retirements, increased reliance on intermittent resources, significant weather events with correlated generator outages, and declining excess reserve margins that are expected to profoundly impact future grid reliability, MISO transitioned from a traditional annual unforced capacity value to a seasonal accreditation capacity (“SAC”) value. MISO evaluates forced outage ratesSAC values to assess generating unit capacity for Cleco’s planning reserve margin.margin for each season. If Cleco is subject to a significant amountnumber of forced outages during critical instances, Cleco may
not possess sufficient planning reserves to serve its needs and could be forced to purchase capacity from the MISO resource adequacy auction. ForGenerally, Cleco Power recovers these costs through its FAC. Recovery of these costs is subject to audit by the costsLPSC. If a disallowance of such capacity may not be recoverable in its rates andrecovery is ordered, it could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Using MISO’s unforced capacity method for determining generating unit capacity, Cleco Power’s fleet provided for 9 MW of capacity in excess of its peak, coincident to MISO’s peak, in 2022. Due to generation resource retirements, increased reliance on intermittent resources, significant weather events with correlated generator outages, and declining excess reserve margins that will profoundly impact future grid reliability, MISO is currently transitioning from a traditional annual unforced capacity value to a seasonal accreditation capacity value. Because of the recentness of the transition, management is unable to predict the long-term potential impact the transition will have, and any such refund resulting from a disallowance could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows of the Registrants.
Reliability and CIP Standards Compliance
Cleco is subject to mandatory reliability and CIP standards. Fines and civil penalties are imposed on those who fail to comply with these standards.
NERC serves as the ERO with authority to establish and enforce mandatory reliability and CIP standards, subject to FERC approval, for users of the nation’s transmission system.
FERC enforces compliance with these standards. New standards are being developed and existing standards are continuously being modified.
As these standards continue to be adopted and modified, they may impose additional compliance requirements on Cleco Power and Cleco Cajun separately, which may result in increased capital expenditures and operating expenses.expenses for Cleco Power and, prior to the consummation of the Cleco Cajun Divestiture, Cleco Cajun. Failure to comply with these standards can result in the imposition of material fines and civil penalties.
A NERC Reliability Standards audit and NERC CIP Audit are conducted every three years for Cleco Power and Cleco Cajun. For more information on Cleco’s current and future audits, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition — Financial Condition — Regulatory and Other Matters — Market Structure — Wholesale Electric Markets — ERO.”
Management is unable to predict the financial outcome of any future audits or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Environmental Compliance
Cleco’s costs of compliance with environmental laws and regulations are significant. The costs of compliance with new environmental laws and regulations, as well as the incurrence of incremental environmental liabilities, could be significant to the Registrants.
Cleco is subject to extensive environmental oversight by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations related to air quality, water quality, waste management, natural resources, and health and safety. Cleco also is required to obtain and comply with numerous governmental permits in operating its facilities. Existing environmental laws, regulations, and permits could be revised or reinterpreted, and new laws
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and regulations could be adopted or become applicable to Cleco. As a result, some of Cleco’s EGUs could be rendered uneconomical to maintain or operate and could prompt early retirement of certain generation units. Any legal obligation that would require Cleco to substantially reduce its emissions beyond present levels could require extensive mitigation efforts and could raise uncertainty about the future viability of some fossil fuels as fuel for new and existing EGUs. Cleco will evaluate potential solutions to comply with such regulations and monitor rulemaking and any legal matters impacting the proposed regulations. Cleco may incur significant capital expenditures or additional operating costs to comply with such revisions, reinterpretations, and new requirements. If Cleco were to fail to comply, it could be subject to civil or criminal liabilities and fines or may be forced to shut down or reduce production from its facilities. Cleco cannot predict the timing or the outcome of pending or future legislative and rulemaking proposals.
Cleco Power may request from its customers recovery of its costs to comply with new environmental laws and regulations. If the LPSC were to deny Cleco Power’s request to recover all or part of its environmental compliance costs, there could be a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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Wholesale Electric Service
Cleco’s business practices are regulated by FERC, and the wholesale rates of both Cleco Power and Cleco Cajun are subject to FERC’s triennial market power analysis. Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates.
FERC requires a utility to pass a screening test as a condition for securing and/or retaining approval to sell electricity in wholesale markets at market-based rates. An updated market power analysis must be filed with FERC every three years or upon the occurrence of a change in status as defined by FERC regulation. Cleco filed its most recent triennial market power analysis in December 2020,2023, and it is currently pending FERC approval. The next triennial market power analysis is expected to be filed in December 2023.2026. In the future, if FERC determines Cleco Power and/or Cleco Cajun possesses generation market power in excess of certain thresholds, Cleco Power and/or Cleco Cajun could lose the right to sell wholesale generation at market-based rates, which could result in a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Commodity and Commercial Transactions
Cleco may enter into fuel supply contracts, energy hedge transactions, and/or commercial transactions, including sales to wholesale customers. If risks related to these transactions are not managed effectively, they may have a material adverse effect on the liquidity, results of operations, or financial condition of the Registrants.
During its normal course of business, Cleco is exposed to uncertain market prices of electricity, natural gas, coal, and other commodities. Market price volatility can impact costs of fuel supply for generation, generation revenue, cost to serve Cleco’s contracted wholesale electricity customers, customer
utility bills, and revenue from customers. To manage market price volatility, Cleco Power and Cleco Cajun may each enter into purchases or sales of certain physical and financial commodity contracts within established risk management guidelines.
For Cleco Power, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance are deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. At settlement, realized gains or losses are included in Cleco Power’s FAC and reflected on customer’s bills as a component of the fuel charge. Recovery of these costs included in Cleco Power’s FAC is subject to, and may be disallowed as part of, a prudency review or a periodic fuel audit conducted by the LPSC. For Cleco Cajun, the changes in fair value of transactions accounted for as derivatives under authoritative accounting guidance as well as the realized gains and losses at settlement are recorded on the income statement as either a component of fuel expense, for gas-related derivatives, or purchased power expense, for FTRs.
Because Cleco is subject to significant fluctuations caused by changes in market prices, Cleco is unable to accurately predict the effect that these transactions could have on its results of operations, financial condition, or cash flows. All risks associated with these transactions cannot be fully
eliminated. Therefore, the judgements and assumptions made in the underlying decisions related to these transactions could have a material adverse effect on the liquidity, results of operations, financial condition, or cash flows of the Registrants.
Transmission Congestion
Transmission congestion could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Energy prices in the MISO market are based on LMP, which includes a component directly related to congestion on the transmission system. Pricing zones with greater transmission congestion may have a higher LMP. Physical transmission constraints present in the MISO market could increase energy costs within Cleco Power and Cleco Cajun’s pricing zones or result in transmission curtailments. Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. However, insufficient FTR allocations or increased FTR costs, due to negative congestion flows, may result in an unexpected increase in energy costs to Cleco’s customers. For Cleco Power, if a disallowance of additional fuel costs associated with congestion is ordered by the LPSC resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Counterparty Risk and Guarantees
Cleco may be required to provide credit support to its counterparties, which could have a material adverse effect on the Registrants’ liquidity.
Cleco may guarantee the performance of all or some of its commercial transaction obligations and may also be required to provide counterparty credit support in the form of cash or cash equivalent collateral to secure all or part of those obligations. Downgrades in Cleco’s credit quality or changes in the market prices of transaction-related energy commodities could increase the collateral or margin required to be on deposit with the counterparty or clearing house. The required credit support or increase in credit support could have a material adverse effect on the Registrants’ liquidity.
Cleco is exposed to the risk that counterparties may not meet their performance obligations, which could have a material adverse effect on the operating and financial performance of the Registrants.
Counterparties may fail to perform on their physical or financial obligations. Currently, Cleco has industry accepted master agreements in place with counterparties that provide credit default language. Some master agreements with counterparties contain provisions that require the counterparties to provide credit support to secure all or part of their obligations to Cleco. If the counterparties to these arrangements fail to perform, Cleco may enforce and recover the proceeds from the credit support provided; however, in the event of a default, credit support may not always be adequate to cover the related obligations. In such event, Cleco may incur losses in excess of amounts already paid, if any, to the counterparties or due to an adverse replacement cost of the transaction and may be unable to collect liquatedliquidated damages.
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The credit commitments of Cleco’s lenders under its bank facilities may not be honored for a variety of reasons, including unexpected periods of financial distress affecting such
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lenders, which could materially affect the adequacy of its liquidity sources. In no case would Cleco Power bear any commodity or credit risk of Cleco Cajun.
Global Economic Environment and Uncertainty
Adverse capital market performance could result in reductions in the fair value of benefit plan assets and increase the Registrants’ liabilities related to such plans. Sustained declines in the fair value of the plan’s assets or sustained increases in plan liabilities could result in significant increases in funding requirements, which could adversely affect the Registrants’ liquidity and results of operations.
Performance of the capital markets affects the value of assets that are held in trust to satisfy future obligations under Cleco’s defined benefit pension plan. Sustained adverse market performance could result in lower rates of return for these assets than projected by Cleco and could increase Cleco’s funding requirements related to the pension plan. Additionally, changes in interest rates affect the present value of Cleco’s liabilities under the pension plan. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
Cleco Credit Ratings
A downgrade in Cleco Holdings’ or Cleco Power’s credit ratings could result in an increase in their respective borrowing costs, a reduced pool of potential investors and funding sources, and a restriction on Cleco Power making distributions to Cleco Holdings.
Neither Cleco Holdings nor Cleco Power can assure that its current debt ratings will remain in effect for any given period of time or that one or more of its debt ratings will not be lowered or withdrawn entirely by a rating agency. If S&P, Moody’s, or Fitch were to downgrade Cleco Holdings’ or Cleco Power’s long-term ratings, particularly below investment grade, the value of their debt securities could be adversely affected. Downgrades of either Cleco Holdings’ or Cleco Power’s credit ratings could result in additional fees and higher interest rates for borrowings under their respective credit facilities and term loans. In addition, Cleco Holdings or Cleco Power, as the case may be, would likely be required to pay higher interest rates in future debt financings, may be subject to more onerous debt covenants, and their pool of potential investors and funding sources could decrease. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit/issuer ratings. As a result, Cleco Power may be prohibited from making distributions to Cleco Holdings in the event of a ratings downgrade below investment grade.
Cleco Power LLC’s Unsecured and Unsubordinated Obligations
Cleco Power LLC’s unsecured and unsubordinated obligations, including, without limitation, its senior notes, will be effectively subordinated to any secured debt of Cleco Power LLC and structurally subordinated to indebtedness and other liabilities and preferred equity of any of Cleco Power LLC’s subsidiaries.
Cleco Power LLC’s senior notes and its obligations under various loan agreements and refunding agreements with the Rapides Finance Authority, the Louisiana Public Facilities
Authority, and other issuers of tax-exempt bonds for the benefit of Cleco Power LLC are unsecured and rank equally with all of Cleco Power LLC’s existing and future unsecured and
unsubordinated indebtedness. As of December 31, 2022,2023, Cleco Power LLC had an aggregate of $1.46of $1.47 billion of unsecured and unsubordinated indebtedness net of debt discount and debt expense. The unsecured and unsubordinated indebtedness of Cleco Power LLC will be effectively subordinated to, and thus have a junior position to, any secured debt that Cleco Power LLC may have outstanding from time to time (including any mortgage bonds) with respect to the assets securing such debt. Certain agreements entered into by Cleco Power LLC with other lenders that are unsecured provide that if Cleco Power LLC issues secured debt, Cleco Power LLC is obligated to grant these lenders the same security interest in certain assets of Cleco Power LLC. If such a security interest were to arise, it would further subordinate Cleco Power LLC’s unsecured and unsubordinated obligations.
As of December 31, 2022,2023, Cleco Power LLC had no secured indebtedness outstanding. Cleco Power LLC may issue mortgage bonds in the future under any future Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power LLC material assets upon dissolution, winding up, liquidation, or reorganization. Additionally, neither Cleco Power LLC nor its creditors, including holders of its senior notes, can use the assets of Cleco Securitization I to settle debts of Cleco Power LLC.
Presidential Administration
The Presidential administration has made and may continue to make substantial changes to environmental, fiscal, and tax policies that could have a material adverse effect on the Registrants’ business.
The Presidential administration may propose substantial changes to environmental, fiscal, and tax policies, which may include comprehensive tax reform, more stringent and onerous requirements for reducing GHG emissions and other pollutants from existing fossil fuel-fired power plants, and other objectives that may impact the results of operations, financial condition, or cash flows of the Registrants. Since taking office in January 2021, the current President has issued several executive orders designed to address climate change and GHG emissions, as well as an executive order requiring agencies to review past environmental actions. Furthermore, the current President has recommitted the U.S. to the Paris Agreement and announced the U.S.’s nationally determined contribution under the Paris Agreement at the summit on climate change onin April 22, 2021. The target aims to reduce U.S. emissions by 50-52% compared to a 2005 baseline by 2030. The current Presidential administration has also issued a memorandum to departments and agencies to refrain from proposing or issuing rules until a departmental or agency head appointed or designated by the administration has reviewed and approved the rule. The executive orders may result in the development of additional regulations or changes to existing regulations, and it is possible that these changes could adversely affect Cleco’s business. Until any such changes are enacted, management is unable to determine the impact of any such changes on the Registrants’ business, results of operations, financial condition, or cash flows.
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Taxes
Changes in taxation due to uncertain effects of various tax reform legislation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The Registrants make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate their obligations to taxing authorities. Tax obligations include income, franchise, property, sales and use, and employment-related taxes. These judgments may include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken by the Registrants could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
The IRA of 2022 was signed into law on August 16, 2022. Management is still monitoring any potential impact the recently enacted IRAlegislation could have on the Registrants. For more information related to the IRA’sIRA of 2022’s tax and renewable provisions, see Part II, Item 7.,7, Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview — Significant Events — Tax Reform.”
Insurance
Cleco’s insurance coverage may not be sufficient and may become more costly to maintain.
Cleco currently has property, casualty, cybersecurity, and liability insurance policies in place to protect its employees, board of managers, and assets in amounts that it considers appropriate. Such policies are subject to certain limits and deductibles. Insurance coverage may not be available in the future at current costs, on commercially reasonable terms, or at all, and the insurance proceeds received for any loss of, or any damage to, any of Cleco’s facilities may not be sufficient to restore the loss or damage without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Like other utilities that serve coastal regions, Cleco Power does not have insurance covering its transmission and distribution system, other than substations, because it believes such insurance to be cost prohibitive. In the future, Cleco Power may not be able to recover the costs incurred in restoring transmission and distribution properties following hurricanes or other natural disasters through issuance of storm recovery bonds or a change in Cleco Power’s regulated rates or otherwise, or any such recovery may not be timely granted. Therefore, Cleco Power may not be able to restore any loss of, or damage to, any of its transmission and distribution properties without a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Global Economic Uncertainty and Access to Capital
Disruptions in the capital and credit markets may adversely affect the Registrants’ cost of capital and ability to meet liquidity needs or access capital to operate and grow the business.
The Registrants’ business is capital intensive and dependent upon the Registrants’ respective abilities to access capital at reasonable rates and other terms. The Registrants’ liquidity needs could significantly increase in the event of a hurricane
or other weather-related or unforeseen disaster or when there are spikes in the price of natural gas and other commodities. The occurrence of one or more contingencies, including a delay in regulatory recovery of fuel, purchased power, or storm restoration costs; higher than expected required pension contributions; an acceleration of payments or decreased credit lines; less cash flow from operations than expected; or other unexpected events, could cause the financing needs of the Registrants to increase materially.
Events beyond the Registrants’ control, such as political uncertainty in the U.S. (including the ongoing debates related to the U.S. federal government budget), volatility and disruption in global capital and credit markets, and rising(including those resulting from geopolitical events, such as the Russian invasion of Ukraine or the continued conflict in the Middle East), uncertainty regarding increases or decreases in interest rates as a result of increasesresulting from changes in the targeted federal funds rate range targeted by the Federal Reserve, pandemics, epidemics and other outbreaks (such as COVID-19), or other adverse developments that affect financial institutions (such as bank failures) may create uncertainty that could increase theirthe cost of capital for the Registrants or impair their ability to access the capital markets, including the ability to draw on their respective bank credit facilities. Additionally, upon approval of the Cleco Cajun Transaction,Acquisition, Cleco made commitments to the LPSC including, but not limited to, holding Cleco Power retail customers harmless for any adverse impacts, increased costs of debt or equity, and credit rating downgrades attributable to the Cleco Cajun Transaction;Acquisition, and the repayment of $400.0 million of Cleco Holdings’ debt by 2024. At December 31, 2022,2023, the remaining balance of Cleco Holdings’ debt to be repaid by 2024 was $132.3 million. $66.7 million. The Registrants may be unable to predict the degree of success they will have in renewing or replacing their respective credit facilities as they come up for renewal. Moreover, the size, terms, and covenants of any new credit facilities may not be comparable to, and may be more restrictive than, existing facilities. If the Registrants are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities, and/or bear an unfavorable cost of capital, which, in turn, could have a material adverse effect on the Registrants’ ability to fund capital expenditures or to service debt, or on the Registrants’ flexibility to react to changing economic and business conditions.
Inflation may negatively impact the results of operations, financial condition, or cash flows of the Registrants.
While the pace of inflation has moderated during the course of 2023, Cleco has observed that prices for equipment, materials, supplies, employee labor, and contractor services have increased. Long-term inflationary pressures may result in such prices continuing to increase more quickly than expected. Increases in inflation raises costs for labor, materials, and services, and Cleco may be unable to secure these resources on economically acceptable terms or offset such costs with increased revenues, operating efficiencies, or cost savings, which may adversely impact the results of operations, financial condition, or cash flows of the Registrants.
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ESG
Increased focus on and changing expectations regarding ESG programs, as well as failure to achieve ESG goals, may result in constraints onadversely impact the Registrants’ access to capital, results of operations, financial condition, and increased costs and expenses.cash flows.
Stakeholder scrutiny of companies’ ESG practices has been increasing across numerous industries. In recent years, certain stakeholders, including an increasing number of investors and lenders, have started placing more importance on ESG criteria when making lending and investment decisions. Although the Registrants are not currently aware of any instances where
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access to capital was limited due to these developments, theThe increased focus on and activism related to ESG may limit their the Registrants’
access to capital or financing and/or increase the cost of capital or financing as some investors or lenders may elect to increase their required returns on capital offered to the Registrants or reallocate or not commit capital based on their assessment of the Registrants’ ESG profile. Additionally, the Registrants’ failure
to address and meet stakeholders’ ESG expectations, which continue to evolve, or failure to report progress on ESG initiatives, or failure to achieve the ESG goals may negatively impact the Registrants’ reputation and business orand, as a result, could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
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ITEM 1B. UNRESOLVED STAFF COMMENTS |
None.
Risk Management, Strategy, and Governance
Cybersecurity Integration with overall risk management
Cleco’s business operations rely on complex and evolving operational and information technology systems and network infrastructures. Digital information, information technology, and automation are essential components of Cleco’s operations and growth strategy. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. These cybersecurity tools and assessments are embedded in Cleco’s overall enterprise risk management system. Cleco utilizes the following tools, methodologies, and standards to assess, identify, and manage material cybersecurity risks:
•NERC CIP standards, which protect Cleco’s operational technology,
•National Institute of Standards and Technology Cybersecurity Framework (NIST CSF), which protects Cleco’s operational and information technology,
•Sarbanes-Oxley Act (SOX) regulations, which require Cleco to maintain access and security controls for certain systems that are essential to the completeness and accuracy of financial reporting,
•internal and third-party assessments to identify and prioritize risks,
•Cybersecurity Incident Response Plans (CSIRPs), and
•a security operations center managed 24 hours a day by a third party.
Processes to assess, identify, and manage material risks
Cleco has processes and procedures in place to ensure its cybersecurity program is operating effectively and members of Cleco’s EMT routinely review its cybersecurity strategy, policy, program effectiveness, standards enforcement, and cybersecurity issue management. Cleco conducts risk assessments and compliance audits against standards including the NIST CSF, NERC CIP, and SOX. Cleco also engages with a variety of independent third parties, such as assessors, consultants, and auditors, for periodic audits and reviews of cybersecurity threats and related controls, including review of periodic penetration tests, regular patch reviews from vendors listing relevant risks, industry alerts and forums, and tabletop exercises. These assessment results are used to
develop appropriate cybersecurity controls and risk mitigation strategies, which are implemented throughout the organization. Cleco also utilizes its Internal Audit department to review its cybersecurity program, in which findings are reported to the Audit Committee.
Cleco’s CSIRPs help ensure a timely, consistent, and compliant response to actual or attempted cybersecurity incidents impacting Cleco. These response plans include detection, analysis, containment, eradication, recovery, post-incident review, and timely notice to relevant stakeholders, including Cleco’s Audit Committee, once an incident is deemed to be potentially significant or material.
Cleco maintains a formal cybersecurity training program for all employees that includes training on matters such as phishing and email security best practices. Employees are also required to complete compulsory training on data privacy. Cleco also provides specialized security training for certain other employee roles.
Processes to oversee and identify material risks associated with use of third-party service providers
Cleco is implementing processes to manage the cybersecurity risks associated with its use of third-party service providers. Additionally, Cleco is actively reviewing and updating all third-party service contracts upon renewal for potential amendments related to security, confidentiality, and recourse in the event of a negligent incident, such as a breach, loss, or unauthorized use of Cleco’s data. These measures provide the structure for managing Cleco’s cyber-related risks.
Management’s oversight
Cleco maintains a cybersecurity program overseen by its Chief Administrative and Sustainability Officer, EMT, and Audit Committee that uses a risk-based methodology to support the security, confidentiality, integrity, and availability of information. This program is integrated within Cleco’s enterprise risk management program, which utilizes the Enterprise Risk Management Committee to collaboratively manage and advance enterprise-wide risk management processes. Cleco’s Disclosure Committee, which is comprised of EMT and the Chief Accounting Officer, is the means in which cybersecurity matters are assessed for disclosure requirements. Cleco’s EMT sets enterprise risk strategies and makes risk-informed decisions that include the assessment and response to
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cybersecurity risk. In March 2024, management began engaging in quarterly discussions with the Audit Committee regarding incidents of any magnitude experienced during the quarter, strategies and significant risk exposures, as well as the measures implemented to monitor and control these risks. These discussions may include the results of internal and third party risk assessments and audit results, and management’s plans to improve its cybersecurity posture using a risk-based approach.
Cleco’s cybersecurity team, overseen by the Chief Administrative and Sustainability Officer, has decades of experience selecting, deploying, and operating cybersecurity technologies, initiatives, and processes. Members of this team have extensive technical and leadership experience in federal and/or private sector environments as well as industry-recognized cybersecurity certifications. This team relies on threat intelligence as well as other information obtained from governmental, public or private sources, including external consultants engaged by Cleco. Cleco’s Audit Committee oversees the management of its cybersecurity risk and is responsible for communicating cyber-related incidents to its Boards of Managers.
Risks and previous events with material effects
It is possible that Cleco’s information technology systems and networks, or those managed by third parties, could have vulnerabilities and those vulnerabilities could go unnoticed for a period of time. Cleco may also be exposed to, and adversely affected by, interruptions to its computer and information technology systems, and sophisticated cyberattacks, including cybersecurity threats and vulnerabilities in its systems, malware, and attacks targeting its information technology systems and networks. Any such prior events, to date, have not had a material impact on Cleco’s results of operations, financial condition or cash flows. While various procedures and controls have been and are being utilized to mitigate such risks, there can be no guarantee that the actions and controls Cleco has implemented and is implementing, or which Cleco causes or has caused third party providers to implement, will be sufficient to protect its systems, information or other property. For more discussion of potential cyber threats that may affect Cleco, see Item 1A, “Risk Factors — Operational Risks — Technology and Terrorism Threats.”
All of Cleco Power’s electric generating stations and electric operating properties are located in Louisiana. Cleco Power considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Generating Stations
As of December 31, 2022,2023, Cleco Power either owned or had an ownership interest in five steam electric generating stations, three combined cycle units, and one gas turbine with a combined rated capacity of 3,035 MW, and a combined electric net generating capacity of 2,8242,822 MW. The net generating capacity is the result of capacity tests and operational tests performed during 2022,2023, as required by MISO. This amount reflects the maximum production capacity these units can sustain over a specified period of time. For more information on Cleco Power’s generating facilities, see Item 1, “Business — Operations — Cleco Power.”
Electric Substations
As of December 31, 2022,2023, Cleco Power owned 8993 active transmission substations and 251250 active distribution substations.
Electric Lines
As of December 31, 2022,2023, Cleco Power’s transmission system consisted of 67 circuit miles of 500-kiloVolt (kV) lines; 610609 circuit miles of 230-kV lines; 678682 circuit miles of 138-kV lines; and 29 circuit miles of 69-kV lines. Cleco Power’s distribution system consisted of 3,4173,431 circuit miles of 34.5-kV lines and 8,8198,843 circuit miles of other lines.
General Properties
Cleco Power owns various properties throughout Louisiana, which include a headquarters office building, regional offices, service centers, telecommunications equipment, and other general-purpose facilities.
Title
Cleco Power’s electric generating plants and certain other principal properties are owned in fee simple. 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 under Cleco Power’s Indenture of Mortgage, which does not impair the use of such properties
in the operation of its business. As of December 31, 2022, no mortgage bonds were outstanding under the Indenture of Mortgage. Some of the unsecured and unsubordinated indebtedness of Cleco Power will be effectively subordinated to, and thus have a junior position to, any mortgage bonds that Cleco Power may have outstanding from time to time with respect to the assets subject to the lien of the Indenture of Mortgage. Cleco Power may issue mortgage bonds in the future under its Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power material assets upon dissolution, winding up, liquidation, or reorganization.
Cleco Cajun has electric generating stations and electric operating properties located in Louisiana and Texas. Cleco Cajun considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
Electric Generating Stations
As of December 31, 2022, Cleco Cajun has ownership interest in four electric generating stations which, combined, consist of five gas turbine units and five steam electric generating units located in Louisiana as well as four combined cycle units located in Texas. These generating facilities have a combined rated capacity of 3,379 MW. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
General Properties
Cleco Power owns various properties throughout Louisiana, which include a headquarters office building, regional offices,
service centers, telecommunications equipment, and other general-purpose facilities.
Title
Cleco Power’s electric generating plants and certain other principal properties are owned in fee simple. 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 under Cleco Power’s Indenture of Mortgage, which does not impair the use of such properties in the operation of its business. As of December 31, 2023, no mortgage bonds were outstanding under the Indenture of Mortgage. Some of the unsecured and unsubordinated indebtedness of Cleco Power will be effectively subordinated to, and thus have a junior position to, any mortgage bonds that Cleco Power may have outstanding from time to time with respect to the assets subject to the lien of the Indenture of Mortgage. Cleco Power may issue mortgage bonds in the future under its Indenture of Mortgage, and holders of mortgage bonds would have a prior claim on certain Cleco Power material assets upon dissolution, winding up, liquidation, or reorganization.
Cleco Cajun has electric generating stations and electric operating properties located in Louisiana and Texas. Cleco Cajun considers all of its properties to be well maintained, in good operating condition, and suitable for their intended purposes. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. As a result, the Cleco Cajun Sale Group is presented as discontinued
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operations. For more information, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — “Discontinued Operations.”
Electric Generating Stations
As of December 31, 2023, Cleco Cajun has ownership interest in four electric generating stations which, combined, consist of five gas turbine units and five steam electric generating units located in Louisiana as well as four combined cycle units located in Texas. These generating facilities have a combined rated capacity of 3,379 MW. For more information on Cleco Cajun’s generating facilities, see Item 1, “Business — Operations — Cleco Cajun.”
General Properties
Cleco Cajun owns various properties throughout Louisiana, which include a regional office, telecommunications equipment, and other general-purpose assets.
Title
Cleco Cajun’s assets are owned in fee simple and are not subject to non-ordinary course of business liens or encumbrances.
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ITEM 3. LEGAL PROCEEDINGS |
For information on legal proceedings affecting Cleco, see Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
For information on legal proceedings affecting Cleco Power, see Item 1, “Business — Environmental Matters — Air Quality” and Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”
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ITEM 4. MINE SAFETY DISCLOSURES |
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ITEM 5. MARKET FOR REGISTRANTS’ COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
There is no established public trading market for Cleco Holdings’ membership interests. All of Cleco Holdings’ outstanding membership interests are owned by Cleco Group.
Cleco Holdings’ credit facility requires a total indebtedness of less than or equal to 65.0% of total capitalization in order to declare dividend payments. Additionally, in accordance with the 2016 Merger Commitments, Cleco Holdings is subject to certain provisions limiting the amount of distributions that may be paid from Cleco Holdings to Cleco Group or Cleco Partners, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings.
Cleco Holdings made $53.5 million and $219.6 million of distributions to Cleco Group during 2022.2023 and 2022, respectively. Cleco Holdings made no distributions to Cleco Group during 2021 and 2020. 2021.
Cleco Holdings received no equity contributions from Cleco Group during 2023, 2022, 2021, and 2020.2021.
There is no market for Cleco Power’s membership interests. All of Cleco Power’s outstanding membership interests are owned
by Cleco Holdings. Distributions on Cleco Power’s membership interests are paid when and if declared by Cleco Power’s Board of Managers. Any future distributions also may be restricted by any credit or loan agreements into which Cleco Power may enter.
Some provisions in Cleco Power’s debt instruments restrict the amount of equity available for distribution to Cleco Holdings by Cleco Power by requiring Cleco Power’s total indebtedness to be less than or equal to 65.0% of total capitalization. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings.
Cleco Power made $94.8 million and $105.5 million of distributions to Cleco Holdings in 2022.2023 and 2022, respectively. Cleco Power made no distributions to Cleco Holdings in 2021 and 2020. 2021.
Cleco Power received no equity contributions from Cleco Holdings in 2023, 2022 2021, and 2020.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion is intended to assist in understanding Cleco’s results of operations and Cleco’s present financial condition. Cleco’s historical consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K contain additional information that should be referred to when reviewing this material.
Cleco uses its website, https://www.cleco.com, as a routine channel for distribution of important information, including news releases and financial information. Cleco’s website is the primary source of publicly disclosed news about Cleco. Cleco is providing the address to its website solely for informational purposes and does not intend for the address to be an active link. The contents of the website are not incorporated into this Annual Report on Form 10-K.
Cleco is a regional energy company that conducts substantially all of its business operations through its two principal operating business segments:
•segment, Cleco Power. Cleco Power is a regulated electric utility company that owns nine generating units with a total rated capacity of 3,035 MW and serves approximately 293,000295,000 customers in Louisiana through its retail business and supplies wholesale power in LouisianaLouisiana.
Many factors affect Cleco’s primary business of generating, delivering, and Mississippi; and
•Cleco Cajun, an unregulated electric utility company that owns 14 generating units with a total rated capacity of 3,379selling electricity. These factors include the ability to increase energy sales while containing
MWcosts and the ability to successfully perform in MISO while subject to the related operating challenges and uncertainties, including increased wholesale contracts servingcompetition. In addition, factors affecting Cleco Power include weather and the presence of a mixturestable regulatory environment, which impacts the ROE and the current rate case, as well as the recovery of electric cooperatives, a municipal body, a utility,costs related to storms, growing energy demand, and a non-profit corporation.volatile fuel prices; the ability to reliably deliver power to its jurisdictional customers; and the ability to comply with increasingly stringent regulatory and environmental standards. Significant events and major initiatives impacting Cleco and Cleco Power are discussed below.
Significant EventsCleco Cajun Divestiture
Securitization
Storm Securitization
During 2020 and 2021, Cleco Power’s distribution and transmission systems sustained damage from four separate hurricanes, Hurricanes Laura, Delta, Zeta, and Ida, and two severe winter storms, Winter Storms Uri and Viola. The damage to equipment from the storms required replacement, as well as repair of existing assets.
On March 30, 2022, the LPSC approved an uncontested stipulated settlement agreement filed by the LPSC Staff and Cleco Power relating to securitization of these storm costs. On April 1, 2022, the LPSC issued the financing order authorizing Cleco Power to issue storm recovery bonds in the aggregate principal amount of up to $425.0 million. On June 22,In 2022, Cleco Power completedHoldings began a securitized financingstrategic review process related to its investment in Cleco Cajun. In March 2023, Cleco Holdings’ management, with the support of its Board of Managers, committed to a plan of action for the disposition of the deferred storm costs through Cleco Securitization I.Cajun Sale Group. On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers for the purchase price of $600.0 million. Cleco Holdings’ management determined that the criteria under GAAP for the Cleco Cajun Sale Group to be classified as held for sale were met and the sale will represent a strategic shift
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that will have a major effect on Cleco’s future operations and financial results. Therefore, the results of operations and financial position of the Cleco Cajun Sale Group are presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, on the securitization, see Item 8, “Financial Statements and SupplementarySupplementary Data — Notes to the Financial Statements — Note 193 — Securitization.Discontinued Operations.”
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Dolet Hills Securitization
On October 6, 2020, Cleco Power and SWEPCO made a joint filing with the LPSC seeking authorization to close the Oxbow mine. At December 31, 2021, the Dolet Hills Power Station was retired, and all of Cleco Power’s proportionate share of lignite-related costs had been billed by DHLC and Oxbow. On January 31, 2022, Cleco Power filed an application with the LPSC requesting recovery of stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other costs associated with the closure of the Oxbow mine. These costs are currently under a prudency review by the LPSC. Pending the outcomecompletion of the prudency review, Cleco Power intends to seek a financing order to securitize the unrecovered Dolet Hills Power Station closure costs, and Oxbow mine closure costs, and deferred fuel costs. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power believes and continues to assert that the related costs were prudently incurred and should be recoverable. However, management has estimated that a loss resulting from a potential disallowance is probable. The prudency reviewestimated range of potential loss is expectedbetween $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on Cleco’s and Cleco Power’s Balance Sheets and Electric customer credits on Cleco’s and Cleco Power’s Statements of Income. Cleco Power is seeking a settlement to be complete inresolve this matter and move forward with the third quartersecuritization process. Due to the nature of 2023.the regulatory process, the outcome and timing of resolution of this matter is uncertain. For more information on the prudency review, of the deferred fuel and other mine-related closure costs, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Reviews — Deferred Lignite and Mine Closure Costs” and — “Risks and Uncertainties.Review.”
COVID-19ESG
In March 2020, WHO declaredCleco is accelerating its efforts to protect the outbreakenvironment, manage social relationships, govern responsibly, and ensure accountability. To protect the environment, Cleco is increasing its renewable and electrification initiatives. Cleco is also aiming to reduce GHG emissions in ways such as incorporating renewable energy resources into its generating fleet, as it replaces coal-fired generation units retired after serving their useful lives. Cleco aims to sustainably reduce its GHG emissions by approximately 60.0% by 2030 with aspirations of COVID-19net zero emissions by 2050. To manage social relationships, Cleco plans to beensure that the electricity that it generates is affordable, reliable, and sustainable. Cleco also continues to support community investment opportunities across its service territory and has created a global pandemic,workforce culture that rewards inclusion, safety, and innovation. To govern responsibly, Cleco plans to continue operating according to policies and practices that support the U.S. declaredgovernance framework. To ensure accountability, Cleco has created an ESG Steering Committee and appointed a national emergency. In responseChief Sustainability Officer to oversee the
continued implementation of ESG initiatives. Currently, management is unable to predict the impact of implementing these declarations andESG initiatives on the rapid spread of COVID-19, federal, state and local governments imposed varying degrees of restrictions on business and social activities to contain COVID-19. These restrictions significantly impacted many sectors of the economy with record levels of unemployment driven by businesses, nonprofit organizations, and governmental entities modifying, curtailing, or ceasing normal operations.
On December 4, 2020, Cleco Power made a filing with the LPSC requesting the recovery of expenses incurred as a result of an LPSC executive order, issued in response to the COVID-19 pandemic, prohibiting the disconnection of utilities for non-payment, as well as the lost revenue associated with the disconnection fees and incremental costs. Cleco Power anticipates approval of the recovery of these expenses in the second quarter of 2023. At December 31, 2022, Cleco Power had a regulatory asset of $3.0 million for expenses incurred.Registrants. For more information on the regulatory treatment of the regulatory asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 5 — Regulatory Assets and Liabilities — COVID-19 Executive Order.”
Cleco has implemented certain measures that it believes will provide financial flexibility and help maintain its liquidity.Cleco is working with its suppliers to mitigate the pandemic stimulated impacts to its supply chain. Cleco will continue to monitor developments affecting its workforce, customers, and suppliers and take additional precautions as warranted. Cleco continues to assess the COVID-19 situation and cannot predict the full impact that COVID-19, or any significant related disruptions, will have on its business, cash flows, liquidity, financial condition, and results of operations. For additional discussion regarding certain risks associated with the COVID-19 pandemic,these ESG goals, see Part I, Item 1A, “Risk Factors1, “Business — Operational RisksHuman Capital — Pandemics, Epidemics,Diversity and Other Outbreaks.Inclusion,” “— Communities,” and “— Oversight and Governance.” For more information about Cleco’s environmental initiatives, see “— Renewable and Electrification Initiatives.”
Tax Reform
On August 16, 2022, the IRA of 2022 became law. The IRA of 2022 seeks to lower gasoline and electricity prices, increase energy security, and help consumers afford emissions-cutting technologies. In addition, the IRA of 2022 provides tax credits for clean electricity sources and energy storage, as well as creates programs to enable states and electric utilities to transition to clean power. There are several tax and renewables provisions in this legislation that could have a material effect on the results of operations, financial condition, or cash flows of the Registrants. These include provisions related to direct pay and credit transferability, enhanced carbon capture and sequestration credits, new technology-neutral clean energy investment credits, and new technology-neutral clean energy production credits. These credits are expected to help fund Cleco Power’s Project Diamond Vault as well as future renewable and electrification projects. Management continues to monitor any potential impact the IRA of 2022 could have on the Registrants. In addition, the IRA of 2022 could increase business growth in Cleco’s service territory.
ESG GoalsDecarbonization Initiatives
Cleco is accelerating efforts to protect the environment, manage social relationships, govern responsibly, and ensure accountability. To protect the environment, Cleco is increasing its renewable and electrification initiatives and is aiming to reduce GHG emissions in ways such as incorporating renewable energy resources into its generating fleet, as it replaces coal-fired generation units retired after serving their useful lives. Cleco aims to sustainably reduce its GHG emissions 60.0% by 2030 with aspirations of net zero emissions by 2050. To manage social relationships, Cleco plans to ensure that the electricity that it generates is affordable, reliable, and sustainable. Cleco also plans to continue to support community investment opportunities across its service territory and create a workforce culture that rewards inclusion, safety, and innovation. To govern responsibly, Cleco plans to continue operating according to policies and practices that support the governance framework. To ensure accountability, Cleco created an ESG Steering Committee and appointed a Chief Sustainability Officer to oversee the continued implementation of the ESG goals. Currently, management is unable to predict the impact of implementing these ESG goals on the Registrants. For more information on these ESG goals, see Part I, Item 1, “Business — Human Capital — Diversity and Inclusion,” “— Communities,” and “— Oversight and Governance.”
Cleco Power
Many factors affect Cleco Power’s primary business of generating, delivering, and selling electricity. These factors include weather and the presence of a stable regulatory environment, which impact the ROE, as well as the recovery of costs related to storms, growing energy demand, and rising fuel prices; the ability to increase energy sales while containing costs; the ability to reliably deliver power to its jurisdictional customers; the ability to comply with increasingly stringent regulatory and environmental standards; and the ability to successfully perform in MISO while subject to related operating challenges and uncertainties, including increased wholesale competition. In addition to the ESG goals previously discussed, Cleco Power’s current key initiatives include beginning Project Diamond Vault, continuing the DSMART project, and maintaining and growing its retail business. Cleco
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Power is also pursuing various renewable and electrification initiatives. These and other initiatives are discussed below.
Effective July 1, 2021, Cleco Power is allowed to earn a target ROE of 9.5%, while providingexploring multiple decarbonization initiatives predominantly associated with Madison Unit 3, with the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, are required to be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC, annually. For more information on Cleco Power’s retail rate plan for Cleco Power, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — Regulatory Refunds — FRP.”
Renewable and Electrification Initiativesprimary initiative currently being Project Diamond Vault.
Project Diamond Vault
On April 11, 2022, Cleco Power announced Project Diamond Vault, a carbon capture and sequestration facility that is anticipated to be constructed at the Brame Energy Center. This facility is expected to capture and compress carbon dioxide produced by the combustion of fuel at Madison Unit 3 and store the compressed gas permanently in deep geological formations located beneath the Brame Energy Center. Cleco Power expects to reduce the carbon dioxide output of Madison Unit 3 by approximatelyup to 95% with the implementation of this technology. Through this project, Cleco Power plans to leverage technology advancements and Louisiana’s natural resources to create a clean power solution.
The Front End Engineering Design (FEED) studyTotal development costs for Project Diamond Vault has begun andare expected to be approximately $58.0 million, of which the FEED study is projected to cost approximately $12.0$13.0 million. AThe FEED study has begun and a $9.0 million congressional appropriation has been secured subject to the U.S. Department of Energy’s grant process, to help offset costs of this study. As of December 31, 2023, Cleco Power has incurred $12.0 million for Project Diamond Vault development efforts, including the FEED study and received $2.8 million of the congressional appropriation from the U.S. Department of Energy to partially offset these costs. On March 1, 2024, Cleco Power received an additional $1.4 million of the congressional appropriation. The FEED study is expected to be completed in mid-2024late 2024, and major permitting is expected to be completed in the second half of 2025. Construction of the project is expected to begin byin the endsecond half of 2025.2026. Management
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expects the total project will be completed by the end of 2028.in mid to late 2030. After the cost of the FEED study, the remaining project cost is currently estimated to be between $1.10$1.70 billion and $1.40$2.00 billion. This estimate will be refined throughout the FEED study process as additional information and cost estimates become available. Cleco anticipates funding this project through one or more sources including tax credits provided by the IRA of 2022, U.S. Department of Energy grants or loans, debt financing, private equity investment, and partnership interests.
OtherRenewable and Electrification Initiatives
On July 22, 2022, Cleco Power entered into a long-term agreement to purchase, among other things, the output, capacity, and current and future environmental resource credits of a 240-MW solar electric generation facility to be constructed in DeSoto Parish, Louisiana and owned by a third party. The agreement is subject to LPSC approval and other conditions precedent. If approved, Cleco Power expects to begin receiving output from this facility in 2025.2026.
Cleco Power is also pursuing electrification initiatives such as gas compression, e-trucking, green tariffs, residential heating programs, and increasing the supply of light duty electric vehicles and forklifts, among others.
Cleco Power is seeking available funds from the U.S. government for funding of these electrification initiatives. Cleco
Power cannot predict the likelihood that any funding from the U.S. government ultimately will be approved.
DSMART Project
The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment to utilize new and emerging technologies to facilitate automatic fault isolation, service restoration, and fault location. The project is expected to provide savings through a reduction in outage restoration time and improve operational efficiencies and time to locate faults. The project is also expected to improve safety and reliability of Cleco Power’s distribution assets by minimizing outage patrols and improving situational awareness in the distribution operations center. The total estimated project cost is $90.2 million. The project implementation will be completed in phases, and management expects the total project will be completed by the end of 2027.2028. Cleco Power is currently in the second phase of the project. As of December 31, 2022,2023, Cleco Power had spent $43.1$55.1 million on the project.
Other
Cleco Power is working to secure load growth opportunities that include renewing existing franchises, pursuing new franchises, and adding new retail load opportunities with large industrial, commercial, and residential load.customers. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government, and military, wood andwood. paper, health care, information technology, transportation, and other manufacturing.
In 2021 through a request for proposal process, a significant wholesale customer currently under contract with Cleco Power informed Cleco Power that it was not selected as a provider of capacity and energy after the first quarter of 2024, and on October 19, 2022, the LPSC certified these results. Cleco Power’s failure to recontract this agreement is expected to affect jurisdictional retail rates that will beis subject to review by the LPSC in conjunction with Cleco Power’s nextcurrent rate case. On June 30, 2023, Cleco Power filed an application
with the LPSC for its current rate case, which is expected to bewith anticipated new rates being effective on July 1, 2024.
Cleco Cajun
Cleco Cajun currently has power purchase agreements totaling approximately 2,069 MW with 12 wholesale customers, which consist of a mixture of electric cooperatives, a municipal body, a utility, and a non-profit corporation. These contracts provide Cleco Cajun with predictable cash flow and market risk mitigation through at least the first quarter of 2025 but may prevent Cleco Cajun from taking advantage of rising market rates for power.
Competition for Cleco Cajun’s electric cooperative customers is limited through the first quarter of 2025, when the majority of the wholesale electric supply contracts expire. All of Cleco Cajun’s cooperative customers have notified Cleco Cajun that it was not selected as a provider beyond the first quarter of 2025. The regulatory certification process for the new supply contracts has been finalized by the LPSC for all but three cooperative customers. This non-selection is believed to be the result of a trend toward cooperatives favoring shorter-term, market-based solutions and intermittent renewables rather than asset-backed, long-term full-service contracts.
Cleco is exploring options related to its investment in Cleco Cajun, including the potential sale of part or all of Cleco Cajun’s assets. Cleco Cajun’s failure to recontract its current
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cooperative agreements, failure to enter into new contracts with other counterparties, or failure to take other mitigating measures for the loss of existing contracts could have a material adverse effect on Cleco’s results of operations, financial condition, cash flows and liquidity as early as the second quarter of 2025.
Many factors affect Cleco Cajun’s primary business of providing wholesale power and capacity. These factors include weather, the market price of power, the sales volume of power through existing contracts, the ability to recontract existing contracts at or before their expiration or enter into new wholesale power agreements with new customers, the ability to comply with increasingly stringent environmental standards, availability of fuel for generation, and compliance with the commitments made to the LPSC as a result of the Cleco Cajun Transaction.
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Comparison of the Years Ended December 31, 2022,2023, and 20212022
| | Cleco | Cleco | | |
| FOR THE YEAR ENDED DEC. 31, |
| | FAVORABLE/(UNFAVORABLE) |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| | | | | FAVORABLE/(UNFAVORABLE) | | | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE | (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue, net | Operating revenue, net | $ | 2,239,132 | | | $ | 1,745,929 | | | $ | 493,203 | | | 28.2 | % | Operating revenue, net | $ | 1,238,791 | | | $ | | $ | 1,604,480 | | | $ | | $ | (365,689) | | | (22.8) | | (22.8) | % |
| Operating expenses | Operating expenses | 1,897,245 | | | 1,401,052 | | | (496,193) | | | (35.4) | % | Operating expenses | 1,179,323 | | | 1,205,091 | | 1,205,091 | | | 25,768 | | 25,768 | | | 2.1 | | 2.1 | % |
| Operating income | Operating income | 341,887 | | | 344,877 | | | (2,990) | | | (0.9) | % | Operating income | 59,468 | | | 399,389 | | 399,389 | | | (339,921) | | (339,921) | | | (85.1) | | (85.1) | % |
| Interest income | Interest income | 6,372 | | | 3,312 | | | 3,060 | | | 92.4 | % | Interest income | 5,393 | | | 5,250 | | 5,250 | | | 143 | | 143 | | | 2.7 | | 2.7 | % |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % | Allowance for equity funds used during construction | 5,747 | | | 3,740 | | 3,740 | | | 2,007 | | 2,007 | | | 53.7 | | 53.7 | % |
| Other expense, net | Other expense, net | (11,113) | | | (15,681) | | | 4,568 | | | 29.1 | % | Other expense, net | (694) | | | (11,240) | | (11,240) | | | 10,546 | | 10,546 | | | 93.8 | | 93.8 | % |
| Interest charges | Interest charges | 151,158 | | | 134,336 | | | (16,822) | | | (12.5) | % | Interest charges | 164,856 | | | 143,956 | | 143,956 | | | (20,900) | | (20,900) | | | (14.5) | | (14.5) | % |
| Federal and state income tax expense | 917 | | | 13,111 | | | 12,194 | | | 93.0 | % |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | (6,155) | | | (3.2) | % |
| Federal and state income tax (benefit) expense | | Federal and state income tax (benefit) expense | (65,073) | | | 20,035 | | | 85,108 | | | 424.8 | % |
| (Loss) income from continuing operations, net of income taxes | | (Loss) income from continuing operations, net of income taxes | (29,869) | | | 233,148 | | | (263,017) | | | (112.8) | % |
| Income (loss) from discontinued operations, net of income taxes | | Income (loss) from discontinued operations, net of income taxes | 14,642 | | | (44,337) | | | 58,979 | | | 133.0 | % |
| Net (loss) income | | Net (loss) income | $ | (15,227) | | | $ | 188,811 | | | $ | (204,038) | | | (108.1) | % |
| |
The change in Cleco’s results of operations are primarily attributable to the following:
•lower gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $217.3 million included in continuing operations.
•activity of its reportable segments,segment, Cleco Power and Cleco Cajun.Power. For detailed discussions of those impacts, see “— Cleco Power” and “— Cleco Cajun.Power.” Additional impacts to Cleco’s results of operations include the following activity at Cleco Holdings:
•a decrease in other expense, netthe effects of $9.5 million for the change in cash surrender valuepresentation of certain trust-owned life insurance policiesthe Cleco Cajun Sale Group as discontinued operations and, as a result, of unfavorable market conditions,
•an increase in interest charges of $1.9 million dueCleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to higher rates on variable rate debt, and
•a decrease in income tax expense of $6.4 million primarily for $4.6 million of permanent tax deductions and $1.4 million for the change in pretax income, excluding AFUDC equity.Financial Statements — Note 3 — Discontinued Operations.”
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1112 — Income Taxes — Cleco.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Significant Factors Affecting Cleco Power
Revenue is primarily affected by the following factors:
As an electric utility, Cleco Power is affected, to varying degrees, by a number of factors influencing the electric utility industry. These factors, include, among others, include:
•an increasingly competitive business environment;
•the ability to recover costs through rate-setting proceedings; proceedings,
•the ability to successfully perform in MISO and the related operating challenges; challenges,
•the cost of compliance with environmental and reliability regulations; regulations,
•conditions in the credit markets and global economy; economy,
•changes in the federal and state regulation of generation, transmission, and the sale of electricity;electricity, and
•the increasing uncertainty of future federal and state regulatory and environmental policies.
For a discussion of various regulatory changes and competitive forces affecting Cleco Power and other electric utilities, see “Cautionary Note Regarding Forward-Looking Statements,” Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises,” and “— Financial Condition — Regulatory and Other Matters — Market Structure.” For a discussion of risk factors affecting Cleco Power’s business, see Part I, Item 1A, “Risk Factors.”
Cleco Power’s residential customers’ demand for electricity is affected largely by weather. Weather is generally measured in cooling degree-days and heating degree-days. A high number of cooling degree-days may indicate consumers will use more air conditioning, while a high number of heating degree-days may indicate consumers will use more 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 readily available and winter energy is typically priced below the rate charged for energy used in the summer. 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.
Over the last five years, Cleco Power’s non-industrial retail sales have been relatively steady.steady; however, there have been fluctuations in industrial retail sales. Cleco Power anticipates moderate growth in retail sales over the next five years. Cleco Power expects to begin providing service to expansions of current customers’ operations, as well as service to new retail customers. Cleco Power’s expectations and projections regarding retail sales are dependent 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. Cleco Power is pursuing load growth opportunities that include renewal of existing franchises as well as adding new franchises. For more information on other expectations of future energy sales on Cleco Power, see “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Other issues facing the electric utility industry that could affect sales include:
•imposition of federal and/or state renewable portfolio standards,
•imposition of energy efficiency mandates without recovery of lost revenues,
•legislative and regulatory changes,
•increases in environmental regulations and compliance costs,
•cost of power impacted by the price movement of fuels and the addition of new generation capacity,
•transmission congestion costs,
•increases in capital and operations and maintenance costs due to higher construction and labor costs,
•changes in electric rates compared to customers’ ability to pay,
•changes in the credit markets and local and global economies, and
•the LPSC’s consideration of adopting minimum physical capacity threshold requirements for load serving entities.
For more information on energy legislation in regulatory matters that could affect Cleco, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Legislative and Regulatory Changes and Matters.”
Cleco Power’s revenues and earnings are substantially affected by regulatory proceedings known as rate cases, or in some cases, a request for extension of an FRP. During those cases, the LPSC determines Cleco Power’s rate base, depreciation rates, operation and maintenance costs, and administrative and general costs that Cleco Power may recover from its retail customers through its rates. Generally, historical costs are used by the LPSC in determining Cleco Power’s rates. These proceedings may examine, among other things, the prudency of Cleco Power’s operation and maintenance practices, level of expenditures, allowed rates of return, and previously incurred capital expenditures. The LPSC has the authority to disallow costs found not to have been prudently incurred. Rate cases generally have timelines of approximately one year, and decisions are typically subject to appeal, potentially leading to additional uncertainty. Effective July 1, 2021, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5%, and all retail earnings over 10.5%, are required to be refunded to customers. On June 30, 2023, Cleco Power’s nextPower filed an application with the LPSC for its current rate case, is expected to bewith anticipated new rates being effective on July 1, 2024. The transmission tariffs of Cleco Power are regulated by FERC with its own regulatory proceedings. Both the LPSC and FERC regulatory proceedings can involve multiple parties, including governmental bodies and officials, consumer advocacy groups, and various consumers of energy, all of whom have differing concerns but who have the common objective of limiting rate increases or reducing rates.
Other expensesExpenses are primarily affected by the following factors:
The majority of Cleco Power’s non-fuel cost recovery expenses consist of include:
•other operations maintenance, depreciation and amortization, and taxes other than income taxes. Other operations expenses that are affected by, among other things, the cost of employee benefits, insurance expense,
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
and the costs associated with energy delivery and customer service. Annual service,
•maintenance expenses associated withfor Cleco Power’s generating plants, which generally depend upon theirthe plant’s physical characteristics,
maintenance practices, and the effectiveness of their preventive maintenance programs. Transmissionprograms,
•maintenance expenses of transmission and distribution maintenance expensesassets, which are generally affected by the level of repair and rehabilitation of lines to maintain reliability. Depreciationreliability,
•depreciation and amortization expense, which is primarily affected by the cost of the facilities in service, the time the facilities were placed in service, and the estimated useful life of the facilities. Taxesfacilities,
•taxes other than income taxes, which generally include payroll taxes, franchise taxes, and property taxes.taxes, and
•interest charges, which are generally affected by interest rates on outstanding debt.
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| | FAVORABLE/(UNFAVORABLE) |
| | | | | FAVORABLE/(UNFAVORABLE) | | | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE | (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | CHANGE |
| Operating revenue | Operating revenue | | | | |
| Base | Base | $ | 685,419 | | | $ | 652,573 | | | $ | 32,846 | | | 5.0 | % |
| Fuel cost recovery | 837,647 | | | 549,676 | | | 287,971 | | | 52.4 | % |
| Base | |
| Base | | $ | 692,866 | | | $ | 685,419 | | | $ | 7,447 | | | 1.1 | % |
| Fuel cost and purchased power recovery | | Fuel cost and purchased power recovery | 504,503 | | | 837,647 | | | (333,144) | | | (39.8) | % |
| Electric customer credits | Electric customer credits | (7,674) | | | (40,878) | | | 33,204 | | | 81.2 | % | Electric customer credits | (60,689) | | | (7,674) | | (7,674) | | | (53,015) | | (53,015) | | | (690.8) | | (690.8) | % |
| Other operations | Other operations | 98,759 | | | 74,625 | | | 24,134 | | | 32.3 | % | Other operations | 111,561 | | | 98,759 | | 98,759 | | | 12,802 | | 12,802 | | | 13.0 | | 13.0 | % |
| Affiliate revenue | Affiliate revenue | 6,377 | | | 5,641 | | | 736 | | | 13.0 | % | Affiliate revenue | 8,904 | | | 6,377 | | 6,377 | | | 2,527 | | 2,527 | | | 39.6 | | 39.6 | % |
| Operating revenue, net | Operating revenue, net | 1,620,528 | | | 1,241,637 | | | 378,891 | | | 30.5 | % | Operating revenue, net | 1,257,145 | | | 1,620,528 | | 1,620,528 | | | (363,383) | | (363,383) | | | (22.4) | | (22.4) | % |
| Operating expenses | Operating expenses | | | | | |
| Recoverable fuel and purchased power | |
| Recoverable fuel and purchased power | |
| Recoverable fuel and purchased power | Recoverable fuel and purchased power | 837,647 | | | 549,677 | | | (287,970) | | | (52.4) | % | 504,512 | | | 837,647 | | 837,647 | | | 333,135 | | 333,135 | | | 39.8 | | 39.8 | % |
| Non-recoverable fuel and purchased power | Non-recoverable fuel and purchased power | 59,846 | | | 41,420 | | | (18,426) | | | (44.5) | % | Non-recoverable fuel and purchased power | 45,485 | | | 59,846 | | 59,846 | | | 14,361 | | 14,361 | | | 24.0 | | 24.0 | % |
| Other operations and maintenance | Other operations and maintenance | 216,851 | | | 223,257 | | | 6,406 | | | 2.9 | % | Other operations and maintenance | 233,863 | | | 216,851 | | 216,851 | | | (17,012) | | (17,012) | | | (7.8) | | (7.8) | % |
| Depreciation and amortization | Depreciation and amortization | 178,231 | | | 173,498 | | | (4,733) | | | (2.7) | % | Depreciation and amortization | 191,745 | | | 178,231 | | 178,231 | | | (13,514) | | (13,514) | | | (7.6) | | (7.6) | % |
| Taxes other than income taxes | Taxes other than income taxes | 55,075 | | | 49,598 | | | (5,477) | | | (11.0) | % | Taxes other than income taxes | 60,676 | | | 55,075 | | 55,075 | | | (5,601) | | (5,601) | | | (10.2) | | (10.2) | % |
| | Regulatory disallowance | Regulatory disallowance | 13,841 | | | — | | | (13,841) | | | (100.0) | % |
| Regulatory disallowance | |
| Regulatory disallowance | | — | | | 13,841 | | | 13,841 | | | 100.0 | % |
| | Total operating expenses | |
| Total operating expenses | |
| Total operating expenses | Total operating expenses | 1,361,491 | | | 1,037,450 | | | (324,041) | | | (31.2) | % | 1,036,281 | | | 1,361,491 | | 1,361,491 | | | 325,210 | | 325,210 | | | 23.9 | | 23.9 | % |
| Operating income | Operating income | 259,037 | | | 204,187 | | | 54,850 | | | 26.9 | % | Operating income | 220,864 | | | 259,037 | | 259,037 | | | (38,173) | | (38,173) | | | (14.7) | | (14.7) | % |
| Interest income | Interest income | 5,082 | | | 3,294 | | | 1,788 | | | 54.3 | % | Interest income | 5,011 | | | 5,082 | | 5,082 | | | (71) | | (71) | | | (1.4) | | (1.4) | % |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % | Allowance for equity funds used during construction | 5,747 | | | 3,740 | | 3,740 | | | 2,007 | | 2,007 | | | 53.7 | | 53.7 | % |
| Other expense, net | Other expense, net | (7,081) | | | (19,561) | | | 12,480 | | | 63.8 | % | Other expense, net | (28) | | | (7,081) | | (7,081) | | | 7,053 | | 7,053 | | | 99.6 | | 99.6 | % |
| Interest charges | Interest charges | 88,218 | | | 73,090 | | | (15,128) | | | (20.7) | % | Interest charges | 98,879 | | | 88,218 | | 88,218 | | | (10,661) | | (10,661) | | | (12.1) | | (12.1) | % |
| Federal and state income tax expense (benefit) | 2,503 | | | (9,353) | | | (11,856) | | | (126.8) | % |
| Federal and state income tax (benefit) expense | | Federal and state income tax (benefit) expense | (4,434) | | | 2,503 | | | 6,937 | | | 277.1 | % |
| Net income | Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 35,969 | | | 26.8 | % | Net income | $ | 137,149 | | | $ | | $ | 170,057 | | | $ | | $ | (32,908) | | | (19.4) | | (19.4) | % |
| |
The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (MILLION kWh) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,772 | | | 3,787 | | | (0.4) | % |
| Commercial | 2,723 | | | 2,674 | | | 1.8 | % |
| Industrial | 2,229 | | | 2,282 | | | (2.3) | % |
| Other retail | 124 | | | 121 | | | 2.5 | % |
| Total retail | 8,848 | | | 8,864 | | | (0.2) | % |
| Sales for resale | 2,980 | | | 3,061 | | | (2.6) | % |
| Total retail and wholesale customer sales | 11,828 | | | 11,925 | | | (0.8) | % |
The following table shows the components of Cleco Power’s base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/ |
| (THOUSANDS) | 2023 | | 2022 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,729 | | | $ | 322,545 | | | 0.1 | % |
| Commercial | 201,270 | | | 200,031 | | | 0.6 | % |
| Industrial | 95,707 | | | 90,243 | | | 6.1 | % |
| Other retail | 11,663 | | | 11,032 | | | 5.7 | % |
| | | | | |
| Total retail | 631,369 | | | 623,851 | | | 1.2 | % |
| Sales for resale | 61,497 | | | 61,568 | | | (0.1) | % |
| Total base revenue | $ | 692,866 | | | $ | 685,419 | | | 1.1 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2023 CHANGE |
| | 2023 | | 2022 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,707 | | | 3,095 | | | 2,920 | | | 19.8 | % | | 27.0 | % |
| Heating degree-days | 1,057 | | | 1,650 | | | 1,477 | | | (35.9) | % | | (28.4) | % |
Base
Base revenue increased $7.4 million primarily due to $4.9 million of higher industrial demand. Industrial demand increased primarily due to new industrial customers in 2023. Also contributing to the increase was $1.4 million of higher rates, largely related to the infrastructure and incremental cost recovery rider. Although higher than normal temperatures were experienced during the summer of 2023 which contributed to an increase in base revenue, the lower usage from milder winter weather during 2023 offset this increase resulting in no meaningful impact to the overall base revenue variance for 2023.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to recover from its customers substantially all such prudently incurred charges. Approximately 77% of Cleco Power’s total fuel cost during 2023 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. Cleco Power’s incremental recoverable fuel and purchased power expenses for the year ended December 31, 2023, were impacted primarily by lower natural gas costs as compared to the year ended December 31, 2022. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.”
Electric Customer Credits
Electric customer credits increased $53.0 million primarily due to $58.7 million for the accrual of an estimated contingency loss related to the probability of a partial disallowance of the recovery of incurred fuel costs associated with the Dolet Hills prudency review. This increase was partially offset by $5.7 million for the absence of a 2022 refund to Cleco Power’s retail customers related to the St. Mary Clean Energy Center for costs recovered in periods prior to September 30, 2022. For information on the Dolet Hills prudency review, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 16 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Review.” For more information about the 2022 refund, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $12.8 million primarily due to $20.8 million for a full year of storm recovery collection in 2023 compared to four months of storm recovery collection in 2022, partially offset by $6.7 million of lower MISO transmission revenue from lower usage.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power decreased $14.4 million primarily due to $8.6 million for the timing of recovery of transmission costs and $4.7 million of lower fuel expense primarily due to the expiration of wholesale contracts in December 2022 and May 2023.
Other Operations and Maintenance
Other operations and maintenance increased $17.0 million primarily due to $14.7 million of higher employee-related expenses largely related to employee benefits. Also contributing to the increase was $3.1 million of higher routine distribution maintenance expenses, $2.8 million of higher outside service costs primarily related to information technology support and consulting, $2.2 million of higher distribution operations expenses, and $2.1 million of higher reserve for credit losses. These increases were partially offset by $8.2 million of lower generating outage maintenance expenses and $1.4 million of lower generating routine maintenance expenses.
Depreciation and Amortization
Depreciation and amortization increased $13.5 million primarily due to $11.6 million for the amortization of the securitized intangible asset that began in November 2022, $6.5 million related to changes in the estimated useful lives of internal software, and $4.2 million for higher normal recurring additions to fixed assets. These increases were partially offset by $7.4 million for the absence of amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta and $2.1 million for the absence of amortization related to costs associated with lignite mining. For more information on the securitized intangible asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 18 — Intangible Assets and Goodwill— Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.6 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 6 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
Regulatory disallowance decreased $13.8 million due to the absence of the impairment charge resulting from the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information about the regulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 — Regulation and Rates — Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Expense, Net
Other expense, net decreased $7.1 million primarily due to the absence of non-service pension costs amortization as a result of an increase in the discount rate which caused actuarial gains.
Interest Charges
Interest charges increased $10.7 million primarily due to $8.8 million for interest on storm recovery bonds issued in June 2022 by Cleco Securitization I and $4.3 million for higher rates on variable rate debt. These increases were partially offset by $2.8 million for the absence of interest on floating rate senior notes that were redeemed at par in June 2022.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Income Taxes
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco Power.”
Comparison of the Years Ended December 31, 2022, and 2021
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,604,480 | | | $ | 1,226,324 | | | $ | 378,156 | | | 30.8 | % |
| Operating expenses | 1,205,091 | | | 934,321 | | | (270,770) | | | (29.0) | % |
| Operating income | 399,389 | | | 292,003 | | | 107,386 | | | 36.8 | % |
| Interest income | 5,250 | | | 3,297 | | | 1,953 | | | 59.2 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
| | | | | | | |
| Other expense, net | (11,240) | | | (15,061) | | | 3,821 | | | 25.4 | % |
| Interest charges | 143,956 | | | 128,798 | | | (15,158) | | | (11.8) | % |
| Federal and state income tax expense | 20,035 | | | 1,333 | | | (18,702) | | | * |
| Income from continuing operations, net of income taxes | 233,148 | | | 160,013 | | | 73,135 | | | 45.7 | % |
| (Loss) income from discontinued operations, net of income taxes | (44,337) | | | 34,953 | | | (79,290) | | | (226.8) | % |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | (6,155) | | | (3.2) | % |
| *Not Meaningful | | | | | | |
The change in Cleco’s results of operations are primarily attributable to the following:
•activity of its reportable segment, Cleco Power. For detailed discussions of those impacts, see “— Cleco Power.”
•higher gains on gas-related derivative contracts, net of income taxes, at Cleco Cajun of $33.9 million included in continuing operations.
•the effects of the presentation of the Cleco Cajun Sale Group as discontinued operations and, as a result, Cleco Cajun no longer being reflected as a reportable segment. For information on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 12 — Income Taxes — Cleco.”
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 685,419 | | | $ | 652,573 | | | $ | 32,846 | | | 5.0 | % |
| Fuel cost and purchased power recovery | 837,647 | | | 549,676 | | | 287,971 | | | 52.4 | % |
| Electric customer credits | (7,674) | | | (40,878) | | | 33,204 | | | 81.2 | % |
| Other operations | 98,759 | | | 74,625 | | | 24,134 | | | 32.3 | % |
| Affiliate revenue | 6,377 | | | 5,641 | | | 736 | | | 13.0 | % |
| Operating revenue, net | 1,620,528 | | | 1,241,637 | | | 378,891 | | | 30.5 | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 837,647 | | | 549,677 | | | (287,970) | | | (52.4) | % |
| Non-recoverable fuel and purchased power | 59,846 | | | 41,420 | | | (18,426) | | | (44.5) | % |
| Other operations and maintenance | 216,851 | | | 223,257 | | | 6,406 | | | 2.9 | % |
| Depreciation and amortization | 178,231 | | | 173,498 | | | (4,733) | | | (2.7) | % |
| Taxes other than income taxes | 55,075 | | | 49,598 | | | (5,477) | | | (11.0) | % |
| Regulatory disallowance | 13,841 | | | — | | | (13,841) | | | (100.0) | % |
| | | | | | | |
| | | | | | | |
| Total operating expenses | 1,361,491 | | | 1,037,450 | | | (324,041) | | | (31.2) | % |
| Operating income | 259,037 | | | 204,187 | | | 54,850 | | | 26.9 | % |
| Interest income | 5,082 | | | 3,294 | | | 1,788 | | | 54.3 | % |
| Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | (6,165) | | | (62.2) | % |
| Other expense, net | (7,081) | | | (19,561) | | | 12,480 | | | 63.8 | % |
| Interest charges | 88,218 | | | 73,090 | | | (15,128) | | | (20.7) | % |
| Federal and state income tax expense (benefit) | 2,503 | | | (9,353) | | | (11,856) | | | (126.8) | % |
| Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 35,969 | | | 26.8 | % |
| | | | | | | |
The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (MILLION kWh) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,787 | | | 3,653 | | | 3.7 | % |
| Commercial | 2,674 | | | 2,564 | | | 4.3 | % |
| Industrial | 2,282 | | | 2,170 | | | 5.2 | % |
| Other retail | 121 | | | 125 | | | (3.2) | % |
| Total retail | 8,864 | | | 8,512 | | | 4.1 | % |
| Sales for resale | 3,061 | | | 2,880 | | | 6.3 | % |
| Total retail and wholesale customer sales | 11,925 | | | 11,392 | | | 4.7 | % |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table shows the components of Cleco Power’s base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (THOUSANDS) | 2022 | | 2021 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 322,545 | | | $ | 304,761 | | | 5.8 | % |
| Commercial | 200,031 | | | 189,802 | | | 5.4 | % |
| Industrial | 90,243 | | | 88,661 | | | 1.8 | % |
| Other retail | 11,032 | | | 10,984 | | | 0.4 | % |
| | | | | |
| Total retail | 623,851 | | | 594,208 | | | 5.0 | % |
| Sales for resale | 61,568 | | | 58,365 | | | 5.5 | % |
| Total base revenue | $ | 685,419 | | | $ | 652,573 | | | 5.0 | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2022 CHANGE |
| | 2022 | | 2021 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,095 | | | 3,141 | | | 2,779 | | | (1.5) | % | | 11.4 | % |
| Heating degree-days | 1,650 | | | 1,314 | | | 1,547 | | | 25.6 | % | | 6.7 | % |
Base
Base revenue increased $32.8 million primarily due to $19.3 million of higher usage as a result of weather and $18.0 million of higher rates as a result of the implementation of Cleco Power’s current retail rate plan.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 78%
of Cleco Power’s total fuel cost during 2022 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. In February 2021, Cleco Power’s incremental fuel and purchased power costs were impacted significantly as a result of Winter Storms Uri and Viola. On March 29, 2021, Cleco Power received approval from the LPSC to recover a portion of the incremental fuel and purchased power costs resulting from Winter Storms Uri and Viola through Cleco Power’s FAC over a period of 12 months beginning with the May 2021 bills. Cleco Power’s incremental fuel and purchased power costs during 2021 were also impacted by higher costs of lignite at the Dolet Hills Power Station, which are being recovered through Cleco Power’s
FAC. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.” For more information on lignite costs at the Dolet Hills Power Station, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”
Electric Customer Credits
Electric customer credits decreased $33.2 million primarily due to $39.9 million of lower credits to retail customers for the federal tax-related benefits of the TCJA now being a component of rates as a result of Cleco Power’s current retail rate plan. After the implementation of Cleco Power’s current retail rate plan, these credits offset base revenue on Cleco Power’s Consolidated Statement of Income. Partially offsetting this decrease was $7.1 million for refunds to Cleco Power’s retail customers as a result of the LPSC approved settlement disallowing the recovery of a portion of planning and construction costs incurred for the St. Mary Clean Energy Center. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1314 — Regulation and Rates — Regulatory Refunds —Rates— TCJA.” For more information about the LPSC settlement and disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1514 — Litigation, Other CommitmentsRegulation and Contingencies, and Disclosures about Guarantees— Litigation — LPSC Audits and Reviews — Prudency ReviewsRates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Other Operations Revenue
Other operations revenue increased $24.1 million primarily due to $13.2 million for storm recovery securitization revenue, $11.6 million of higher transmission revenue from increased usage at higher rates, $1.9 million of higher forfeited discounts, and $1.0 million of higher pole attachment rental income. Partially offsetting these increases was $3.8 million of lower revenue as a result of the expiration of a utility contract in September 2021.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power increased $18.4 million primarily due to $10.9 million for higher volumes of power purchased from MISO at higher prices, $4.6 million for lower amounts deferred to a regulatory asset associated with the Northlake Transmission Agreement, and $1.8 million of higher amortization to the Northlake Transmission Agreement regulatory asset. For more information on the Northlake Transmission Agreement regulatory asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 56 — Regulatory Assets and Liabilities — Other.”
Other Operations and Maintenance Expense
Other operations and maintenance expense decreased $6.4 million primarily due to $6.9 million of lower generating routine maintenance expenses largely due to the absence of expenses related to the Dolet Hills Power Station as a result of
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
its retirement in December 2021, $6.3 million of lower generating outage maintenance expenses, and $5.7 million of lower distribution maintenance expenses which was largely the result of fewer storms in 2022. These decreases were partially offset by $6.8 million of higher administrative and general employee related expenses and $3.1 million of higher routine distribution operations expense.
Depreciation and Amortization
Depreciation and amortization increased $4.7 million primarily due to $4.3 million for the amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta, $2.8 million for the amortization of the securitized intangible asset that began in November 2022, and $1.3 million for the absence of a 2021 adjustment to the corporate franchise tax regulatory asset. These increases were partially offset by $5.3 million of lower normal recurring additions to fixed assets. For more information on the securitized intangible asset, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1718 — Intangible Assets Intangible Liabilities, and Goodwill — Securitized Intangible — Cleco Securitization.”
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.5 million primarily due to the amortization of the Madison Unit 3 property tax regulatory asset that began in July 2022. For more information, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 56 — Regulatory Assets and Liabilities — Madison Unit 3 Property Taxes.”
Regulatory Disallowance
In September 2022, Cleco Power recognized a regulatory disallowance of $13.8 million for the impairment charge resulting from a portion of planning and construction costs incurred for the St. Mary Clean Energy Center that were deemed imprudent and not recoverable by the LPSC. For more information about the LPSC settlement andregulatory disallowance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1514 — Litigation, Other CommitmentsRegulation and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Prudency ReviewsRates— Regulatory Disallowance — St. Mary Clean Energy Center.”
Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction decreased $6.2 million primarily due to the absence of a December 2021 adjustment driven by the timing of the election and LPSC approval of the FERC modified formula.
Other Expense, Net
Other expense, net decreased $12.5 million primarily due to $8.4 million of lower pension non-service costs largely due to lower amortization of net losses, $2.4 million for the absence of a special termination benefit, and $1.0 million of disallowed costs as a result of the settlement of Cleco Power’s current retail rate plan.
Interest Charges
Interest charges increased $15.1 million primarily due to $10.0 million for interest on storm recovery bonds issued in June
2022 by Cleco Securitization I, $2.0 million for higher rates on variable rate debt, and $1.3 million for higher interest on floating rate senior notes issued in September 2021.
Income Taxes
Federal and state income taxes increased $11.9 million primarily due to $11.6 million for the change in pretax income, excluding AFUDC equity, $5.8 million for state tax expenses, $4.6 million for the amortization of excess ADIT, and $3.8 million for adjustments to tax returns as filed. These increases were partially offset by $13.5 million for the flowthrough of tax benefits.
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1112 — Income Taxes — Cleco Power.”
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Cajun | | | | | | | |
| | | FOR THE YEAR ENDED DEC. 31, |
| | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Electric operations | $ | 496,042 | | | $ | 398,226 | | | $ | 97,816 | | | 24.6 | % |
| Electric customer credits | — | | | 244 | | | (244) | | | (100.0) | % |
| Other operations | 148,823 | | | 128,749 | | | 20,074 | | | 15.6 | % |
| | | | | | | |
| Operating revenue, net | 644,865 | | | 527,219 | | | 117,646 | | | 22.3 | % |
| Operating expenses | | | | | | | |
| Fuel used for electric generation | (11,327) | | | (47,052) | | | (35,725) | | | (75.9) | % |
| Purchased power | 380,233 | | | 257,703 | | | (122,530) | | | (47.5) | % |
| Other operations and maintenance | 95,958 | | | 93,460 | | | (2,498) | | | (2.7) | % |
| Depreciation and amortization | 69,999 | | | 52,102 | | | (17,897) | | | (34.3) | % |
| Taxes other than income taxes | 12,318 | | | 11,675 | | | (643) | | | (5.5) | % |
| | | | | | | |
| Total operating expenses | 547,181 | | | 367,888 | | | (179,293) | | | (48.7) | % |
| Operating income | 97,684 | | | 159,331 | | | (61,647) | | | (38.7) | % |
| Interest income | 1,122 | | | 15 | | | 1,107 | | | * |
| Other income (expense), net | 112 | | | (628) | | | 740 | | | 117.8 | % |
| Interest charges | 523 | | | 803 | | | 280 | | | 34.9 | % |
| Federal and state income tax expense | 24,565 | | | 42,283 | | | 17,718 | | | 41.9 | % |
| Net income | $ | 73,830 | | | $ | 115,632 | | | $ | (41,802) | | | (36.2) | % |
| *Not meaningful | | | | | | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Electric Operations
Electric operations increased $97.8 million primarily due to $86.4 million of higher fuel rates, $10.1 million of higher load volumes, $4.2 million of higher MISO pass-through revenue, and $3.4 million of higher capacity revenue due to higher demand peaks in 2022. These increases were partially offset by $6.7 million for the absence of two power supply agreements.
Other Operations Revenue
Other operations revenue increased $20.1 million primarily due to $15.9 million of higher transmission revenue as a result of an increase in usage at higher rates and $4.1 million of higher variable lease revenue from the Cottonwood Sale Leaseback.
Fuel Used for Electric Generation
Fuel used for electric generation increased $35.7 million primarily due to $58.2 million of lower mark-to-market gains on gas-related derivative contracts, $52.9 million of higher natural gas consumption as a result of higher generating unit dispatch due to weather, and $25.6 million of higher coal consumption as a result of higher generating unit dispatch due to weather and higher prices per ton. These increases were partially offset by $104.6 million of realized gains on natural gas derivatives.
Purchased Power
Purchased power increased $122.5 million primarily due to $105.8 million of higher volumes of power purchased from MISO at higher LMP prices and $16.4 million of higher transmission costs due to higher usage.
Other Operations and Maintenance
Other operations and maintenance expense increased $2.5 million primarily due to $3.5 million of higher generating routine maintenance expenses and $1.6 million of higher generation operations expense. These amounts were partially offset by $2.1 million for expenses related to employee benefits.
Depreciation and Amortization
Depreciation and amortization increased $17.9 million primarily due to $14.6 million relating to adjustments to ARO assets to comply with the final CCR Rule as well as a reduction to the remaining lives of those assets. Also contributing to the increase was $2.4 million of higher normal recurring additions to fixed assets.
Income Taxes
Federal and state income taxes decreased $17.7 million during 2022 as compared to 2021 primarily due to $12.5 million for the change in pretax income, $2.5 million for the absence of an adjustment for state tax rate changes, $1.8 million for state tax expenses, and $1.4 million for permanent tax deductions. The effective income tax rate for the year ended December 31, 2022, was 25.0%.
Comparison of the Years Ended December 31, 2021, and 2020
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2021 | | 2020 | | VARIANCE | | CHANGE |
| Operating revenue, net | $ | 1,745,929 | | | $ | 1,498,146 | | | $ | 247,783 | | | 16.5 | % |
| Operating expenses | 1,401,052 | | | 1,193,054 | | | (207,998) | | | (17.4) | % |
| Operating income | 344,877 | | | 305,092 | | | 39,785 | | | 13.0 | % |
| Interest income | 3,312 | | | 3,948 | | | (636) | | | (16.1) | % |
| Allowance for equity funds used during construction | 9,905 | | | 998 | | | 8,907 | | | 892.5 | % |
| | | | | | | |
| Other expense, net | (15,681) | | | (14,156) | | | (1,525) | | | (10.8) | % |
| Interest charges | 134,336 | | | 137,864 | | | 3,528 | | | 2.6 | % |
| Federal and state income tax expense | 13,111 | | | 35,718 | | | 22,607 | | | 63.3 | % |
| Net income | $ | 194,966 | | | $ | 122,300 | | | $ | 72,666 | | | 59.4 | % |
| | | | | | |
Cleco’s results of operations are primarily attributable to the activity of its reportable segments, Cleco Power and Cleco Cajun. For detailed discussions of those impacts, see “— Cleco Power” and “— Cleco Cajun.” Additional impacts to Cleco’s results of operations include the following activity at Cleco Holdings:
•a decrease in other expense, net of $5.7 million for the change in cash surrender value of certain trust-owned life insurance policies as a result of more favorable market conditions,
•a decrease in interest charges of $4.3 million due to lower rates on variable rate debt incurred in connection with the 2016 Merger and the Cleco Cajun Transaction, and
•an increase in income tax expense of $0.4 million primarily for $2.0 million for the change in pretax income, excluding AFUDC equity and $0.6 million for state tax expense, partially offset by $1.4 million for an adjustment for state tax rate changes and $0.8 million for permanent tax deductions.
For information on Cleco’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — Cleco.”
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2021 | | 2020 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Base | $ | 652,573 | | | $ | 654,346 | | | $ | (1,773) | | | (0.3) | % |
| Fuel cost recovery | 549,676 | | | 360,672 | | | 189,004 | | | 52.4 | % |
| Electric customer credits | (40,878) | | | (53,119) | | | 12,241 | | | 23.0 | % |
| Other operations | 74,625 | | | 65,237 | | | 9,388 | | | 14.4 | % |
| Affiliate revenue | 5,641 | | | 5,156 | | | 485 | | | 9.4 | % |
| Operating revenue, net | 1,241,637 | | | 1,032,292 | | | 209,345 | | | 20.3 | % |
| Operating expenses | | | | | | | |
| Recoverable fuel and purchased power | 549,677 | | | 360,664 | | | (189,013) | | | (52.4) | % |
| Non-recoverable fuel and purchased power | 41,420 | | | 33,526 | | | (7,894) | | | (23.5) | % |
| Other operations and maintenance | 223,257 | | | 221,146 | | | (2,111) | | | (1.0) | % |
| Depreciation and amortization | 173,498 | | | 166,987 | | | (6,511) | | | (3.9) | % |
| Taxes other than income taxes | 49,598 | | | 44,631 | | | (4,967) | | | (11.1) | % |
| | | | | | | |
| | | | | | | |
| Total operating expenses | 1,037,450 | | | 826,954 | | | (210,496) | | | (25.5) | % |
| Operating income | 204,187 | | | 205,338 | | | (1,151) | | | (0.6) | % |
| Interest income | 3,294 | | | 3,362 | | | (68) | | | (2.0) | % |
| Allowance for equity funds used during construction | 9,905 | | | 998 | | | 8,907 | | | 892.5 | % |
| Other expense, net | (19,561) | | | (12,259) | | | (7,302) | | | (59.6) | % |
| Interest charges | 73,090 | | | 73,985 | | | 895 | | | 1.2 | % |
| Federal and state income tax (benefit) expense | (9,353) | | | 26,799 | | | 36,152 | | | 134.9 | % |
| Net income | $ | 134,088 | | | $ | 96,655 | | | $ | 37,433 | | | 38.7 | % |
| | | | | | | |
The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (MILLION kWh) | 2021 | | 2020 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | 3,653 | | | 3,642 | | | 0.3 | % |
| Commercial | 2,564 | | | 2,521 | | | 1.7 | % |
| Industrial | 2,170 | | | 1,971 | | | 10.1 | % |
| Other retail | 125 | | | 125 | | | — | % |
| Total retail | 8,512 | | | 8,259 | | | 3.1 | % |
| Sales for resale | 2,880 | | | 2,957 | | | (2.6) | % |
| Total retail and wholesale customer sales | 11,392 | | | 11,216 | | | 1.6 | % |
The following table shows the components of Cleco Power’s base revenue:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | FAVORABLE/ |
| (THOUSANDS) | 2021 | | 2020 | | (UNFAVORABLE) |
| Electric sales | | | | | |
| Residential | $ | 304,761 | | | $ | 305,430 | | | (0.2) | % |
| Commercial | 189,802 | | | 189,066 | | | 0.4 | % |
| Industrial | 88,661 | | | 87,313 | | | 1.5 | % |
| Other retail | 10,984 | | | 10,895 | | | 0.8 | % |
| Surcharge | — | | | 2,440 | | | (100.0) | % |
| Total retail | 594,208 | | | 595,144 | | | (0.2) | % |
| Sales for resale | 58,365 | | | 59,202 | | | (1.4) | % |
| Total base revenue | $ | 652,573 | | | $ | 654,346 | | | (0.3) | % |
The following chart shows how cooling and heating degree-days varied from normal conditions and from the prior period. Cleco Power uses weather data provided by the National Oceanic and Atmospheric Administration to determine cooling and heating degree-days.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| | | | | | | | 2021 CHANGE |
| | 2021 | | 2020 | | NORMAL | | PRIOR YEAR | | NORMAL |
| Cooling degree-days | 3,141 | | | 3,179 | | | 2,779 | | | (1.2) | % | | 13.0 | % |
| Heating degree-days | 1,314 | | | 1,105 | | | 1,546 | | | 18.9 | % | | (15.0) | % |
Base
Base revenue decreased $1.8 million primarily due to $15.6 million of lower rates as a result of the implementation of Cleco Power’s current retail rate plan. The lower rates are largely due to TCJA bill credits for the retail portion of the unprotected excess ADIT. Prior to the implementation of Cleco Power’s current retail rate plan, these credits were recorded in Electric customer credits on Cleco Power’s Consolidated Statement of Income. Also contributing to the decrease is the absence of $2.4 million of Cleco Katrina/Rita storm restoration surcharge revenue as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds in March 2020. These decreases were partially offset by $9.5 million of interim rate recovery for certain storm costs relating to Hurricanes Laura, Delta, and Zeta, $3.6 million of higher revenue due to the absence of impacts from lower usage as a result of Hurricanes Laura, Delta, and Zeta in 2020, and $3.2 million of higher usage from colder winter weather.
For more information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see “— Significant Factors Affecting Cleco Power,” “Cautionary Note Regarding Forward-Looking Statements,” and Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales.”
Fuel Cost Recovery/Recoverable Fuel and Purchased Power
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 FAC, which enables Cleco Power to pass on to its customers substantially all such charges. Approximately 76% of Cleco Power’s total fuel cost during 2021 was regulated by the LPSC. Recovery of FAC costs is subject to periodic fuel audits by the LPSC which may result in a refund to customers. Generally, fuel and purchased power expenses are impacted
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
by customer usage, the per unit cost of fuel used for electric generation, and the dispatch of Cleco Power’s generating facilities by MISO. Cleco Power’s incremental fuel and purchased power costs were impacted significantly as a result of Winter Storms Uri and Viola. On March 29, 2021, Cleco Power received approval from the LPSC to recover a portion of these costs through Cleco Power’s FAC over a period of 12 months beginning on the May 2021 bills. Cleco Power’s incremental fuel and purchased power costs were also impacted by higher costs of lignite at the Dolet Hills Power Station. For more information on the accounting for MISO transactions, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Accounting for MISO Transactions.” For more information on Cleco Power’s most current fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Fuel Audits.” For more information on lignite costs at the Dolet Hills Power Station, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”
Electric Customer Credits
Electric customer credits decreased $12.2 million primarily due to lower credits to retail customers for the federal tax-related benefits of the TCJA as a result of the settlement of Cleco Power’s current retail rate plan. After the implementation of Cleco Power’s current retail rate plan, these credits offset base revenue on Cleco Power’s Consolidated Statement of Income. For more information on the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 13 — Regulation and Rates — Regulatory Refunds — TCJA.”
Other Operations Revenue
Other operations revenue increased $9.4 million primarily due to $5.1 million of higher transmission revenue, $2.5 million of net higher forfeited discounts primarily as a result of Cleco Power resuming disconnection and late fees in October 2020, following the termination of the LPSC moratorium in July 2020, and $1.9 million of higher reconnection fees.
Non-Recoverable Fuel and Purchased Power
Non-recoverable fuel and purchased power increased $7.9 million primarily due to $5.6 million of higher MISO transmission costs and $2.3 million of higher fuel expenses largely due to the winter storms in 2021.
Other Operations and Maintenance Expense
Other operations and maintenance expense increased $2.1 million primarily due to $9.5 million of higher distribution maintenance expenses, $7.3 million of higher generating outage maintenance expenses, $4.9 million of higher customer service expenses relating to increased temporary staffing and increased collection efforts, and $1.6 million of higher reserves for injuries and damages. These increases were partially offset by $8.3 million of lower fees for outside services mostly relating to START project expenses and contract workers, $6.7 million of lower expenses related to employee benefits, and $6.7 million of lower generation operations expenses.
Depreciation and Amortization
Depreciation and amortization increased $6.5 million primarily due to $5.3 million of higher normal recurring additions to fixed assets and $3.1 million for the amortization of regulatory assets relating to Hurricanes Laura, Delta, and Zeta. These amounts were partially offset by $2.1 million for the absence of amortization of storm damages as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds in 2020.
Taxes Other Than Income Taxes
Taxes other than income taxes increased $5.0 million primarily due to $3.2 million of higher property taxes, $0.9 million of higher franchise taxes, and $0.6 million of higher payroll taxes.
Allowance for Equity Funds Used During Construction
Allowance for equity funds used during construction increased $8.9 million primarily due to higher AFUDC rates driven by the timing of the election and LPSC approval of the FERC modified formula authorized in March 2020.
Other Expense, Net
Other expense, net increased $7.3 million primarily due to $6.3 million of higher pension non-service costs and $1.0 million of disallowed costs as a result of the settlement of Cleco Power’s current retail rate plan.
Income Taxes
Federal and state income taxes decreased $36.2 million primarily due to $20.6 million for the amortization of excess ADIT, $10.9 million for adjustments to tax returns as filed, $3.1 million for the flowthrough of tax benefits, and $2.1 for the change in pretax income, excluding AFUDC equity.
For information on Cleco Power’s effective income tax rates, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — Cleco Power.”
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Cajun | | | | | | | |
| | | FOR THE YEAR ENDED DEC. 31, |
| | | | FAVORABLE/(UNFAVORABLE) |
| (THOUSANDS) | 2021 | | 2020 | | VARIANCE | | CHANGE |
| Operating revenue | | | | | | | |
| Electric operations | $ | 398,226 | | | $ | 365,555 | | | $ | 32,671 | | | 8.9 | % |
| Electric customer credits | 244 | | | (153) | | | 397 | | | 259.5 | % |
| Other operations | 128,749 | | | 121,747 | | | 7,002 | | | 5.8 | % |
| Affiliate revenue | — | | | 204 | | | (204) | | | (100.0) | % |
| Operating revenue, net | 527,219 | | | 487,353 | | | 39,866 | | | 8.2 | % |
| Operating expenses | | | | | | | |
| Fuel used for electric generation | (47,052) | | | 33,377 | | | 80,429 | | | 241.0 | % |
| Purchased power | 257,703 | | | 188,020 | | | (69,683) | | | (37.1) | % |
| Other operations and maintenance | 93,460 | | | 91,250 | | | (2,210) | | | (2.4) | % |
| Depreciation and amortization | 52,102 | | | 43,997 | | | (8,105) | | | (18.4) | % |
| Taxes other than income taxes | 11,675 | | | 13,415 | | | 1,740 | | | 13.0 | % |
| | | | | | | |
| Total operating expenses | 367,888 | | | 370,059 | | | 2,171 | | | 0.6 | % |
| Operating income | 159,331 | | | 117,294 | | | 42,037 | | | 35.8 | % |
| Interest income | 15 | | | 273 | | | (258) | | | (94.5) | % |
| Other (expense) income, net | (628) | | | 255 | | | (883) | | | (346.3) | % |
| Interest charges | 803 | | | (750) | | | (1,553) | | | (207.1) | % |
| Federal and state income tax expense | 42,283 | | | 29,080 | | | (13,203) | | | (45.4) | % |
| Net income | $ | 115,632 | | | $ | 89,492 | | | $ | 26,140 | | | 29.2 | % |
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| | | | | | | |
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Electric Operations
Electric operations increased $32.7 million primarily due to $23.6 million of higher fuel rates, $5.6 million of higher load volumes primarily due to winter storms, $4.4 million of higher MISO make-whole payments, $3.9 million of higher capacity contract rates, and $1.3 million for the absence of a 2020 customer demand adjustment. These increases were partially offset by $4.1 million for the expiration of a power supply agreement in May 2021 and $1.5 million of lower MISO capacity revenue.
Other Operations Revenue
Other operations revenue increased $7.0 million primarily due to $9.7 million of higher transmission revenue, partially offset by $2.7 million of lower lease revenue, including variable lease revenue, as a result of the Cottonwood Sale Leaseback.
Fuel Used for Electric Generation
Fuel used for electric generation decreased $80.4 million primarily due to $68.3 million of higher mark-to-market gains on
gas-related derivative contracts and $54.7 million of settlements related to gas swaps activity. These decreases were partially offset by $41.7 million of higher coal consumption which was largely the result of higher generating unit dispatch.
Purchased Power
Purchased power increased $69.7 million primarily due to higher costs of purchased power from MISO, largely the result of higher usage and Winter Storms Uri and Viola.
Other Operations and Maintenance
Other operations and maintenance expense increased $2.2 million primarily due to $5.5 million of higher generating outage maintenance expenses, partially offset by $1.6 million of lower generation operations expense and $1.1 million of lower materials and supplies expense.
Depreciation and Amortization
Depreciation and amortization increased $8.1 million primarily due to $6.2 million relating to adjustments to ARO assets to comply with the final CCR Rule as well as a reduction to the remaining lives of those assets. Also contributing to the increase was $1.9 million of higher normal recurring additions to fixed assets.
Income Taxes
Federal and state income taxes increased $13.2 million primarily due to $8.3 million for the change in pretax income, $2.5 million for an adjustment for state tax rate changes, $1.8 million for state tax expenses, and $0.5 million for permanent tax deductions. The effective income tax rate for the year ended December 31, 2021, was 27.2% which was different than the federal statutory rate.
Non-GAAP Measure
The financial results in the following tables aretable is presented on an accrual basis. EBITDA is a key non-GAAP financial measure used by the CEO to assess the operating performance of Cleco’s segments;segment however, it is not indicative of future performance. Management evaluates the performance of Cleco’s segmentssegment and allocates resources to themit based on segment profit and the requirements to implement strategic initiatives and projects to meet current business objectives. EBITDA is defined as net income adjusted for interest, income taxes, depreciation, and amortization.
The financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect the presentation of the Cleco Cajun Sale Group as discontinued operations. Cleco’s segment structure and its allocation of corporate expenses were updated to reflect how management makes financial decisions and allocates resources. Cleco has recast data from prior periods to reflect this change to conform to the current year presentation. For more information, see item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
The following tables settable sets forth a reconciliation of net income, the nearest comparable GAAP financial performance measure, to EBITDA for the Cleco Power reportable segment for the years ended December 31, 2023, 2022, 2021, and 2020:2021:
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | FOR THE YEAR ENDED DEC. 31, | |
| 2022 | | 2021 | | 2020 | |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | CLECO POWER | | CLECO CAJUN | | CLECO POWER | | CLECO CAJUN | | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net income | Net income | $ | 170,057 | | | $ | 73,830 | | | $ | 134,088 | | | $ | 115,632 | | | $ | 96,655 | | | $ | 89,492 | | |
| Add: Depreciation and amortization | Add: Depreciation and amortization | 178,231 | | | 75,157 | | (1) | 173,498 | | | 56,438 | | (2) | 166,987 | | | 47,183 | | (3) |
| Less: Interest income | Less: Interest income | 5,082 | | | 1,122 | | | 3,294 | | | 15 | | | 3,362 | | | 273 | | |
| Add: Interest charges | Add: Interest charges | 88,218 | | | 523 | | | 73,090 | | | 803 | | | 73,985 | | | (750) | | |
| Add (less): Federal and state income tax expense (benefit) | 2,503 | | | 24,565 | | | (9,353) | | | 42,283 | | | 26,799 | | | 29,080 | | |
| Add: Federal and state income tax expense (benefit) | |
| EBITDA | EBITDA | $ | 433,927 | | | $ | 172,953 | | | $ | 368,029 | | | $ | 215,141 | | | $ | 361,064 | | | $ | 164,732 | | |
(1) Includes $14.4 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. (2) Includes $13.5 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. (3) Includes $12.4 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. | |
|
Selected Financial Data
The information set forth in the following table should be read in conjunction with Cleco’s Consolidated Financial Statements and the related Notes in Item 8, “Financial Statements and Supplementary Data.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | |
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| FOR THE YEAR ENDED DEC. 31, | | | | |
| (THOUSANDS, EXCEPT PER SHARE AND PERCENTAGES) | 2023 | | 2022 | | 2021 | | | | |
| Operating revenue, net (excluding intercompany revenue) | | | | | | | | | |
Cleco Power (1) | $ | 1,248,241 | | | $ | 1,614,151 | | | $ | 1,235,996 | | | | | |
| | | | | | | | | |
| Other | (9,450) | | | (9,671) | | | (9,672) | | | | | |
| Total | $ | 1,238,791 | | | $ | 1,604,480 | | | $ | 1,226,324 | | | | | |
| (Loss) income from continuing operations before income taxes | $ | (94,942) | | | $ | 253,183 | | | $ | 161,346 | | | | | |
| Income (loss) from discontinued operations, net of income taxes | $ | 14,642 | | | $ | (44,337) | | | $ | 34,953 | | | | | |
| Net income | $ | (15,227) | | | $ | 188,811 | | | $ | 194,966 | | | | | |
| Capitalization | | | | | | | | | |
| Member’s equity | 47.77 | % | | 48.42 | % | | 46.56 | % | | | | |
Long-term debt and finance leases (2) | 52.23 | % | | 51.58 | % | | 53.44 | % | | | | |
| Member’s equity | $ | 2,873,173 | | | $ | 2,947,067 | | | $ | 2,954,156 | | | | | |
Long-term debt and finance leases (2) | $ | 3,141,924 | | | $ | 3,139,094 | | | $ | 3,390,033 | | | | | |
| Total assets | $ | 8,100,393 | | | $ | 8,253,749 | | | $ | 8,125,018 | | | | | |
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| | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, | | | | |
| (THOUSANDS, EXCEPT PER SHARE AND PERCENTAGES) | 2022 | | 2021 | | 2020 | | | | |
| Operating revenue, net (excluding intercompany revenue) | | | | | | | | | |
| Cleco Power | $ | 1,603,938 | | | $ | 1,228,382 | | | $ | 1,020,674 | | | | | |
| Cleco Cajun | 644,865 | | | 527,219 | | | 487,149 | | | | | |
| Other | (9,671) | | | (9,672) | | | (9,677) | | | | | |
| Total | $ | 2,239,132 | | | $ | 1,745,929 | | | $ | 1,498,146 | | | | | |
| Income before income taxes | $ | 189,728 | | | $ | 208,077 | | | $ | 158,018 | | | | | |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | | | | | |
| Capitalization | | | | | | | | | |
| Member’s equity | 48.42 | % | | 46.56 | % | | 46.55 | % | | | | |
Long-term debt and finance leases (1) | 51.58 | % | | 53.44 | % | | 53.45 | % | | | | |
| Member’s equity | $ | 2,947,067 | | | $ | 2,954,156 | | | $ | 2,757,023 | | | | | |
Long-term debt and finance leases (1) | $ | 3,139,094 | | | $ | 3,390,033 | | | $ | 3,165,387 | | | | | |
| Total assets | $ | 8,253,749 | | | $ | 8,125,018 | | | $ | 7,725,569 | | | | | |
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(1)(2) Excludes long-term debt and finance leases due within one year. | | | | | | | | | | | | | | |
| CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS |
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2023, and 2022, see “— Results of Operations — Comparison of the Years Ended December 31, 2023, and 2022 — Cleco Power.”
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2022, and 2021, see “— Results of Operations — Comparison of the Years Ended December 31, 2022, and 2021 — Cleco Power.”
For a narrative analysis of the results of operations explaining the revenue and expense items of Cleco Power for the years ended December 31, 2021, and 2020, see “— Results of Operations — Comparison of the Years Ended December 31, 2021, and 2020 — Cleco Power.”
The narrative analysis referenced above should be read in combination with Cleco Power’s Financial Statements and the Notes contained in this Annual Report on Form 10-K.
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| CRITICAL ACCOUNTING ESTIMATES |
The preparation of Cleco’s and Cleco Power’s Consolidated Financial Statements in conformity with generally accepted accounting principles requires management to apply appropriate accounting policies and to make estimates and judgments that could have a material impact on the results of operations, financial condition, or cash flows of the Registrants.
For more information on Cleco’s accounting policies, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies.”
Cleco believes that the following accounting estimates are the most significant in understanding reported financial results:
•Regulatory Accounting: A significant portion of Cleco’s businesses are subject to regulation. This results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. Cleco Power is requiredallowed to record regulatory assets and liabilities for certain transactions that would have been treated as revenue or expense in non-regulated businesses. Future regulatory changes or changes in the competitive environment could result in the discontinuance of this accounting treatment for regulatory assets and liabilities for some or all of Cleco’s businesses. Cleco’s management believes that currently available facts support
the continued use of regulatory assets and liabilities and that all regulatory assets and liabilities are recoverable or refundable in the current rate environment. For more information on regulatory assets and liabilities, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Significant Accounting Policies — Regulation,” and “Note 56 — Regulatory Assets and Liabilities.Liabilities,” and “Note 14 — Regulation and Rates.”
•Goodwill: On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion, all of which was assigned to the Cleco Power reporting unit. Goodwill is required to be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. Application of the goodwill impairment test requires management to make significant assumptions and estimates, including the identification of reporting units, assignments of assets and liabilities to reporting units, assignment of goodwill to reporting units, and the determination of the fair value of the reporting units, in which independent valuation experts are often used. Changes in management’s assumptions and estimates could materially affect the determination of fair value and goodwill impairment. For more information on goodwill recorded in connection with the 2016 Merger, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1718 — Intangible Assets Intangible Liabilities, and Goodwill — Goodwill.”
•Pension and Other Postretirement Benefits: To determine assets, liabilities, and expenses relating to pension and other postretirement benefits, management must make assumptions about future trends. Assumptions and estimates include, but are not limited to, discount rates, expected return on plan assets, mortality rates, future rate of compensation increases, and medical inflation trend rates. These assumptions are reviewed and updated on an annual basis. Changes in the rates from year-to-year and newly-enacted laws could have a material effect on Cleco’s financial condition and results of operations by changing the recorded assets, liabilities, expense, or required funding of
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
the pension plan obligation. One component of pension expense is the expected return on plan assets. It is an assumed percentage return on the market-related value of plan assets. The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. The 20222023 return on plan assets was 9.23% compared to an expected long-term return of 6.60%. For 2022, the plan assets had a return of (19.94)% compared to an expected long-term return of 5.25%. For 2021, the plan assets had a return of 7.14% compared to an expected long-term return of 5.00%. For the calculation of the 20232024 periodic expense, Cleco decreased the discount rate to 5.13% and increased the expected long-term return on plan assets to 6.60%6.68%.
Management uses a theoretical bond portfolio in order to calculate the discount rate for the measurement of liabilities. As a result of the annual review of assumptions, the pension plan discount rate increaseddecreased from 2.98%5.44% to 5.44%5.13% for the December 31, 2022,2023, measurement of liabilities.
A change in the assumed discount rate creates a deferred actuarial gain or loss. Generally, when the assumed discount rate decreases compared to the prior measurement date, a deferred actuarial loss is created. When the assumed discount rate increases compared to the prior measurement date, a deferred actuarial gain is created.
Actuarial gains and losses also are created when actual results, such as compensation increases, differ from assumptions. On December 31, 2022,2023, Cleco Power recognized a $58.1$17.1 million net actuarial gainloss primarily due to updated demographic assumptions resulting from the completion of an increaseexperience study in 2023, a decrease in the discount rate and lowerhigher than expected return on assets. Historically, Cleco Power has been allowed to recover pension plan expenses; therefore, deferred actuarial gains and losses are recorded as a regulatory asset or liability. The net of the deferred gains and losses is amortized to pension expense over the average service life of the remaining plan participants (approximately five years as of December 31, 2022,2023, for Cleco’s plan) when it exceeds certain thresholds. This approach of amortizing gains and losses has the effect of reducing the volatility of pension expense. Over time, it is not expected to reduce or increase the pension expense relative to an approach that immediately recognizes losses and gains.
The following table shows the impact of a 0.5% change in Cleco’s pension plan discount rate, salary scale, and rate of return on plan assets:
| ACTUARIAL ASSUMPTION
(THOUSANDS) | ACTUARIAL ASSUMPTION
(THOUSANDS) | CHANGE IN ASSUMPTION | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | CHANGE IN ESTIMATED BENEFIT COST | ACTUARIAL ASSUMPTION
(THOUSANDS) | CHANGE IN ASSUMPTION | | CHANGE IN PROJECTED BENEFIT OBLIGATION | | CHANGE IN ESTIMATED BENEFIT COST |
| Discount rate | Discount rate | 0.5% increase | | $ | (27,009) | | | $ | 426 | |
| 0.5% decrease | | $ | 29,758 | | | $ | (509) | |
| 0.5% decrease | |
| Salary scale | Salary scale | 0.5% increase | | $ | 4,053 | | | $ | 401 | |
| 0.5% decrease | | $ | (3,744) | | | $ | (369) | |
| 0.5% decrease | |
| Expected return on assets | Expected return on assets | 0.5% increase | | $ | — | | | $ | (2,245) | |
| 0.5% decrease | | $ | — | | | $ | 2,245 | |
| 0.5% decrease | |
Cleco Power didwas not make any required or discretionaryto make contributions to the pension plan in 2023, 2022, or 2021 and made a $15.8 million required contribution to the pension plan in December 2020.2021. Based on funding assumptions at December 31, 2022,2023, management estimates that $74.5$94.2 million of pension contributions will be required
through 2027.2028. Cleco has not made, and does not expectexpects to make any$25.7 million of required contributions to the pension plan in 2023.2024. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Future required contributions are driven by liability funding target percentages set by law which could cause the required contributions to change from year-to-year. The ultimate amount and timing of the contributions will be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions.
For more information on pension and other postretirement benefits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1011 — Pension Plan and Employee Benefits.”
•Income Taxes: For more information on income taxes, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Income Taxes” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1112 — Income Taxes.”
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
•Loss Contingencies: Contingencies: Cleco is currently involved in certain legal and regulatory proceedings and management has estimated the probable costs for the resolution of these claims.matters. These estimates are based on an analysis of potential results, assuming a combination of litigation and settlement assumptions. For more information on legal and regulatory proceedings affecting Cleco, see Part I, Item 1, “Business — Environmental Matters — Air Quality,” Item 1A, “Risk Factors — Operational Risks — Litigation,” and Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.Guarantees.”
•Discontinued Operations: Cleco calculated an estimated impairment on the disposition of its Cleco Cajun Sale Group as of December 31, 2023. Cleco determined that the estimated fair value less the estimated cost to sell the Cleco Cajun Sale Group was less than the carrying value of the Cleco Cajun Sale Group at December 31, 2023. The fair value estimates involved a number of judgements and assumptions including the future performance of the Cleco Cajun Sale Group through the expected divestiture date, the expected net working capital adjustment to the sale proceeds from the Cleco Cajun Divestiture Purchase and Sale Agreement, and the weighted average cost of capital or discount rate. The estimated fair value was determined using the income approach. If a significant change occurs in the fair value less cost to sell the Cleco Cajun Sale Group, the actual impairment on the disposition of the Cleco Cajun Sale Group could be materially different than the current estimated loss recorded at December 31, 2023. For more on discontinued operations, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power
Cleco Power’s retail rates are regulated by the LPSC and its tariffs for transmission services are regulated by FERC, while rates for wholesale power sales are based on market-based rates and ultimately reviewed by FERC. Cleco Power must evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral and the recoverability and refund of certain assets. Future rate changes could have a material impact on the results of operations, financial condition, or cash flows of Cleco Power. Areas that could be materially impacted by future actions of regulators are described below:
•The LPSC allows Cleco Power to recover prudent costs incurred in developing long-lived assets. If the LPSC were to rule that the cost of current or future long-lived assets was imprudent and not recoverable, Cleco Power could be required to write down the imprudent costasset and incur a corresponding impairment loss.
On September 21, 2022, the LPSC approved a settlement regarding the St. Mary Clean Energy Center disallowing recovery of $15.0 million, which resulted in a net $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value. For more information on the impairment loss and disallowance see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 15 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — LPSC Audits and Reviews — Prudency Reviews — St. Mary Clean Energy Center.”
•The LPSC determines the amount and type of fuel and purchased power expenses that Cleco Power can charge customers through the FAC. Changes in the determination of allowable costs already incurred by Cleco Power could cause material changes in fuel revenue. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, by the LPSC related to these filings. For more information on current LPSC fuel audits, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees —Litigation — LPSC Audits and Reviews — Fuel Audits.” For information on fuel revenue, see “— Results of Operations — Comparison of the Years Ended December 31, 2022,2023, and 20212022 — Cleco Power — Significant Factors Affecting Cleco
Power — Fuel Cost and Purchased Power Recovery/Recoverable Fuel and Power Purchased.”
Liquidity and Capital Resources
General Considerations and Credit-Related Risks
Credit Ratings and Counterparties
Financing for operational needs and capital expenditure requirements not satisfied by operating cash flows depends upon the cost and availability of external funds through both short- and long-term financing. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain or expand its businesses. Access to funds is dependent upon factors such as general economic and capital market conditions, regulatory authorizations and policies, Cleco Holdings’ and Cleco Power’s credit ratings, cash flows
from routine operations, and credit ratings of project counterparties. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. The following table presents the credit ratings of Cleco Holdings and Cleco Power at December 31, 2022:2023:
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| SENIOR UNSECURED DEBT | | CORPORATE/LONG-TERM ISSUER |
| S&P | MOODY’S | FITCH | | S&P | MOODY’S | FITCH |
| Cleco Holdings | BBB- | Baa3 | BBB- | | BBB- | Baa3 | BBB- |
| Cleco Power | BBB+ | A3 | BBB+ | | BBB+ | A3 | BBB |
Credit ratings are not recommendations to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating.
On April 1, 2022, andDecember 5, 2023, following the LPSC’s authorizationannouncement of the securitization financingproposed sale of the Cleco Power’s storm restoration costs,Cajun Sale Group, S&P revised its outlook onplaced all their ratings for Cleco Holdings and Cleco Power to stableon CreditWatch with positive implications of the expected improvement in business risk from negative. S&P revised its outlook due to its expectation that Cleco’s financial metrics and balance sheet would improve givenhaving a fully regulated utility business following the upcoming securitizationcompletion of storm restoration costs. On June 22, 2022, the storm recovery securitization financing was completed.transaction.
Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest rating held. If Cleco Holdings’ or Cleco Power’s credit ratings were to be downgraded, Cleco Holdings or Cleco Power, respectively, could be required to pay additional fees and incur higher interest rates for borrowings under their respective revolving credit facilities.
Cleco may be required to provide credit support with respect to any open tradingbilateral transactions and contracts that Cleco has entered into or may initiateenter into in the future. The amount of credit support that Clecorequired may be required to provide at any point in the future is dependentchange based on the notional value of the initial contract, changes in forward market prices, changes in the volume of open contracts,margining formulas, changes in credit agency ratings, or credit quality where netting agreements are in place, and changes in the amount counterparties owe Cleco. Changes in any of these factors could cause the amount of requested credit support to increase or decrease.
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Cleco Power and Cleco Cajun participate in the MISO market. MISO requires Cleco Power and Cleco Cajun to provide credit support which may increase or decrease due to the timing of the settlement schedules and MISO margining formulas. For more information about MISO, see “— Regulatory and Other Matters — TransmissionTransmission Rates.” For more information about credit support, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees.Guarantees and “Note 9 — Derivative Instruments.”
Global and U.S. Economic Environment
Global and domestic economic conditions may have an impact on Cleco’s business and financial condition. Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. During periods of capital market volatility, the availability of capital could be limited and the costs of capital may increase for many companies. Although the Registrants have not experienced restrictions in the financial markets, their ability to access the capital markets may be restricted at a time when the Registrants would like, or need, to do so. Any restrictions could have a material impact on the Registrants’ ability to fund capital expenditures or debt service, or on their flexibility to react to changing economic and business conditions. Credit constraints could have a material, negative impact on the Registrants’ lenders or customers, causing them
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
to fail to meet their obligations to the Registrants or to delay payment of such obligations. The risinghigher interest ratesrate environment the Registrants have recently been exposed to havehas negatively affected interest expense on variable rate debt and positively affected interest income for the Registrants’ short-term investments.
Recently,In recent years, inflationary pressures have increased substantially. Under established regulatory practice, historical costs have traditionally formed the basis for recovery from customers. As a result, Cleco Power’s future cash flows designed to provide recovery of historical plant costs may not be adequate to replace property, plant, and equipment in future years. For information on the impacts of inflation and market price volatility of natural gas on credit loss reserves related to customer accounts receivable, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Reserves for Credit Losses” and Part I, Item 1A, “Risk Factors — General Risk Factors — Global Economic Uncertainty and Access to Capital.”
TCJA
The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan, which included the settlement of the TCJA protected and unprotected excess ADIT. As a result of this settlement, all retail customers will continue receiving bill credits resulting from the TCJA. For more information on the regulatory impact of the TCJA, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1314 — Regulation and Rates — Regulatory Refunds — TCJA.”
Fair Value Measurements
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Cleco may be required to provide credit support with respect to any open trading contracts that Cleco has entered into or may enter into in the future. The amount of credit support that Cleco may be required to provide at any point in the future is dependent on the amount of the initial contract, changes in the market price, changes in open contracts, changes in the amounts counterparties owe to Cleco, and any prenegotiated unsecured thresholds agreed to in the master contract. For more information about fair value instruments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 78 — Fair Value Accounting Instruments.”
Cash Generation and Cash Requirements
Restricted Cash and Cash Equivalents
For information on Cleco’s and Cleco Power’s restricted cash and cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”
Working Capital and Debt
Cleco
At December 31, 2023, and 2022, Cleco had $110.0 million and $109.0 million, respectively, of short-term debt for outstanding borrowings under its aggregate $475.0 million revolving credit facilities. At December 31, 2021, Cleco had no short-term debt outstanding. For more information on Cleco’s credit facilities, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt — Credit Facilities.”
At December 31, 2022,2023, Cleco’s long-term debt and finance leases outstanding, excluding fair value adjustments resulting from the 2016 merger, was $3.48 billion. Long-term$3.30 billion, of which $256.8 million was due within one year. The long-term debt decreased by $3.5 million fromdue within one year at December 31, 2021,2023, primarily due to the redemption of
represents Cleco Power’s $325.0$125.0 million floating rate senior notesbank term loan due in June 2022, $67.7May 2024, $66.7 million of principal payments made on Cleco Holdings’ debt asbank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun TransactionAcquisition commitments to the LPSC, in December 2022, the repayment$50.0 million of Cleco Power’s $25.0 million senior notes due in December 2022,2024, and $6.6$14.5 million of deferred debt financing costs related to Cleco Securitization I’s storm recovery bonds. These decreases were partially offset by the issuance of Cleco Securitization I’s $425.0 million initial principal amount ofI storm recovery bondsbond principal payments scheduled to be paid in June 2022.2024. For more information on Cleco’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt.”
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes due in 2023. As a result, the interest rate of the senior notes changed to a floating interest rate equal to SOFR plus 1.725% and the maturity date was extended from May 1, 2023, to May 1, 2025.
Proceeds from the divestiture of the Cleco Cajun Sale Group, which is subject to customary regulatory approvals, must be used to satisfy the LPSC commitment related to the debt that funded the Cleco Cajun Acquisition. For more information, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 3 —Discontinued Operations.”
Cash and cash equivalents available at December 31, 2022,2023, were $57.9$122.6 million combined with $366.0$365.0 million available revolving credit facility capacity ($111.065.0 million from Cleco Holdings and $255.0$300.0 million from Cleco Power) for total liquidity of $423.9$487.6 million.
At December 31, 2022, Cleco2023, and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Financial Statements — Note 7 — Fair Value Accounting Instruments.”
At December 31, 2022, Cleco had a working capital deficit of $17.5 million and $88.8 million. At December 31, 2021, Cleco had a working capital surplus of $254.8 million.million, respectively. The $343.6$71.3 million decrease in the working capital deficit is primarily due to:
•a $247.4an $84.1 million increasedecrease in long-term debt due within one year primarily due to the reclassification of Cleco Holdings'Holdings’ $165.0 million senior notes due in May 2023,2025 and the refinancing of Cleco Power'sPower’s $100.0 million senior notes due in December 2023,2026. These decreases were partially offset by Cleco Power’s $125.0 million bank term loan due in May 2024, Cleco Power’s $50.0 million senior notes due in December 2024, and $9.6$4.9 million of additional Cleco Securitization I'sI storm recovery bond principal payments scheduled to be paid in March and September 2023, partially offset by the repayment of Cleco Power's $25.0 million senior notes in December 2022,2024,
•a $109.0$68.0 million increase in short-term debt due to outstanding draws on revolving credit facilities,
•a $90.7 million decrease in cash and cash equivalents,
•a $45.7 million decrease in the cash surrender value of life insurance policies primarily due to recognition of death benefits, the receipt of a portion of the cash surrender value of life insurance policies, and unfavorable market conditions,
•a $23.6$53.6 million increase in accounts payable primarily due to higher MISO power purchasesnet assets and higher coal transportation costs due to higher gas prices,
•an $11.1 million increase in taxes payable primarily due to higher accrualsliabilities held for federal and state income taxes and payroll taxes, and
•a $10.3 million increase in interest accrued primarily due to Cleco Securitization I's storm recovery bonds issued in June 2022.
These decreases in working capital were partially offset by:
•a $49.8 million increase in affiliate balancessale primarily due to the settlementreclassification of intercompany taxes payableall assets and income tax payments made on behalf ofliabilities related to the Cleco Cajun Sale Group,
•a $34.0 million increase in customer accounts receivable primarily due to an increase in revenue due to higher usage as a result of weather and timing of collections from customers,
•a $21.9 million increase in restricted cash and cash equivalents primarily due to amounts restricted for storm restoration costs,
•a $21.4 million increase in fuel inventory primarily due to higher petroleum coke volume at a higher price per ton at Cleco Power and higher coal volume with higher transportation costs at Cleco Cajun,
•a $17.5$24.7 million increase in materials and supplies inventory primarily due to higher purchases at higher costs per unit,of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $17.9$21.0 million increasedecrease in regulatory assetsliabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory assets related to Hurricane Ida deferred storm restoration costs under prudency review, Madison Unit 3 property taxes, and Bayou Vista to Segura,liability,
•a $15.1$15.8 million increasedecrease in other accounts receivablepayable, excluding FTRs, primarily due to an increase in the timing of collections of joint owner receivables at Cleco Power and Cleco Cajun and an increase in receivableslower accruals related to higher mine costs,enterprise resource planning (ERP) system upgrades, various substation projects, natural gas, and solid fuels, and
•a $9.3an $11.3 million increase in fuel inventory primarily due to higher coal volume with higher transportation costs driven by lower usage from a decrease in market gas prices, partially offset by lower petroleum coke volume at a lower price per ton.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
These decreases in the working capital deficit were partially offset by:
•a $57.8 million increase in the provision for rate refund primarily due to the accrual of an estimated contingent loss related to the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $46.2 million decrease in accumulated deferred fuel, excluding FTRs, primarily due to lower fuel costs,
•a $41.7 million decrease in energy risk management assets, excluding Cleco Power’s FTRs, primarily due to market value changes onof gas-related derivative contracts, at Cleco Cajun.
•a $25.8 million increase in the current portion of postretirement benefit obligations primarily due to the accrual of pension contributions expected to be made in 2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $12.9 million decrease in regulatory assets primarily due to withdrawing the remaining balance of the Hurricane Ida regulatory asset from the related storm reserve following settlement of the prudency review and due to the reclassification of the short-term portion of the TCJA regulatory liability.
At December 31, 2022,2023, Cleco’s Consolidated Balance Sheets reflected $5.31$5.23 billion of total liabilities compared to $5.17$5.31 billion at December 31, 2021.2022. The $135.8$79.5 million increasedecrease in total liabilities during 20222023 was primarily due to:
•an increase$81.2 million decrease in restricted storm reserve of $109.4 milliontotal long-term debt primarily due to the securitization financing$65.6 million principal payment on Cleco Holdings’ debt, as required by the Cleco Cajun Acquisition commitments to the LPSC, and $9.6 million of Cleco Power’s storm restoration costs through Cleco Securitization I in June 2022,storm recovery bond principal payments,
•an increasea $48.1 million decrease in short-term debtliabilities held for sale primarily due to the reclassifications of $109.0liabilities related to the Cleco Cajun Sale Group,
•a $21.0 million decrease in regulatory liabilities, as previously discussed,
•an increasea $18.9 million decrease in accumulated deferred federal and state income taxes, net of $64.5 million,tax primarily due to the utilizationan associated decrease in deferred fuel and market value changes of the net operating loss carryforward,
•an increase in accounts payable of $23.6 million, as previously discussed,
•an increase in taxes payable of $11.1 million, as previously discussed,gas-related derivative contracts, and
•an increasea $15.8 million decrease in interest accrued of $10.3 million,accounts payable, as previously discussed.
These increasesdecreases in total liabilities were partially offset by:
•a decrease$57.7 million increase in regulatory liabilitiesthe provision for rate refund, as previously discussed,
•a $25.8 million increase in the current portion of $52.7postretirement benefit obligations, as previously discussed,
•a $17.0 million primarily due to amortizationincrease in customer advances for construction of excess ADIT related to the TCJA,substation expansions, and
•a decrease$12.6 million increase in affiliate accounts payable of $38.2 millionenergy risk management liabilities, excluding FTRs, primarily due to the settlement of intercompany taxes payable.market value changes on gas-related derivative contracts.
Cleco Holdings
At December 31, 2023, and 2022. Cleco Holdings had $110.0 million and $64.0 million, respectively, of short-term debt outstanding, at December 31, 2022, which represented borrowings under its $175.0 million revolving credit facility. Cleco Holdings had no short-term debt outstanding at December 31, 2021. For more information on Cleco Holdings’ credit facility, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt — Credit Facilities.”
At December 31, 2022,2023, Cleco Holding’s long-term debt outstanding was $1.47$1.41 billion, $230.5$66.5 million of which was due within one year. The long-term debt due within one year at December 31, 2022,2023, primarily represents $165.0$66.7 million of Cleco Holdings’ senior notes due in May 2023 and $65.6 million principal payments on Cleco Holdings’ debt asbank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun TransactionAcquisition commitments to the LPSC. For Cleco Holdings, long-term debt decreased $66.0$64.2 million primarily due to the $67.7$65.6 million principal payment on Cleco Holdings’ debt as required by the Cleco Cajun TransactionAcquisition commitments to the LPSC, paid in December 2022.2023.
Cleco Holdings has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Power’s similar line of credit, to support its working capital needs. ThereAt December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit at December 31, 2022.credit.
Cash and cash equivalents available at Cleco Holdings at December 31, 2022,2023, were $2.6$5.2 million, combined with $111.0$65.0 million available revolving credit facility capacity for a total liquidity of $113.6$70.2 million.
Cleco Power
At December 31, 2023, Cleco Power had no short-term debt. At December 31, 2022, Cleco Power had $45.0 million of short-term debt for outstanding borrowings under its $300.0 million revolving credit facility. Cleco Power had no short-term debt outstanding at December 31, 2021. For more information on Cleco Power’s credit facility, see Item 8, “Financial Statements
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt — Credit Facilities.”
Cleco Power has an uncommitted line of credit that allows up to $10.0 million in short-term borrowings, but no more than $10.0 million in the aggregate with Cleco Holdings’ similar line of credit, to support their working capital needs. ThereAt December 31, 2023, and 2022, there were no amounts outstanding under the uncommitted line of credit at December 31, 2022.credit.
At December 31, 2022,2023, Cleco Power’s long-term debt and finance leases outstanding was $1.90 billion. Long-term$1.89 billion, of which $190.3 million was due within one year. The long-term debt increased $70.2 million fromdue within one year at December 31, 2021,2023, primarily represents a $125.0 million bank term loan due to the issuancein May 2024, $50.0 million of Cleco Power’s senior notes due in December 2024, and $14.5 million of Cleco Securitization I’s $425.0 millionI storm recovery bondsbond principal payments scheduled to be paid in June 2022. This increase was partially offset by the redemption of $325.0 million floating rate senior notes in June 2022, the repayment of $25.0 million senior notes in December 2022, and $6.6 million of deferred debt financing costs related to Cleco Securitization I’s senior secured storm recovery bonds.2024. For more information on Cleco Power’s debt, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 910 — Debt.”
On December 14, 2023, Cleco Power entered into a note
purchase agreement for the issuance and sale in a private placement of $100.0 million aggregate principal amount of senior notes at a fixed interest rate of 5.96% and a maturity date of December 14, 2026. The proceeds of the issuance were used to pay Cleco Power’s $100.0 million aggregate principal amount of senior notes due December 2023.
Cash and cash equivalents available at December 31, 2022,2023, were $14.7$49.2 million combined with $255.0$300.0 million
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
available revolving credit facility capacity for total liquidity of $269.7$349.2 million.
At December 31, 2022,2023, and 2021,2022, Cleco Power had a working capital deficit of $66.2 million and a working capital surplus of $35.9 million, and $110.2 million, respectively. The $74.3$102.1 million decrease in the working capital surplus is primarily due to:
•an $84.6$80.0 million increase in long-term debt due within one year primarily due to the reclassification of $100.0a $125.0 million bank term loan due in May 2024, $50.0 million of senior notes due in December 20232024, and $9.6$4.9 million payments of additional Cleco Securitization I'sI storm recovery bond principal payments scheduled to be paid in March and September 2023, partially2024. These increases were offset by a $25.0the refinancing of $100.0 million repayment of senior notes inwith a maturity date of December 2022,2026,
•a $71.0$57.7 million decreaseincrease in cash and cash equivalents,the provision for rate refund primarily due to the accrual of an estimated contingent loss related to the probability of a partial disallowance of the recovery of the incurred fuel costs associated with the Dolet Hills prudency review,
•a $45.0$46.2 million increasedecrease in short-term debtaccumulated deferred fuel, excluding FTRs, primarily due to outstanding draws on the revolving credit facility,lower fuel costs,
•a $10.2$25.8 million increase in interest accruedthe current portion of postretirement benefit obligations primarily due to Cleco Securitization I's storm recovery bonds issuedthe accrual of pension contributions expected to be made in June 2022,2024,
•a $23.7 million decrease in customer accounts receivable primarily due to decreased customer revenues driven by lower costs of fuel and timing of collections from customers, and
•a $9.8$14.3 million increase in taxes payablerisk management liability, excluding FTRs, primarily due to higher accruals for federal and state income taxes and payroll taxes.market value changes on gas-related derivative contracts.
These decreases in the working capital surplus were partially offset by:
•a $57.3$45.0 million decrease in affiliate accounts payable primarilyshort-term debt due to payments on the settlement of intercompany taxes payable,revolving credit facility,
•a $24.1$34.5 million increase in customer accounts receivable primarily due to an increase in revenue due to higher usage as a result of weathercash and timing of collections from customers,cash equivalents,
•a $21.9$24.7 million increase in restricted cashmaterials and cash equivalentssupplies inventory primarily due to amounts restricted for storm restoration costs,higher purchases of transmission and distribution inventory in order to support future needs and mitigate future supply chain uncertainty,
•a $17.9$23.8 million increasedecrease in accounts payable, excluding FTRs, primarily due to lower accruals related to ERP system upgrades, various substation projects, natural gas, and solid fuels, and
•a $21.0 decrease in regulatory assetsliabilities primarily due to the reclassification of the short-term portion of the TCJA regulatory assets related to Hurricane Ida deferred storm restoration costs under prudency review, Madison Unit 3 property taxes, and Bayou Vista to Segura,
•a $15.4 million increase in material and supplies inventory primarily due to higher purchases at higher costs per unit, and
•an $11.0 million increase in fuel inventory primarily due to higher petroleum coke volume at a higher price per ton.liability.
At December 31, 2022,2023, Cleco Power’s Consolidated Balance Sheets reflected $3.32$3.37 billion of total liabilities compared to $3.18$3.32 billion at December 31, 2021.2022. The $140.3$45.0 million increase in total liabilities during 20222023 was primarily due to:
•ana $57.7 million increase in restricted storm reserve of $109.4 million due to the securitization financing of storm restoration costs through Cleco Securitization I in June 2022,provision for rate refund, as previously discussed,
•ana $36.4 million increase in accumulated deferred federal and state income taxes, net of $62.6 million,tax primarily due to the utilization of the net operating loss carryforward,
•ana $25.8 million increase in short-term debtthe current portion of $45.0 million,postretirement benefit obligations, as previously discussed,
•ana $17.0 million increase in interest accrued of $10.2 million, as previously discussed,customer advances for construction primarily due to multiple substation expansions, and
•ana $14.3 million increase in taxes payable of $9.8 million,risk management liability, excluding FTRs, as previously discussed.
These increases in total liabilities were partially offset by:
•a $45.0 million decrease in total long-termshort-term debt, of $70.2 million, as previously discussed,
•a $23.8 million decrease in affiliate accounts payable, of $57.3 million, as previously discussed, and
•a $21.0 million decrease in regulatory liabilities, as previously discussed.
Concentrations of $52.7 million, primarily dueCredit Risk
At December 31, 2023, Cleco and Cleco Power were exposed to amortizationconcentrations of excess ADIT relatedcredit risk through their short-term investments classified as cash equivalents. In order to mitigate potential credit risk, Cleco and Cleco Power have established guidelines for short-term investments. For more information on the concentration of credit risk through short-term investments classified as cash equivalents, see Item 8, “Financial Statements and Supplementary Data — Notes to the TCJA.Financial Statements — Note 8 — Fair Value Accounting Instruments.”
Debt and Distribution Limitations
The 2016 Merger Commitments include provisions for limiting the amount of distributions that can be made from Cleco Holdings to Cleco Group, depending on Cleco Holdings’ debt to EBITDA ratio and its corporate credit ratings. Cleco Holdings may not make any distribution unless, after giving effect to such distribution, Cleco Holdings’ debt to EBITDA ratio is equal to or less than 6.50 to 1.00 and Cleco Holdings’ corporate credit rating is investment grade with one or more of the three credit rating agencies. At December 31, 2022,2023, Cleco Holdings was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. Additionally, in accordance with the 2016 Merger Commitments, Cleco Power is subject to certain provisions limiting the amount of distributions that may be paid to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings. Cleco Power may not make any distribution unless, after giving effect to such distribution, Cleco Power’s common equity ratio would not be less than 48.0%48% and Cleco Power’s corporate credit rating is investment grade with two of the three credit rating agencies. At December 31, 2022,2023, Cleco Power was in compliance with the provisions of the 2016 Merger Commitments that would restrict the amount of distributions available. The 2016 Merger Commitments also prohibit Cleco from incurring additional long-term debt, excluding non-recourse debt, unless certain financial ratios are achieved. For more information on the 2016 Merger Commitments, see Part I, Item 1A, “Risk Factors — Structural Risks — Holding Company” and “— Regulatory Risks — Regulatory Compliance.”
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Cash Flows Comparison for the Years Ended December 31, 2023, and 2022
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2023, and 2022:
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| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | VARIANCE | | 2023 | | 2022 | | VARIANCE |
| Net cash provided by operating activities | $ | 421,192 | | | $ | 344,912 | | | $ | 76,280 | | | $ | 399,943 | | | $ | 274,265 | | | $ | 125,678 | |
| Net cash used in investing activities | $ | (227,816) | | | $ | (193,257) | | | $ | (34,559) | | | $ | (218,657) | | | $ | (220,693) | | | $ | 2,036 | |
| Net cash (used in) provided by financing activities | $ | (128,881) | | | $ | (111,065) | | | $ | (17,816) | | | $ | (150,352) | | | $ | 6,731 | | | $ | (157,083) | |
Cleco – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $76.3 million from 2022 primarily due to:
•$53.8 million of higher collections from Cleco Power and Cleco Cajun’s customers and
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$21.0 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by $37.1 million of higher purchased power costs from MISO at Cleco Power and Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities increased $34.6 million primarily due to lower life insurance proceeds of $41.3 million.
This increase was partially offset by lower additions to property, plant, and equipment, excluding AFUDC, of $6.5 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $17.8 million during 2023 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds and
•$101.0 million of lower draws on credit facilities.
These increases were partially offset by:
•$242.5 million of lower repayments on long-term debt,
•$166.1 million of lower distributions to Cleco Group, and
•$100.0 million of proceeds from the refinancing of Cleco Power’s senior notes due in 2023.
Cleco Power – Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income,
and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2023 increased $125.7 million from 2022 primarily due to:
•$50.6 million of higher collections from customers,
•$45.8 million of higher receipts for affiliate settlements,
•$45.3 million of higher recoveries of fuel and purchased power costs primarily due to the timing of collections at a higher fuel rate, and
•$16.7 million of higher collections from joint owners primarily due to the timing of receipts for their portions of generating station expenses.
These increases were partially offset by:
•$18.9 million of higher fuel inventory costs due to purchases at a higher price per unit for petroleum coke and natural gas and
•$9.8 million of higher purchased power costs from MISO.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2023 decreased$2.0 million from 2022 primarily due to lower additions to property, plant, and equipment, excluding $8.0 million of AFUDC, and
These decreases were partially offset by lower life insurance proceeds received of $6.5 million.
Cleco Power – Net Financing Cash Flow
Net cash used in financing activities during 2023 increased $157.1 million from 2022 primarily due to:
•the absence of proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s senior secured storm recovery bonds and
•$137.0 million of lower draws on revolving credit facilities.
These increases were partially offset by:
•$240.4 million of lower repayments on long-term debt,
•$100.0 million of proceeds from the refinancing of senior notes due in 2023,
•$47.0 million of lower payments on the credit facility,
•$10.7 million of lower distributions to Cleco Holdings, and
•$6.9 million of lower payments for debt financing costs.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cash Flows Comparison for the Years Ended December 31, 2022, and 2021
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2022, and 2021:
| | CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| CLECO | | | CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | 2022 | | 2021 | | VARIANCE | (THOUSANDS) | 2022 | | 2021 | | VARIANCE | | 2022 | | 2021 | | VARIANCE |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 344,912 | | | $ | 182,640 | | | $ | 162,272 | | | $ | 274,265 | | | $ | 102,518 | | | $ | 171,747 | |
| Net cash used in investing activities | Net cash used in investing activities | (193,257) | | | (300,833) | | | 107,576 | | | (220,693) | | | (290,745) | | | 70,052 | |
| Net cash (used in) provided by financing activities | Net cash (used in) provided by financing activities | (111,065) | | | 178,910 | | | (289,975) | | | 6,731 | | | 246,177 | | | (239,446) | |
| Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 40,590 | | | $ | 60,717 | | | $ | (20,127) | | | $ | 60,303 | | | $ | 57,950 | | | $ | 2,353 | |
Cleco
– Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $162.3 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs at Cleco Power,
•higher recoveries of net fuel and purchased power costs at Cleco Power of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million at Cleco Power.
These increases were partially offset by:
•higher payments for affiliate settlements of $58.1 million and
•higher payments for fuel inventory of $29.8 million primarily due to purchases of coal at a higher price per ton at Cleco Cajun.
Cleco – Net Investing Cash Flow
Net cash used in investing activities decreased $107.6 million primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $74.4 million and
•higher life insurance proceeds of $40.9 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco – Net Financing Cash Flow
Net cash used in financing activities increased $290.0 million during 2022 primarily due to:
•the absence of the issuance of Cleco Power’s $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Group of $219.6 million, and
•the repayment of Cleco Power’s $25.0 million senior notes in December 2022.
These increases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022,
•lower payments on credit facilities of $143.0 million, and
•higher draws on credit facilities of $41.0 million.
Cleco Power
– Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2022 increased $171.7 million from 2021 primarily due to:
•the absence of $107.6 million of lignite costs related to accelerated mine-closure costs,
•higher recoveries of net fuel and purchased power costs of $46.6 million primarily due to timing of collections, and
•lower payments for non-capital storm restoration costs of $41.2 million.
These increases were partially offset by higher payments for affiliate settlements of $46.9 million.
Cleco Power – Net Investing Cash Flow
Net cash used in investing activities during 2022 decreased $70.1 million from 2021 primarily due to:
•lower additions to property, plant, and equipment, excluding AFUDC, of $72.0 million and
•higher life insurance proceeds of $5.7 million.
These increases were partially offset by a lower return of equity investment in investee of $7.0 million.
Cleco Power — Net Financing Cash Flow
Net cash provided by financing activities during 2022 decreased $239.4 million from 2021 primarily due to:
•the absence of issuance of $325.0 million floating rate senior notes in 2021, and the subsequent redemption of those $325.0 million senior notes in June 2022,
•distributions to Cleco Holdings of $105.5 million,
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
•the repayment of $25.0 million senior notes in December 2022, and
•lower draws on revolving credit facilities of $23.0 million.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
These decreases were partially offset by:
•proceeds of $424.9 million, net of discount, from the issuance of Cleco Securitization I’s storm recovery bonds in June 2022, and
•lower payments on credit facilities of $143.0 million.
Cash Flows Comparison for the Years Ended December 31, 2021, and 2020
Cleco’s and Cleco Power’s net cash activities for operating, investing, and financing cash flows are as follows for December 31, 2021, and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| CLECO | | CLECO POWER |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2021 | | 2020 | | VARIANCE | | 2021 | | 2020 | | VARIANCE |
| Net cash provided by operating activities | $ | 182,640 | | | $ | 205,819 | | | $ | (23,179) | | | $ | 102,518 | | | $ | 127,779 | | | $ | (25,261) | |
| Net cash used in investing activities | (300,833) | | | (377,907) | | | 77,074 | | | (290,745) | | | (365,936) | | | 75,191 | |
| Net cash (used in) provided by financing activities | 178,910 | | | 119,758 | | | 59,152 | | | 246,177 | | | 186,596 | | | 59,581 | |
| Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | $ | 60,717 | | | $ | (52,330) | | | $ | 113,047 | | | $ | 57,950 | | | $ | (51,561) | | | $ | 109,511 | |
Cleco
Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, gain or loss on risk management assets and liabilities, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2021 decreased $23.2 million from 2020 primarily due to:
•higher fuel costs of $113.4 million at Cleco Power primarily related to accelerated mine closure costs,
•higher recoverable fuel and purchased power costs of $25.3 million primarily associated with Winter Storms Uri and Viola not yet collected from Cleco Power’s customers,
•lower collections from Cleco Cajun’s customers of $10.4 million due to timing of receipts,
•lower collections from Cleco Cajun’s joint owners of $6.0 million primarily due to timing of receipts for their portions of generating station expenses,
•lower collections from Cleco Power’s joint owners of $5.1 million primarily due to timing of receipts for their portions of generating station expenses, and
•the absence of Cleco Katrina/Rita storm restoration surcharge collections from Cleco Power’s customers of $2.4 million as a result of the final principal and interest payments on Cleco Katrina/Rita storm recovery bonds in March 2020.
These decreases were partially offset by:
•lower payments for fuel inventory at Cleco Cajun of $47.3 million due to lower coal purchases,
•lower payments for non-capital storm restoration costs of $33.3 million at Cleco Power,
•the absence of pension plan contributions of $15.8 million at Cleco Power,
•higher collections from Cleco Power’s customers of $9.3 million due to timing, and
•lower payments to vendors of $4.8 million at Cleco Power primarily due to timing of payments related to other operating and maintenance activities.
Net Investing Cash Flow
Net cash used in investing activities during 2021 decreased $77.1 million from 2020 primarily due to lower additions to property, plant, and equipment, excluding AFUDC, of $77.9 million.
Net Financing Cash Flow
Net cash provided by financing activities during 2021 increased $59.1 million from 2020 primarily due to the issuance of $325.0 million floating rate senior notes at Cleco Power in September 2021.
This increase was partially offset by:
•the absence of borrowing a $125.0 million term loan at Cleco Power in August 2020,
•higher payments on revolving credit facilities of $97.0 million, and
•lower draws on revolving credit facilities of $53.0 million.
Cleco Power
Net Operating Cash Flow
Cash generated from operating activities consists of net income, adjusted for non-cash expenses, non-cash income, and changes in operating assets and liabilities. Non-cash adjustments include items such as depreciation and amortization, regulatory disallowance, deferred income taxes, and allowance for equity funds used during construction.
Net cash provided by operating activities during 2021 decreased $25.3 million from 2020 primarily due to:
•higher fuel costs of $113.4 million primarily due to accelerated mine closure costs,
•higher recoverable fuel and purchased power costs of $25.3 million primarily associated with Winter Storms Uri and Viola not yet collected from customers,
•lower collections from joint owners of $5.1 million primarily due to timing of receipts for their portions of generating station expenses, and
•the absence of Cleco Katrina/Rita storm restoration surcharge collections from customers of $2.4 million as a result of the final principal and interest payment on the Cleco Katrina/Rita bonds in March 2020.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
These decreases were partially offset by:
•lower payments for affiliate settlements of $55.5 million,
•lower payments for non-capital storm restoration costs of $33.3 million,
•the absence of pension plan contributions of $15.8 million at Cleco Power
•higher collections from customers of $9.3 million due to timing, and
•lower payments to vendors of $4.8 million primarily due to timing of payments related to other operating and maintenance activities.
Net Investing Cash Flow
Net cash used in investing activities during 2021 decreased$75.2 million from 2020 primarily due to higher additions to property, plant, and equipment, excluding AFUDC, of $76.1 million.
Net Financing Cash Flow
Net cash provided by financing activities during 2021 increased $59.6 million from 2020 primarily due to:
•the issuance of $325.0 million floating rate senior notes in September 2021,
•higher draws on credit facilities of $35.0 million, and
•the absence of the final repayment of Cleco Katrina/Rita storm recovery bonds of $11.1 million.
These increases were partially offset by:
•higher payments on revolving credit facilities of $185.0 million and
•the absence of borrowing a $125.0 million term loan in August 2020.
Capital Expenditures
Cleco’s capital expenditures are primarily incurred at Cleco Power and Cleco Cajun. Cleco Power’s capital expenditures relate primarily to assets that may be included in Cleco Power’s rate base and, if considered prudent by the LPSC, can be recovered from its customers. Those assets also earn a rate of return authorized by the LPSC and are subject to the FRP. Such assets primarily consist of improvements to Cleco Power’s distribution system, transmission system, and generating stations as well as hardware and software upgrades.
On November 22, 2023, the Cleco Cajun’sCajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. The parties expect the transaction to close in the second quarter of 2024. As a result, Cleco updated its estimated capital expenditures primarily consist of improvementsrelated to the Cleco Cajun’s transmission systemCajun Sale Group. For more information, see Item 8, “Financial Statements and generating stations as well as hardware and software upgrades.Supplementary Data — Notes to the Financial Statements — Note 3 — Discontinued Operations.”
During the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco Power had capital expenditures, excluding AFUDC, of $221.0 million, $228.9 million, $301.0 million, and $377.0$301.0 million, respectively. Cleco Power funded its capital expenditures for 2023, 2022, 2021, and 20202021 from internally generated funds and funds obtained through debt issuances.
During the years ended December 31, 2023, 2022, and 2021, and 2020,Cleco’s other subsidiaries had capital expenditures of $7.8$0.5 million, $10.2$1.0 million, and $12.0$1.1 million, respectively.respectively, excluding expenditures related to the Cleco Cajun Sale Group.
In 2023During 2024 and for the five-year period ending 2027,2028, Cleco and Cleco Power expect to materially fund their capital expenditure requirements with internally generated funds. However, Cleco Power may choose to issue debt in order to supplement its funding sources and achieve its stipulated
regulatory capital structure. All computations of internally funded capital expenditures exclude AFUDC and capitalized interest.
Cleco’s and Cleco Power’s estimated capital expenditures and debt maturities for 20232024 and for the five-year period ending December 31, 2027,2028, are presented in the following tables.table. Cleco’s estimates do not include amounts related to the Cleco Cajun Sale Group. All amounts exclude AFUDC and capitalized interest.
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| PROJECT (THOUSANDS) | 2023 | | % | | 2023-2027 | | % |
| Environmental | $ | 4,000 | | | 1 | % | | $ | 57,000 | | | 3 | % |
| New business | 27,000 | | | 10 | % | | 135,000 | | | 8 | % |
| Renewables and electrification | 25,000 | | | 9 | % | | 245,000 | | | 15 | % |
| Transmission reliability | 11,000 | | | 4 | % | | 15,000 | | | 1 | % |
General (1) | 201,000 | | | 76 | % | | 1,192,000 | | | 73 | % |
Total capital expenditures (2) | $ | 268,000 | | | 100 | % | | $ | 1,644,000 | | | 100 | % |
| Debt payments | 340,000 | | (3) | | | 1,410,000 | | | |
| Total capital expenditures and debt payments | $ | 608,000 | | | | | $ | 3,054,000 | | | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades at Cleco Power. (2) Does not include costs related to Project Diamond Vault. (3) Consists of the principal amount committed to be repaid as a result of the Cleco Cajun Transaction as well as other long-term debt obligations with maturity dates in 2023. For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 9 — Debt.” |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| PROJECT (THOUSANDS) | 2024 | | % | | 2024-2028 | | % |
| Environmental | $ | 1,000 | | | — | % | | $ | 61,000 | | | 4 | % |
| New business | 25,000 | | | 9 | % | | 131,000 | | | 8 | % |
| Renewables and electrification | 52,000 | | | 19 | % | | 268,000 | | | 16 | % |
| Transmission reliability | — | | | — | % | | 5,000 | | | — | % |
General (1) | 189,000 | | | 72 | % | | 1,216,000 | | | 72 | % |
Total capital expenditures (2) | $ | 267,000 | | | 100 | % | | $ | 1,681,000 | | | 100 | % |
| Debt payments | 256,000 | | (3) | | | 1,575,000 | | | |
| Total capital expenditures and debt payments | $ | 523,000 | | | | | $ | 3,256,000 | | | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades at Cleco Power. (2) Does not include costs related to Project Diamond Vault. (3) Consists of the principal amount committed to be repaid as a result of the Cleco Cajun Acquisition as well as other long-term debt obligations with maturity dates in 2024. For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.” |
| | Cleco Power | Cleco Power | |
| PROJECT (THOUSANDS) | |
| PROJECT (THOUSANDS) | |
| PROJECT (THOUSANDS) | PROJECT (THOUSANDS) | 2023 | | % | | 2023-2027 | | % | 2024 | | % | | 2024-2028 | | % |
| Environmental | Environmental | $ | 4,000 | | | 2 | % | | $ | 57,000 | | | 4 | % | Environmental | $ | 1,000 | | | — | | — | % | | $ | 61,000 | | | 4 | | 4 | % |
| New business | New business | 27,000 | | | 11 | % | | 135,000 | | | 9 | % | New business | 25,000 | | | 9 | | 9 | % | | 131,000 | | | 8 | | 8 | % |
| Renewables and electrification | Renewables and electrification | 25,000 | | | 10 | % | | 245,000 | | | 16 | % | Renewables and electrification | 52,000 | | | 20 | | 20 | % | | 268,000 | | | 16 | | 16 | % |
| Transmission reliability | Transmission reliability | 11,000 | | | 4 | % | | 15,000 | | | 1 | % | Transmission reliability | — | | | — | | — | % | | 5,000 | | | — | | — | % |
General (1) | General (1) | 188,000 | | | 73 | % | | 1,125,000 | | | 70 | % | General (1) | 188,000 | | | 71 | | 71 | % | | 1,210,000 | | | 72 | | 72 | % |
Total capital expenditures (2) | Total capital expenditures (2) | $ | 255,000 | | | 100 | % | | $ | 1,577,000 | | | 100 | % | Total capital expenditures (2) | $ | 266,000 | | | 100 | | 100 | % | | $ | 1,675,000 | | | 100 | | 100 | % |
| Debt payments | Debt payments | 110,000 | | (3) | | 580,000 | | |
| Total capital expenditures and debt payments | Total capital expenditures and debt payments | $ | 365,000 | | | $ | 2,157,000 | | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades. (2) Does not include costs related to Project Diamond Vault. (3) For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 9 — Debt.” | | Total capital expenditures and debt payments | |
| Total capital expenditures and debt payments | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades. (2) Does not include costs related to Project Diamond Vault. (3) For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.” | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades. (2) Does not include costs related to Project Diamond Vault. (3) For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.” | |
(1) Primarily consists of rehabilitation projects of older transmission, distribution, and generation assets and hardware and software upgrades. (2) Does not include costs related to Project Diamond Vault. (3) For more information on the future debt payments, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 10 — Debt.” | |
Capital expenditures for Cleco’s other subsidiaries in 20232024 are estimated to total $13.0$1.0 million. For the five-year period ending December 31, 2027,2028, capital expenditures for Cleco’s other subsidiaries are estimated to total $67.0$6.0 million. Cleco expects cash and cash equivalents on hand, in addition to cash generated from operations, borrowings from credit facilities, and the net proceeds of any issuances of debt securities, to be adequate to fund normal ongoing capital expenditures, working capital, and debt service requirements for the foreseeable future.
Other Cash Requirements
Cleco Power’s regulated operations and Cleco Cajun’s unregulated operations, until the completion of the Cleco Cajun Divestiture, are Cleco’s primary sources of internally generated funds. These funds, along with issuances of additional debt received in future years, will be used for general company purposes, capital expenditures, debt service, human capital expenditures, contractual obligations, and off-balance sheet arrangements, if required.
Cleco also anticipates receipt of grant funds in thefunding future
cash requirements for renewable, electrification, and electrificationdecarbonization projects, including Project
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Diamond Vault.Vault, through one or more sources including tax credits provided by the IRA of 2022, U.S. Department of Energy grants or loans, debt financing, private equity investment, and partnership interests. For more information on renewable and electrification initiatives, see “—
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Overview — Renewable and Electrification Initiatives.” For more information on decarbonization initiatives, see “— Overview — Cleco PowerDecarbonization Initiatives — Renewable and Electrification Initiatives.Project Diamond Vault.”
Contractual Obligations
Cleco, in the normal course of normal business activities, enters into a variety of contractual obligations. Some of these result in direct obligations that are reflected in Cleco’s Consolidated Balance Sheets while others are commitments, some firm and some based on uncertainties, that are not reflected in the
consolidated financial statements. These obligations do not include amounts for ongoing needs for which no contractual
obligation existed as of December 31, 2022, and represent only the projected future payments that Cleco was contractually obligated to make as of December 31, 2022.2023.
For contractual obligations related to leases, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 34 — Leases.” For information on amounts expected to be contributed to the employee pension plan and the projected benefit payments for Other Benefits and SERP, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1011 — Pension Plan and Employee Benefits.”
| | | | | | | | | | | | | | | | | | | | | |
| | | | PAYMENTS DUE BY PERIOD | | | | |
| CONTRACTUAL OBLIGATIONS (THOUSANDS) | TOTAL | | UP TO 12 MONTHS | | BEYOND 12
MONTHS | | | | |
| Cleco | | | | | | | | | |
Long-term debt (1) | $ | 5,076,468 | | | $ | 164,563 | | | $ | 4,911,905 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchase obligations | $ | 575,527 | | | $ | 474,124 | | | $ | 101,403 | | | | | |
Other long-term liabilities (2) | $ | 17,035 | | | $ | 2,561 | | | $ | 14,474 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Cleco Power | | | | | | | | | |
Long-term debt (1) | $ | 3,038,903 | | | $ | 106,774 | | | $ | 2,932,129 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchase obligations | $ | 331,633 | | | $ | 239,109 | | | $ | 92,524 | | | | | |
Other long-term liabilities (2) | $ | 4,800 | | | $ | 1,600 | | | $ | 3,200 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | PAYMENTS DUE BY PERIOD | | | | |
| CONTRACTUAL OBLIGATIONS (THOUSANDS) | TOTAL | | UP TO 12 MONTHS | | BEYOND 12
MONTHS | | | | |
Cleco (1) | | | | | | | | | |
Long-term debt (2) | $ | 4,990,997 | | | $ | 406,002 | | | $ | 4,584,995 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchase obligations | $ | 414,248 | | | $ | 304,869 | | | $ | 109,379 | | | | | |
Other long-term liabilities (3) | $ | 17,777 | | | $ | 2,630 | | | $ | 15,147 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Cleco Power | | | | | | | | | |
Long-term debt (2) | $ | 3,054,128 | | | $ | 278,288 | | | $ | 2,775,840 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Purchase obligations | $ | 278,614 | | | $ | 176,484 | | | $ | 102,130 | | | | | |
Other long-term liabilities (3) | $ | 3,413 | | | $ | 1,774 | | | $ | 1,639 | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(1)At December 31, 2023, Cleco Cajun’s contractual obligations consisted of purchase obligations, which are included in Cleco’s amounts above.
(2) For Cleco, the amount above excludes the fair value adjustments related to the 2016 Merger. Cleco’s and Cleco Power’s anticipated interest payments related to long-term debt also are included in this category and do not reflect anticipated future refinancing, early redemption, or debt issuance.
(2)(3) Other long-term liabilities primarily consist of obligations for deferred compensation and various operating and maintenance agreements.
For purposes of this table, it is assumed that all terms and rates related to the above obligations will remain the same and all franchises will be renewed according to the rates used in the table.
Off-Balance Sheet Commitments and Guarantees
Cleco hasHoldings and Cleco Power have entered into various off-balance sheet commitments in the form of guarantees and standby letters of credit in order to facilitate its activities and the activities of itsCleco Holdings’ subsidiaries and equity investees (affiliates). Cleco hasHoldings and Cleco Power have also agreed to contractual terms that require itthem to pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees. For more information about off-balance sheet commitments and guarantees, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Off-Balance Sheet Commitments and Guarantees.”
Cybersecurity
The operation of Cleco’s electrical systems relies on evolving operational and information technology systems and network infrastructures that are complex. The failure of Cleco or its vendors’ operational and information technology systems and networks, due to a physical attack, cyberattack, or other event, could significantly disrupt operations; cause harm to the public or employees; result in outages or reduced generating output; result in damage to Cleco’s assets or operations, or those of third parties; result in damage to Cleco’s reputation; and subject Cleco to claims by customers or third parties, any of which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. Cleco continues to assess its cybersecurity tools and processes and has taken a variety of actions to monitor and address cyber-related risks. Cleco’s Chief Information and Supply Chain Officer leads Cleco’s cybersecurity team and oversees Cleco’s cybersecurity maturity plan. Each month, management provides cybersecurity key performance indicator updates to Cleco’s Asset Management Committee and periodically provides general cybersecurity updates to
Cleco’s Audit Committee. Cleco’s third party providers are susceptible to data breaches, which could potentially allow an attacker to compromise the third party servers on which the products run. Cleco could have potential impacts to the confidentiality, integrity, or availability of its data or systems. The third party providers and Cleco investigate data breach incidents. Past instances have resulted in no negative impacts to Cleco’s confidentiality, integrity, or availability of its data or systems. For more information on risks related to Cleco’s cybersecurity, see Part I, Item 1A, “Risk Factors — Operational Risks — Technology and Terrorism Threats.”
Regulatory and Other Matters
Environmental Matters
For information on environmental matters, see Part I, Item 1, “Business — Environmental Matters.”
Retail and Wholesale Rates
For 20222023 and 2021,2022, retail rates, which includes the retail portion of FAC and EAC revenue, regulated by the LPSC accounted for approximately 84%86% and 85%84%, respectively, of Cleco Power’s total base, FAC, and EAC revenue.
For information on Cleco Power’s base rates, fuel rates, and environmental rates, see Part I, item 1, “Regulatory Matters, Industry Developments, and Franchises — Rates.”
For information on Cleco Power’s and Cleco Cajun’s wholesale rates, see Part I, item 1, “Regulatory Matters, Industry Developments, and Franchises — Rates.”
Transmission Rates
In July 2011, FERC issued Order No. 1000 that reformed the electric transmission planning and cost allocation requirements for public utility transmission providers. The rule builds on the reforms of Order No. 890 and corrects remaining deficiencies
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with respect to transmission planning processes and cost allocation methods. In 2015, MISO and the Southwest Power Pool made separate filings containing different metrics to meet specific requirements. A compliance determination for both filings has not been made and no timetable is available for when a determination will be made. Until a determination is made, Cleco is unable to determine if this order will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power and Cleco Cajun’s generation dispatch and transmission operations are integrated with MISO. MISO operates a fully functioning RTO market with two major market processes: the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market. Both use market-based mechanisms to manage transmission congestion across the MISO market area. For more information about the risks associated with Cleco’s participation in MISO, see Part I, Item 1A, “Risk Factors — Regulatory Risks — MISO.”
For information on Cleco Power’s and Cleco Cajun’s transmission rates, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 45 — Revenue Recognition — Transmission Revenue.”
Market Structure
Wholesale Electric Markets
RTO
In 1999, FERC issued Order No. 2000, which established a general framework for all transmission-owning entities in the nation to voluntarily place their transmission facilities under the control of an appropriate RTO. Cleco Power and Cleco Cajun’s generation dispatch and transmission operations are integrated with MISO. For more information about Cleco Power’s and Cleco Cajun’s integration into MISO, see “—Transmission Rates.”
ERO
NERC, subject to oversight by FERC, is the ERO responsible for developing and enforcing mandatory reliability standards
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for users, owners, and operators of the bulk power system. NERC, as the ERO, delegates authority to SERC Reliability Corporation.SERC.
Cleco anticipates that a newA revised NERC reliability standard relating to the winterization of generation assets will bebecame effective on April 1, 2023. This revised standard requires the implementation of cold weather preparedness plans that include geographical based freeze protection measures, annual inspections, unit design temperature basis, and employee training. A new winterization standard requiring additional freeze protection measures has been approved by FERC in 2023. This standardwith an effective date of October 1, 2024, and a targeted implementation period of 60 months from the effective date. Currently, management is expectedunable to have more stringent requirements; however, Cleco cannot predictdetermine the full impact that this potential new standard will have on its businesses, cash flows, liquidity,Cleco’s results of operations, financial condition, and results of operations.or cash flows.
A NERC Operations and Planning Reliability Standards audit is conducted every three years for Cleco Power and Cleco Cajun. The most recentnext NERC Operations and Planning Reliability Standards auditsaudit for Cleco Power and Cleco Cajun concluded on September 15, 2022. Final reports were issued on October 25, 2022, for Cleco Cajun and November 16, 2022, for Cleco Power. There were no material findings from the audits.is scheduled to begin in 2025.
A NERC CIP audit is also conducted every three years for Cleco Power and Cleco Cajun. NERC CIP audits for Cleco Power and Cleco Cajun beganwere concluded in 2023. Final reports to SERC were issued in the fourthsecond quarter of 20222023, and are expectedpending to concludebe affirmed by NERC. The audits did not result in any financial penalties, and the first quarter 2023.next audit is scheduled to begin in 2025.
Management is unable to predict the final financial outcome of the most recent CIP audits, any future audits, or whether any findings will have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants. For a discussion of risks associated with FERC’s regulation of Cleco Power’s transmission system, see Part I, Item 1A, “Risk Factors — Regulatory Risks — Reliability and CIP Standards Compliance”.
Retail Electric Markets
Currently, the LPSC does not provide exclusive service territories for electric utilities under its jurisdiction. Instead, retail service is obtained through a long-term nonexclusive franchise. The LPSC uses a “300-foot rule” for determining the supplier for new customers. The “300-foot rule” requires a customer to take service from the electric utility that is within 300 feet of the respective customer. If the customer is beyond 300 feet from any existing utility service, they may choose their electric supplier. The LPSC’s review of the “300-foot rule” in Docket No. R-32763 has been ongoing since April 2013. On February 5, 2020, the docket was closed due to no substantive actions in proceedings since October 2014. Management is unable to predict if this docket will be reopened for reconsideration in the future and cannot determine the impact any potential rulemaking may have on the results of operations, financial condition, or cash flows of Cleco Power. The application of the current rule has led to competition with neighboring utilities for retail customers at the
borders of Cleco Power’s service areas. Cleco Power also competes in its service area with suppliers of alternative forms of energy, some of which may be less costly than electricity for certain applications. Cleco Power could experience some competition for electric sales to industrial customers in the form of cogeneration.
Integrated Resource Plan (IRP)
On October 20, 2021, Cleco Power filed its request with the LPSC to initiate its next IRP process. Cleco Power filed its initial data assumptions to be used in its IRP analysis on February 21, 2022. The IRP process includes conducting stakeholder meetings and receiving feedback from stakeholders. The first stakeholders meeting was conducted on March 24, 2022. The first draft of thefinal IRP was filed with the LPSC on October 26, 2022. The next stakeholders meeting was heldMay 31, 2023. Disputes and alternative recommendations were filed on November 29, 2022. A30, 2023. On January 23, 2024, the LPSC Staff report and recommendations were filed, recommending that the LPSC acknowledge Cleco’s final IRP is due in May 2023.report. On February 21, 2024, the LPSC voted to approve the LPSC Staff’s recommendation. The LPSC’s acknowledgement completes this IRP cycle.
The IRP report describes how Cleco Power plans to meet its forecasted load requirements on a reliable and economic basis, while reducing Cleco Power’s carbon footprint. The IRP is used as a guide in future decision-making and does not represent firm operational commitments.
Service Quality Plan (SQP)
In October 2015, the LPSC proposed an SQP containing 21 requirements for Cleco Power. The SQP has provisions relating to employee headcount, customer service, reliability, vegetation management, and reporting. In April 2016, the SQP was approved by the LPSC. The SQP expired on December 31, 2020. A request to renew the conditions of the expired SQP was included in Cleco Power is currently working to complete a new five-year program to submit toPower’s application for its current rate case, which was filed with the LPSC for approval.on June 30, 2023. On April 29, 2022,March 31, 2023, Cleco Power filed its annual SQP monitoring report for 20212022 based on the expired reporting requirements.
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Franchises
For information on franchises, see Part I, Item 1, “Business — Regulatory Matters, Industry Developments, and Franchises — Franchises.”
Recent Authoritative Guidance
For a discussion of recent authoritative guidance, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Recent Authoritative Guidance.”
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Cleco is exposed to counterparty credit risk, liquidity risk, interest rate risk, and commodity price risk. Cleco has implemented a governance framework, inclusive of risk policies and procedures to help manage these and other risks.
Counterparty Credit Risk
When Cleco enters into commodity derivative or physical commodity transactions directly with market participants, Cleco may be exposed to counterparty credit risk. Cleco is exposed to counterparty credit risk when a counterparty fails to meet their financial obligations causing Cleco to incur replacement cost losses. Cleco enters into long-form contract and master agreements with counterparties that govern the
risk of counterparty credit default and allow for collateralization above prenegotiated thresholds to help mitigate potential losses. Alternatively, Cleco may be required to provide credit support or pay liquidated damages with respect to any open tradingbilateral transactions and contracts that Cleco has entered into or may enter into in the future. The amount of credit support that Clecorequired may be required to provide at any point in the future is dependentchange based on the amount of the initial contract,margining formulas, changes in the market price, changes in open contracts, changes in the amounts counterparties owe to Cleco, and any prenegotiated unsecured thresholds agreed to in the master contract. Changes in any of these factors could cause the amount of requested credit support to increaseagency ratings or decrease.liquidity ratios.
Cleco monitors and manages its credit risk exposure through credit risk management policies and procedures that include:
•routinerequire counterparty credit quality review and monitoring, establishment of credit and default terms in bilateral contracts and master agreements, monitoring changing credit exposure as compared to fair value, and collateralization and other methods of counterparty credit quality and credit exposure,assurance.
•entering into industry standard master agreements with specific terms and conditions for credit exposure and non-performance,
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•exchanging guarantees or forms of cash equivalent collateral for financial assurance.
For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — General Considerations and Credit-Related Risks.”
Liquidity Risk
Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows. Disruption in the capital and credit markets may potentially increase the costs of capital and limit the ability to access the capital markets. The inability to raise capital on favorable terms could negatively affect Cleco’s
ability to maintain and expand its business. After assessing the current operating performance, liquidity, and credit ratings of Cleco Holdings and Cleco Power, management believes that Cleco will have access to the capital markets at prevailing market rates for companies with comparable credit ratings. For more information, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital Resources — General Considerations and Credit-Related Risks.”
Interest Rate Risk
Cleco monitors its mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix, for example, refinancing balances outstanding under its variable-rate bank facilities with fixed-rate debt or vice versa. Calculations of the changes in fair market value and interest expense of the debt securities are made over a one-year period.
Sensitivity to changes in interest rates for variable-rate obligations is computed by assuming a 1% change in the current interest rate applicable to such debt.
At December 31, 2022,2023, Cleco Holdings had $64.0$110.0 million of short-term debt outstanding under its $175.0 million revolving credit facility at a weighted average all-in interest rate of 5.977%7.079%. At December 31, 2022,2023, the borrowing costs for amounts drawn under Cleco Holdings’ revolving credit facility were equal to LIBORSOFR plus 1.625%1.725% or ABR plus 0.625%, plus commitment fees of 0.275% paid on the unused portion of the facility. Each 1% increase in the interest rate applicable to Cleco Holdings’ short-term variable rate debt would result in a decrease in Cleco Holdings’ pretax earnings of $0.6$1.1 million on an annualized basis.
At December 31, 2022,2023, Cleco Holdings had a $132.3$66.7 million long-term variable rate bank term loan outstanding at an interest rate of LIBORSOFR plus 1.625%1.725%, for an all-in interest rate of 6.015%7.081%. Each 1% increase in the interest rate applicable to Cleco Holdings’ long-term variable rate debtloan would result in a decrease in Cleco Holdings’ pretax earnings of $1.3$0.6 million on an annualized basis. The weighted average rate for the outstanding term loan debt at Cleco Holdings for the year ended December 31, 2022,2023, was 3.321%6.732%.
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes changing the terms to a floating interest rate. At December 31, 2023, the senior notes had an interest rate of SOFR plus 1.725%, for an all-in interest rate of 7.045%. Each 1% increase in the interest rate applicable to Cleco Holdings’ long-term variable rate notes would result in a decrease in Cleco Holdings’ pretax earnings of $1.7 million on an annualized basis. The weighted average rate for the
outstanding senior notes at Cleco Holdings for the period May 1, 2023, through December 31, 2023, was 6.970%.
At December 31, 2022,2023, Cleco Power had $45.0 million ofno short-term debt outstanding under its $300.0 million revolving credit facility at an all-in interest rate of 5.57%. At December 31, 2022,facility. The borrowing costs under Cleco Power’s borrowing costs for amounts drawn under its $300.0 million revolving credit facility wereare equal to LIBORSOFR plus 1.25%1.35% or ABR plus 0.25%, plus commitment fees of 0.15% paid on the unused portion of the facility. Each 1% increase in the interest rate applicable to Cleco Power’s short-term variable rate debt would result in a decrease in Cleco Power’s pretax earnings of $0.5 million on an annualized basis.
At December 31, 2022,2023, Cleco Power had a $125.0 million long-term variable rate bank term loan outstanding, at an interest rate of LIBORSOFR plus 1.25%1.35%, for an all-in interest rate of
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5.64% 6.706%. Each 1% increase in the interest rate applicable to Cleco Power’s long-term variable rate debt would result in a decrease in Cleco Power’s pretax earnings of $1.3 million on an annualized basis. The weighted average rate for the outstanding term loan debt at Cleco Power for the year ended December 31, 2022,2023, was 2.967%6.362%.
Each 1% increase in the interest rate applicable to Cleco’s short- and long-term variable rate debt would result in a decrease in Cleco’s consolidated pretax earnings of $3.7$4.7 million on an annualized basis.
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. For each reporting period presented, the Registrants did not enter into any contracts to mitigate the volatility in interest rate risk.
Commodity Price Risk
Cleco’sCleco Power’s financial performance can be adversely impacted by changesthe uncertainty in commodityfuture fuel and power prices, that canwhich may impact fuel costs, generation revenue,the costs to serve its contracted wholesale electricity customers,be recovered through Cleco Power’s FAC; therefore, Cleco Power has implemented a natural gas hedging program to mitigate this uncertainty. The program includes transacting in financially settled swaps and revenue from those customers. Cleco’sphysical fixed price supply agreements. Cleco Power executes this program within a risk management framework inclusive of risk management policies, procedures, and procedures authorize hedging commodity price risk with physical or financially settled derivative instruments within approved guidelines, set forth by its Board of Managers and limits of authority. Some of these transactions may qualify for the normal purchase, normal sale (NPNS) exception under derivative accounting guidance. Contracts that do not qualify for NPNS accounting treatment or are not elected for NPNS accounting treatment are marked-to-market and recorded on the balance sheet at their fair value.
management. Cleco Power and Cleco Cajun, each separately and individually, may be exposed to transmission congestion price risk as a result of physical transmission constraints present between MISO LMP nodes when serving customer load. Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. FTRs are accounted for as derivatives not designated as hedging instruments for accounting purposes. Cleco Cajun’s FTRs are included in assets held for sale and liabilities held for sale on Cleco’s Consolidated Balance Sheets.
During 2022,2023, Cleco Cajun and Cleco Power had natural gas derivative contracts consisting of fixed price physical forwards and financially settled swap transactions. During 2022, Cleco Power had natural gas derivative contracts consisting of financially settled swap transactions.
Cleco monitors the Value at Risk (VaR) of its natural gas derivative contracts requiring derivative accounting treatment. VaR is defined as the minimum expected loss over a given holding period at a given confidence level based on observable market priceprices and volatilities. Cleco uses a parametric variance-covariance model methodology to estimate VaR. VaR is calculated using a combination of implied and historical volatilities within a 5-day holding period at a 95% confidence
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interval. Given Cleco’s reliance on historical data, VaR is effective in estimating risk exposures in markets in which there are no sudden fundamental changes or abnormal shifts in market conditions. An inherent limitation of VaR is that past changes in market risk factors, even when weighted toward more recent observations, may not produce accurate predictions of future market risk. VaR should be evaluated in light of this and the methodology’s other limitations.
The following table presents the VaR of natural gas derivative contracts based on these assumptions:
| | FOR THE YEAR ENDED DEC. 31, 2022 |
| | | FOR THE YEAR ENDED DEC. 31, 2023 | | | | | FOR THE YEAR ENDED DEC. 31, 2023 |
| (THOUSANDS) | (THOUSANDS) | AT DEC. 31, 2022 | | HIGH | | LOW | | AVERAGE | (THOUSANDS) | AT DEC. 31, 2023 | | HIGH | | LOW | | AVERAGE |
| Cleco | Cleco | $ | 26,128 | | | $ | 79,618 | | | $ | 22,142 | | | $ | 42,657 | |
| Cleco Power | Cleco Power | $ | 3,464 | | | $ | 5,370 | | | $ | 1,117 | | | $ | 1,982 | |
For more information on the accounting treatment and fair value of FTRs and natural gas derivative contracts, see Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 2 — Summary of Significant Accounting Policies — Derivatives and Other Risk Management Activity,” “Note 78 — Fair Value Accounting Instruments,” and “Note 89 — Derivative Instruments.”
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
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| Report of Independent Registered Public Accounting Firm |
To the Board of Managers and Member of
Cleco Corporate Holdings LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cleco Corporate Holdings LLC and its subsidiaries (the “Company”) as of December 31, 20222023 and 2021,2022, and the related consolidated statements of income, of comprehensive income, of changes in member’s equity, and of cash flows for each of the three years in the period ended December 31, 2022,2023, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20222023 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill Impairment Assessment – Cleco Power Reporting Unit
As described in Notes 2 and 1718 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1.49 billion aatt December 31, 2022,2023, all of which was assigned to the Cleco Power reporting unit. Management conducts an impairment test as of August 1 of each year, or more often if an event occurs or circumstances change that would indicate the carrying amount may be impaired. Fair value is estimated by management using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. Significant assumptions used in these fair value estimates include estimation of future cash flows related to capital expenditures, long-term rate of growth, and discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the Cleco Power reporting unit is a critical audit matter are (i) the significant judgment by management when developing the fair value measurement of the reporting unit; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to capital expenditures, long-term rate of growth, and discount rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) testing management’s process for developing the fair value estimate; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness, accuracy, and relevance of underlying data used in the model; and (iv) evaluating the significant assumptions used by management relating to capital expenditures, long-term rate of growth, and discount rate. Evaluating management’s assumptions related to the capital expenditures and projected long-term rate of growth involved evaluating whether the assumptions used by
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management were reasonable considering, as applicable, (i) the current and past performance of the reporting unit, (ii) the consistency with external market and modeled rate base changes, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the long-term rate of growth and discount rate assumptions.
Accounting for the Effects of Regulatory Matters
As described in Notes 2, 6, and 514 to the consolidated financial statements, Cleco Power LLC (“Cleco Power”), a wholly-owned subsidiary of the Company, complies with the accounting policies and practices prescribed by its regulatory commissions, Federal Energy Regulatory Commission (FERC) and the Louisiana Public Service Commission (LPSC). Cleco Power’s retail rates are regulated by the LPSC and its tariffs for transmission services are regulated by FERC, while rates for wholesale power sales are based on market-based rates and are ultimately reviewed by FERC. Cleco Power must evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral, and the recoverability and refund of certain assets. Cleco Power capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process. As of December 31, 2022,2023, there were $717.0$724.1 million of deferred costs included in regulatory assets and $152.8$195.5 million of regulatory liabilities awaiting cash outflow or potential refund.refund. Under the current regulatory environment, Cleco Power believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or competition, Cleco Power’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable,
Cleco Power would be required to write-down such assets. Further, potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco Power could require discontinuance of the application of the authoritative guidance of regulated operations.
The principal considerations for our determination that performing procedures relating to the accounting for the effects of regulatory matters is a critical audit matter are (i) the significant judgment by management in evaluating the impact of regulatory orders and accounting guidance on relevant transactions and (ii) a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence related to the timing of revenue recognition, the evaluation of cost deferral, and the recoverability and refund of certain assets.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, evaluating (i) management’s process for identifying relevant transactions which require regulatory treatment; (ii) management’s assessment regarding the accounting impacts arising from regulatory orders and accounting guidance; (iii) the reasonableness of management’s assessment regarding the timing of revenue recognition, probability of recovery of regulatory assets, and the establishment of regulatory liabilities; and (iv) the regulatory assets and liabilities calculated by management based on provisions and formulas outlined in rate orders and other correspondence.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 8, 20232024
We have served as the Company’s auditor since 2016.
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| | CLECO | CLECO | |
| | Consolidated Statements of Income | Consolidated Statements of Income | | |
| | FOR THE YEAR ENDED DEC. 31, |
| Consolidated Statements of Income | |
| | Consolidated Statements of Income | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating revenue | Operating revenue | |
| Electric operations | |
| Electric operations | |
| Electric operations | Electric operations | $ | 2,009,427 | | | $ | 1,590,796 | | | $ | 1,370,893 | |
| Other operations | Other operations | 237,379 | | | 195,767 | | | 180,524 | |
| | Gross operating revenue | Gross operating revenue | 2,246,806 | | | 1,786,563 | | | 1,551,417 | |
| Gross operating revenue | |
| Gross operating revenue | |
| Electric customer credits | Electric customer credits | (7,674) | | | (40,634) | | | (53,271) | |
| Operating revenue, net | Operating revenue, net | 2,239,132 | | | 1,745,929 | | | 1,498,146 | |
| Operating expenses | Operating expenses | |
| Fuel used for electric generation | |
| Fuel used for electric generation | |
| Fuel used for electric generation | Fuel used for electric generation | 599,410 | | | 349,227 | | | 326,869 | |
| Purchased power | Purchased power | 656,776 | | | 444,905 | | | 282,255 | |
| Other operations and maintenance | Other operations and maintenance | 300,785 | | | 304,996 | | | 303,246 | |
| Depreciation and amortization | Depreciation and amortization | 256,138 | | | 237,415 | | | 219,363 | |
| Taxes other than income taxes | Taxes other than income taxes | 70,295 | | | 64,509 | | | 61,321 | |
| | Regulatory disallowance | Regulatory disallowance | 13,841 | | | — | | | — | |
| Regulatory disallowance | |
| Regulatory disallowance | |
| | Total operating expenses | |
| Total operating expenses | |
| Total operating expenses | Total operating expenses | 1,897,245 | | | 1,401,052 | | | 1,193,054 | |
| Operating income | Operating income | 341,887 | | | 344,877 | | | 305,092 | |
| Interest income | Interest income | 6,372 | | | 3,312 | | | 3,948 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | 998 | |
| | Other expense, net | Other expense, net | (11,113) | | | (15,681) | | | (14,156) | |
| Other expense, net | |
| Other expense, net | |
| Interest charges | Interest charges | |
| Interest charges, net | |
| Interest charges, net | |
| Interest charges, net | Interest charges, net | 152,975 | | | 137,050 | | | 139,272 | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | (1,817) | | | (2,714) | | | (1,408) | |
| Total interest charges | Total interest charges | 151,158 | | | 134,336 | | | 137,864 | |
| Income before income taxes | 189,728 | | | 208,077 | | | 158,018 | |
| Federal and state income tax expense | 917 | | | 13,111 | | | 35,718 | |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | |
| (Loss) income from continuing operations before income taxes | |
| Federal and state income tax (benefit) expense | |
| (Loss) income from continuing operations, net of income taxes | |
| Income (loss) from discontinued operations, net of income taxes | |
| Net (loss) income | |
| The accompanying notes are an integral part of the consolidated financial statements. | The accompanying notes are an integral part of the consolidated financial statements. | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
| | | | | |
| Consolidated Statements of Comprehensive Income | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net (loss) income | $ | (15,227) | | | $ | 188,811 | | | $ | 194,966 | |
| Other comprehensive income, net of tax | | | | | |
| Postretirement benefits (loss) gain (net of tax benefit of $1,905, tax expense of $8,728, and tax expense of $394, respectively) | (5,171) | | | 23,688 | | | 2,167 | |
| | | | | |
| Total other comprehensive (loss) income, net of tax | (5,171) | | | 23,688 | | | 2,167 | |
| Comprehensive (loss) income, net of tax | $ | (20,398) | | | $ | 212,499 | | | $ | 197,133 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
| | | | | |
| Consolidated Statements of Comprehensive Income | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | |
| Other comprehensive income, net of tax | | | | | |
| Postretirement benefits gain (loss) (net of tax expense of $8,728, tax expense of $394, and tax benefit of $2,922, respectively) | 23,688 | | | 2,167 | | | (8,283) | |
| | | | | |
| Total other comprehensive income (loss), net of tax | 23,688 | | | 2,167 | | | (8,283) | |
| Comprehensive income, net of tax | $ | 212,499 | | | $ | 197,133 | | | $ | 114,017 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | |
| CLECO |
|
| Consolidated Balance Sheets |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 122,576 | | | $ | 54,541 | |
| Restricted cash and cash equivalents | 15,818 | | | 23,549 | |
| Customer accounts receivable (less allowance for credit losses of $3,012 in 2023 and $1,147 in 2022) | 48,949 | | | 72,646 | |
| Accounts receivable - affiliate | 24,216 | | | 14,613 | |
| Other accounts receivable | 30,518 | | | 38,332 | |
| | | |
| Unbilled revenue | 42,856 | | | 46,040 | |
| Fuel inventory, at average cost | 68,387 | | | 57,078 | |
| Materials and supplies, at average cost | 141,688 | | | 116,943 | |
| Energy risk management assets | 8,129 | | | 49,321 | |
| Accumulated deferred fuel | 11,627 | | | 57,881 | |
| Cash surrender value of company-/trust-owned life insurance policies | 56,922 | | | 52,859 | |
| Prepayments | 24,269 | | | 16,623 | |
| Regulatory assets | 34,280 | | | 47,173 | |
| Assets held for sale - discontinued operations | 159,514 | | | 135,430 | |
| Other current assets | 918 | | | 838 | |
| Total current assets | 790,667 | | | 783,867 | |
| Property, plant, and equipment | | | |
| Property, plant, and equipment | 4,838,994 | | | 4,604,039 | |
| Accumulated depreciation | (924,624) | | | (752,376) | |
| Net property, plant, and equipment | 3,914,370 | | | 3,851,663 | |
| Construction work in progress | 119,572 | | | 114,310 | |
| Total property, plant, and equipment, net | 4,033,942 | | | 3,965,973 | |
| | | |
| Goodwill | 1,490,797 | | | 1,490,797 | |
| | | |
| Operating lease right of use assets | 20,070 | | | 22,636 | |
| Restricted cash and cash equivalents | 113,573 | | | 109,415 | |
| | | |
| Note receivable | 11,990 | | | 12,908 | |
| Regulatory assets - deferred taxes, net | 43,866 | | | 8,803 | |
| Regulatory assets | 615,495 | | | 611,917 | |
| | | |
| Intangible asset - securitization | 398,658 | | | 413,123 | |
| Intangible assets - other | 10,633 | | | 20,086 | |
| Assets held for sale - discontinued operations | 546,218 | | | 727,160 | |
| Energy risk management assets | — | | | 58,895 | |
| | | |
| Other deferred charges | 24,484 | | | 28,169 | |
| Total assets | $ | 8,100,393 | | | $ | 8,253,749 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | |
| (Continued on next page) | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | |
| CLECO |
|
| Consolidated Balance Sheets |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Liabilities and member’s equity | | | |
| Liabilities | | | |
| Current liabilities | | | |
| Short-term debt | $ | 110,000 | | | $ | 109,000 | |
| Long-term debt and finance leases due within one year | 256,811 | | | 340,867 | |
| Accounts payable | 119,801 | | | 135,604 | |
| | | |
| Accounts payable - affiliate | 10,683 | | | 13,092 | |
| Customer deposits | 56,982 | | | 57,851 | |
| Provision for rate refund | 60,768 | | | 3,074 | |
| | | |
| Taxes payable | 19,963 | | | 17,448 | |
| Interest accrued | 22,209 | | | 25,540 | |
| | | |
| Energy risk management liabilities | 15,786 | | | 7,274 | |
| | | |
| Regulatory liabilities - deferred taxes, net | 21,939 | | | 42,890 | |
| Deferred compensation | 14,277 | | | 12,162 | |
| | | |
| Storm reserves | — | | | 9,409 | |
| Liabilities held for sale - discontinued operations | 39,019 | | | 68,501 | |
| Postretirement benefit obligations | 35,520 | | | 9,737 | |
| Other current liabilities | 24,378 | | | 20,248 | |
| Total current liabilities | 808,136 | | | 872,697 | |
| Long-term liabilities and deferred credits | | | |
| Accumulated deferred federal and state income taxes, net | 801,397 | | | 820,300 | |
| | | |
| Postretirement benefit obligations | 196,321 | | | 200,580 | |
| | | |
| | | |
| Storm reserves | 111,509 | | | 109,353 | |
| | | |
| | | |
| | | |
| | | |
| Asset retirement obligations | 13,723 | | | 15,429 | |
| Operating lease liabilities | 17,276 | | | 19,790 | |
| Liabilities held for sale - discontinued operations | 75,933 | | | 94,543 | |
| Customer advances for construction | 26,815 | | | 9,783 | |
| Other deferred credits | 34,186 | | | 25,113 | |
| Total long-term liabilities and deferred credits | 1,277,160 | | | 1,294,891 | |
| Long-term debt and finance leases, net | 3,141,924 | | | 3,139,094 | |
| Total liabilities | 5,227,220 | | | 5,306,682 | |
| Commitments and contingencies (Note 16) | | | |
| Member’s equity | 2,873,173 | | | 2,947,067 | |
| Total liabilities and member’s equity | $ | 8,100,393 | | | $ | 8,253,749 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | |
| CLECO |
|
| Consolidated Balance Sheets |
| AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 57,875 | | | $ | 148,563 | |
| Restricted cash and cash equivalents | 23,549 | | | 1,674 | |
| Customer accounts receivable (less allowance for credit losses of $1,147 in 2022 and $1,302 in 2021) | 125,863 | | | 91,869 | |
| Accounts receivable - affiliate | 14,613 | | | 3,041 | |
| Other accounts receivable | 42,935 | | | 27,818 | |
| Taxes receivable | — | | | 564 | |
| Unbilled revenue | 46,040 | | | 37,663 | |
| Fuel inventory, at average cost | 90,231 | | | 68,838 | |
| Materials and supplies, at average cost | 151,138 | | | 133,666 | |
| Energy risk management assets | 49,839 | | | 43,479 | |
| Accumulated deferred fuel | 57,881 | | | 56,826 | |
| Cash surrender value of company-/trust-owned life insurance policies | 52,859 | | | 98,576 | |
| Prepayments | 16,809 | | | 13,283 | |
| Regulatory assets | 47,173 | | | 29,261 | |
| Other current assets | 7,062 | | | 12,839 | |
| Total current assets | 783,867 | | | 767,960 | |
| Property, plant, and equipment | | | |
| Property, plant, and equipment | 5,445,066 | | | 5,416,722 | |
| Accumulated depreciation | (946,576) | | | (700,991) | |
| Net property, plant, and equipment | 4,498,490 | | | 4,715,731 | |
| Construction work in progress | 116,550 | | | 100,163 | |
| Total property, plant, and equipment, net | 4,615,040 | | | 4,815,894 | |
| Equity investment in investee | 2,072 | | | 2,072 | |
| Goodwill | 1,490,797 | | | 1,490,797 | |
| Prepayments | 24,926 | | | 21,598 | |
| Operating lease right of use assets | 22,673 | | | 24,014 | |
| Restricted cash and cash equivalents | 110,148 | | | 745 | |
| | | |
| Note receivable | 12,908 | | | 13,744 | |
| Regulatory assets - deferred taxes, net | 8,803 | | | — | |
| Regulatory assets | 611,917 | | | 810,820 | |
| | | |
| Intangible asset - securitization | 413,123 | | | — | |
| Intangible assets - other | 56,635 | | | 82,235 | |
| Energy risk management assets | 58,895 | | | 50,962 | |
| | | |
| Other deferred charges | 41,945 | | | 44,177 | |
| Total assets | $ | 8,253,749 | | | $ | 8,125,018 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| (Continued on next page) | | | |
| | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
|
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating activities | | | | | |
| Net (loss) income | $ | (15,227) | | | $ | 188,811 | | | $ | 194,966 | |
| Adjustment to reconcile net (loss) income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 237,614 | | | 289,486 | | | 273,392 | |
| | | | | |
| Provision for credit losses | 5,506 | | | 3,357 | | | 5,471 | |
| | | | | |
| | | | | |
| Regulatory disallowance | — | | | 13,841 | | | — | |
| Electric customer credits | 58,700 | | | — | | | — | |
| Unearned compensation expense | 10,102 | | | 5,502 | | | 6,678 | |
| Allowance for equity funds used during construction | (5,747) | | | (3,740) | | | (9,905) | |
| | | | | |
| Loss (gain) on energy risk management assets and liabilities, net | 103,876 | | | (21,805) | | | (80,314) | |
| Loss on classification as held for sale | 173,000 | | | — | | | — | |
| Deferred lease revenue | (2,301) | | | (9,205) | | | (9,205) | |
| Deferred income taxes | (75,103) | | | (7,911) | | | 13,954 | |
| Cash surrender value of company-/trust-owned life insurance | (2,211) | | | 1,266 | | | (9,438) | |
| Changes in assets and liabilities | | | | | |
| Accounts receivable | 8,112 | | | (61,848) | | | (25,865) | |
| Accounts receivable - affiliate | (9,445) | | | (11,309) | | | (1,379) | |
| Unbilled revenue | 3,184 | | | (8,377) | | | 2,464 | |
| Fuel inventory and materials and supplies | (52,621) | | | (43,703) | | | 30,254 | |
| Prepayments | (22,438) | | | (15,846) | | | (12,097) | |
| Accounts payable | (37,827) | | | 20,711 | | | (2,379) | |
| Accounts payable - affiliate | (2,409) | | | (38,206) | | | 10,014 | |
| Customer deposits | 5,311 | | | 6,778 | | | 11,241 | |
| Provision for merger commitments | — | | | — | | | (2,620) | |
| Postretirement benefit obligations | (2,793) | | | (847) | | | 7,106 | |
| Regulatory assets and liabilities, net | 7,592 | | | 21,537 | | | (163,788) | |
| Deferred fuel recoveries | 54,028 | | | 8,742 | | | (29,405) | |
| Asset retirement obligations | (7,348) | | | (4,958) | | | (959) | |
| Other deferred accounts | (1,632) | | | (7,333) | | | (13,032) | |
| Taxes accrued | 225 | | | 11,337 | | | (10,145) | |
| Interest accrued | (3,330) | | | 10,337 | | | (380) | |
| Energy risk management collateral | (6,500) | | | 6,500 | | | — | |
| | | | | |
| Other operating | 874 | | | (8,205) | | | (1,989) | |
| Net cash provided by operating activities | 421,192 | | | 344,912 | | | 182,640 | |
| Investing activities | | | | | |
| Additions to property, plant, and equipment | (230,238) | | | (236,767) | | | (311,141) | |
| | | | | |
| | | | | |
| Proceeds from sale of property, plant, and equipment | 956 | | | 993 | | | 1,654 | |
| | | | | |
| | | | | |
| Return of equity investment in investee | 80 | | | — | | | 7,000 | |
| | | | | |
| Return of investment in company-/trust-owned life insurance | 417 | | | 41,671 | | | 820 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other investing | 969 | | | 846 | | | 834 | |
| Net cash used in investing activities | (227,816) | | | (193,257) | | | (300,833) | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | |
| (Continued on next page) | | | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
|
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Financing activities | | | | | |
| | | | | |
| Draws on revolving credit facilities | 125,000 | | | 226,000 | | | 185,000 | |
| Payments on revolving credit facilities | (124,000) | | | (117,000) | | | (260,000) | |
| Issuances of long-term debt | 100,000 | | | 424,946 | | | 325,000 | |
| Repayments of long-term debt | (175,174) | | | (417,700) | | | (66,000) | |
| | | | | |
| Payment of financing costs | (375) | | | (6,968) | | | (4,408) | |
| | | | | |
| Distributions to member | (53,496) | | | (219,588) | | | — | |
| Other financing | (836) | | | (755) | | | (682) | |
| Net cash used in financing activities | (128,881) | | | (111,065) | | | 178,910 | |
| Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | 64,495 | | | 40,590 | | | 60,717 | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 191,572 | | (1) | 150,982 | | | 90,265 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 256,067 | | (2) | $ | 191,572 | | (1) | $ | 150,982 | |
| | | | | | |
| Supplementary cash flow information | | | | | |
| Interest paid, net of amount capitalized | $ | 170,680 | | | $ | 131,760 | | | $ | 126,061 | |
| Income taxes paid, net | $ | 2,162 | | | $ | — | | | $ | 72 | |
| Supplementary non-cash investing and financing activities | | | | | |
| Accrued additions to property, plant, and equipment | $ | 5,052 | | | $ | 10,247 | | | $ | 10,369 | |
| | | | | |
| Reduction in property, plant, and equipment due to regulatory disallowance | $ | — | | | $ | 13,841 | | | $ | — | |
| Reduction in property, plant, and equipment due to securitization of capitalized storm costs | $ | — | | | $ | 197,689 | | | $ | — | |
(1) Includes cash and cash equivalents of $54,541, current restricted cash and cash equivalents of $23,549, and non-current restricted cash and cash equivalents of $109,415. Also includes cash, cash equivalents, and restricted cash equivalents in assets held for sale of $4,067. (2) Includes cash and cash equivalents of $122,576, current restricted cash and cash equivalents of $15,818, and non-current restricted cash and cash equivalents of $113,573. Also includes cash, cash equivalents, and restricted cash equivalents in assets held for sale of $4,100. |
|
| The accompanying notes are an integral part of the consolidated financial statements. |
| | | | | | | | | | | |
| CLECO |
|
| Consolidated Balance Sheets |
| AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Liabilities and member’s equity | | | |
| Liabilities | | | |
| Current liabilities | | | |
| Short-term debt | $ | 109,000 | | | $ | — | |
| Long-term debt and finance leases due within one year | 340,867 | | | 93,455 | |
| Accounts payable | 192,213 | | | 167,886 | |
| | | |
| Accounts payable - affiliate | 13,092 | | | 51,297 | |
| Customer deposits | 57,851 | | | 60,852 | |
| Provision for rate refund | 3,074 | | | 5,682 | |
| | | |
| Taxes payable | 17,448 | | | 6,311 | |
| Interest accrued | 25,540 | | | 15,203 | |
| | | |
| Energy risk management liabilities | 8,841 | | | 834 | |
| | | |
| Regulatory liabilities - deferred taxes, net | 42,890 | | | 44,072 | |
| Deferred compensation | 12,162 | | | 14,420 | |
| | | |
| Storm reserves | 9,409 | | | — | |
| Other current liabilities | 40,310 | | | 53,150 | |
| Total current liabilities | 872,697 | | | 513,162 | |
| Long-term liabilities and deferred credits | | | |
| Accumulated deferred federal and state income taxes, net | 820,300 | | | 755,764 | |
| | | |
| Postretirement benefit obligations | 200,580 | | | 291,606 | |
| | | |
| Regulatory liabilities - deferred taxes, net | — | | | 51,472 | |
| Storm reserves | 109,353 | | | — | |
| | | |
| Deferred lease revenue | 22,246 | | | 31,451 | |
| Intangible liabilities | 13,956 | | | 18,997 | |
| | | |
| Asset retirement obligations | 73,653 | | | 69,667 | |
| Operating lease liabilities | 19,819 | | | 21,128 | |
| Other deferred credits | 34,984 | | | 27,582 | |
| Total long-term liabilities and deferred credits | 1,294,891 | | | 1,267,667 | |
| Long-term debt and finance leases, net | 3,139,094 | | | 3,390,033 | |
| Total liabilities | 5,306,682 | | | 5,170,862 | |
| Commitments and contingencies (Note 15) | | | |
| Member’s equity | 2,947,067 | | | 2,954,156 | |
| Total liabilities and member’s equity | $ | 8,253,749 | | | $ | 8,125,018 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO |
|
| Consolidated Statements of Changes in Member’s Equity |
| (THOUSANDS) |
MEMBERSHIP INTEREST | | RETAINED
EARNINGS | | AOCI | | TOTAL MEMBER’S EQUITY |
| Balances, Dec. 31, 2020 | $ | 2,454,276 | | | $ | 328,543 | | | $ | (25,796) | | | $ | 2,757,023 | |
| | | | | | | |
| Net income | — | | | 194,966 | | | — | | | 194,966 | |
| Other comprehensive income, net of tax | — | | | — | | | 2,167 | | | 2,167 | |
| Balances, Dec. 31, 2021 | $ | 2,454,276 | | | $ | 523,509 | | | $ | (23,629) | | | $ | 2,954,156 | |
| Distributions to member | — | | | (219,588) | | | — | | | (219,588) | |
| Net income | — | | | 188,811 | | | — | | | 188,811 | |
| Other comprehensive income, net of tax | — | | | — | | | 23,688 | | | 23,688 | |
| Balances, Dec. 31, 2022 | $ | 2,454,276 | | | $ | 492,732 | | | $ | 59 | | | $ | 2,947,067 | |
| Distributions to member | — | | | (53,496) | | | — | | | (53,496) | |
| | | | | | | |
| Net loss | — | | | (15,227) | | | — | | | (15,227) | |
| Other comprehensive loss, net of tax | — | | | — | | | (5,171) | | | (5,171) | |
| Balances, Dec. 31, 2023 | $ | 2,454,276 | | | $ | 424,009 | | | $ | (5,112) | | | $ | 2,873,173 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
|
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Operating activities | | | | | |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | |
| Adjustment to reconcile net income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 289,486 | | | 273,392 | | | 249,494 | |
| | | | | |
| Provision for credit losses | 3,357 | | | 5,471 | | | 5,488 | |
| | | | | |
| | | | | |
| Regulatory disallowance | 13,841 | | | — | | | — | |
| | | | | |
| Unearned compensation expense | 5,502 | | | 6,678 | | | 5,715 | |
| Allowance for equity funds used during construction | (3,740) | | | (9,905) | | | (998) | |
| | | | | |
| Gain on risk management assets and liabilities, net | (21,805) | | | (80,314) | | | (13,261) | |
| Deferred lease revenue | (9,205) | | | (9,205) | | | (9,205) | |
| Deferred income taxes | (7,911) | | | 13,954 | | | 35,876 | |
| Cash surrender value of company-/trust-owned life insurance | 1,266 | | | (9,438) | | | (3,042) | |
| Changes in assets and liabilities | | | | | |
| Accounts receivable | (61,848) | | | (25,865) | | | (8,772) | |
| Accounts receivable - affiliate | (11,309) | | | (1,379) | | | (621) | |
| Unbilled revenue | (8,377) | | | 2,464 | | | (6,920) | |
| Fuel inventory and materials and supplies | (43,703) | | | 30,254 | | | (39,602) | |
| Prepayments | (15,846) | | | (12,097) | | | (20,117) | |
| Accounts payable | 20,711 | | | (2,379) | | | (19,612) | |
| Accounts payable - affiliate | (38,206) | | | 10,014 | | | 1,470 | |
| Customer deposits | 6,778 | | | 11,241 | | | 6,663 | |
| Provision for merger commitments | — | | | (2,620) | | | 560 | |
| Postretirement benefit obligations | (847) | | | 7,106 | | | (9,588) | |
| Regulatory assets and liabilities, net | 21,537 | | | (163,788) | | | (76,428) | |
| Deferred fuel recoveries | 8,742 | | | (29,405) | | | (4,142) | |
| Asset retirement obligations | (4,958) | | | (959) | | | 461 | |
| Other deferred accounts | (7,333) | | | (13,032) | | | (17,392) | |
| Taxes accrued | 11,337 | | | (10,145) | | | 4,633 | |
| Interest accrued | 10,337 | | | (380) | | | (3,417) | |
| Energy risk management collateral received | 6,500 | | | — | | | — | |
| | | | | |
| Other operating | (8,205) | | | (1,989) | | | 6,276 | |
| Net cash provided by operating activities | 344,912 | | | 182,640 | | | 205,819 | |
| Investing activities | | | | | |
| Additions to property, plant, and equipment | (236,767) | | | (311,141) | | | (389,015) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Return of equity investment in investee | — | | | 7,000 | | | 8,000 | |
| | | | | |
| Return of investment in company-/trust-owned life insurance | 41,671 | | | 820 | | | 1,912 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Other investing | 1,839 | | | 2,488 | | | 1,196 | |
| Net cash used in investing activities | (193,257) | | | (300,833) | | | (377,907) | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | |
| (Continued on next page) | | | | | |
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | |
|
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Financing activities | | | | | |
| | | | | |
| Draws on revolving credit facilities | 226,000 | | | 185,000 | | | 238,000 | |
| Payments on revolving credit facilities | (117,000) | | | (260,000) | | | (163,000) | |
| Issuances of long-term debt | 424,946 | | | 325,000 | | | 125,000 | |
| Repayments of long-term debt | (417,700) | | | (66,000) | | | (75,055) | |
| | | | | |
| Payment of financing costs | (6,968) | | | (4,408) | | | (4,570) | |
| | | | | |
| Distributions to member | (219,588) | | | — | | | — | |
| Other financing | (755) | | | (682) | | | (617) | |
| Net cash (used in) provided by financing activities | (111,065) | | | 178,910 | | | 119,758 | |
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | 40,590 | | | 60,717 | | | (52,330) | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 150,982 | | (1) | 90,265 | | | 142,595 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 191,572 | | (2) | $ | 150,982 | | (1) | $ | 90,265 | |
| | | | | | |
| Supplementary cash flow information | | | | | |
| Interest paid, net of amount capitalized | $ | 131,760 | | | $ | 126,061 | | | $ | 130,544 | |
| Income taxes refunded, net | $ | — | | | $ | 72 | | | $ | (2,777) | |
| Supplementary non-cash investing and financing activities | | | | | |
| Accrued additions to property, plant, and equipment | $ | 10,247 | | | $ | 10,369 | | | $ | 7,943 | |
| | | | | |
| Reduction in property, plant, and equipment due to regulatory disallowance | $ | 13,841 | | | $ | — | | | $ | — | |
| Reduction in property, plant, and equipment due to securitization of capitalized storm costs | $ | 197,689 | | | $ | — | | | $ | — | |
(1) Includes cash and cash equivalents of $148,563, current restricted cash and cash equivalents of $1,674, and non-current restricted cash and cash equivalents of $745. (2) Includes cash and cash equivalents of $57,875, current restricted cash and cash equivalents of $23,549, and non-current restricted cash and cash equivalents of $110,148. |
|
The accompanying notes are an integral part of the consolidated financial statements. |
| | | | | | | | |
| CLECO | |
| CLECO POWER | | 2022 FORM 10-K
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO |
|
| Consolidated Statements of Changes in Member’s Equity |
| (THOUSANDS) |
MEMBERSHIP INTEREST | | RETAINED
EARNINGS | | AOCI | | TOTAL MEMBER’S EQUITY |
| Balances, Dec. 31, 2019 | $ | 2,454,276 | | | $ | 206,243 | | | $ | (17,513) | | | $ | 2,643,006 | |
| | | | | | | |
| Net income | — | | | 122,300 | | | — | | | 122,300 | |
| Other comprehensive loss, net of tax | — | | | — | | | (8,283) | | | (8,283) | |
| Balances, Dec. 31, 2020 | $ | 2,454,276 | | | $ | 328,543 | | | $ | (25,796) | | | $ | 2,757,023 | |
| | | | | | | |
| Net income | — | | | 194,966 | | | — | | | 194,966 | |
| Other comprehensive income, net of tax | — | | | — | | | 2,167 | | | 2,167 | |
| Balances, Dec. 31, 2021 | $ | 2,454,276 | | | $ | 523,509 | | | $ | (23,629) | | | $ | 2,954,156 | |
| Distributions to member | — | | | (219,588) | | | — | | | (219,588) | |
| | | | | | | |
| Net income | — | | | 188,811 | | | — | | | 188,811 | |
| Other comprehensive income, net of tax | — | | | — | | | 23,688 | | | 23,688 | |
| Balances, Dec. 31, 2022 | $ | 2,454,276 | | | $ | 492,732 | | | $ | 59 | | | $ | 2,947,067 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | |
| Report of Independent Registered Public Accounting Firm |
To the Board of Managers and Member of
Cleco Power LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cleco Power LLC and its subsidiaries (the “Company” or “Cleco Power”) as of December 31, 20222023 and 2021,2022, and the related consolidated statements of income, of comprehensive income, of changes in member’s equity, and of cash flows for each of the three years in the period ended December 31, 2022,2023, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20222023 and 2021,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20222023 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Regulatory Matters
As described in Notes 2, 6, and 514 to the consolidated financial statements, the Company complies with the accounting policies and practices prescribed by its regulatory commissions, Federal Energy Regulatory Commission (FERC) and the Louisiana Public Service Commission (LPSC). The Company’s retail rates are regulated by the LPSC and its tariffs for transmission services are regulated by FERC, while rates for wholesale power sales are based on market-based rates and are ultimately reviewed by FERC. The Company must evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral, and the recoverability and refund of certain assets. The Company capitalizes or defers certain costs for recovery from customers and recognizes a liability for amounts expected to be returned to customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process. As of December 31, 2022,2023, there were $589.3$606.5 million of deferred costs included in regulatory assets and $152.8$195.5 million of regulatory liabilities awaiting cash outflow or potential refund. Under the current regulatory environment, the Company believes these regulatory assets will be fully recoverable; however, if in the future, as a result of regulatory changes or competition, the Company’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable, the Company would be required to write-down such assets. Further, potential deregulation of the industry or possible future changes in the method of rate regulation of the Company could require discontinuance of the application of the authoritative guidance of regulated operations.
The principal considerations for our determination that performing procedures relating to the accounting for the effects of regulatory matters is a critical audit matter are (i) the significant judgment by management in evaluating the impact of regulatory orders and accounting guidance on relevant transactions and (ii) a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence related to the timing of revenue recognition, the evaluation of cost deferral, and the recoverability and refund of certain assets.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
procedures included, among others, evaluating (i) management’s process for identifying relevant transactions which require regulatory treatment; (ii) management’s assessment regarding the accounting impacts arising from regulatory orders and accounting guidance; (iii) the reasonableness of management’s assessment regarding the timing of revenue recognition, probability of recovery of regulatory assets, and the establishment of regulatory liabilities; and (iv) the regulatory assets and liabilities calculated by management based on provisions and formulas outlined in rate orders and other correspondence.
/s/ PricewaterhouseCoopers LLP
New Orleans, Louisiana
March 8, 20232024
We have served as the Company’s auditor since 2016.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | CLECO POWER | CLECO POWER | |
| | Consolidated Statements of Income | Consolidated Statements of Income | | |
| | Consolidated Statements of Income | |
| | Consolidated Statements of Income | |
| | |
| | |
| | | FOR THE YEAR ENDED DEC. 31, | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating revenue | Operating revenue | | | | | Operating revenue | | | | | |
| Electric operations | Electric operations | $ | 1,523,066 | | | $ | 1,202,249 | | | $ | 1,015,018 | |
| Other operations | Other operations | 98,759 | | | 74,625 | | | 65,237 | |
| Affiliate revenue | Affiliate revenue | 6,377 | | | 5,641 | | | 5,156 | |
| Gross operating revenue | Gross operating revenue | 1,628,202 | | | 1,282,515 | | | 1,085,411 | |
| Electric customer credits | Electric customer credits | (7,674) | | | (40,878) | | | (53,119) | |
| Operating revenue, net | Operating revenue, net | 1,620,528 | | | 1,241,637 | | | 1,032,292 | |
| Operating expenses | Operating expenses | | | Operating expenses | | | | | |
| Fuel used for electric generation | Fuel used for electric generation | 610,737 | | | 396,279 | | | 293,492 | |
| Purchased power | Purchased power | 286,756 | | | 194,818 | | | 100,698 | |
| Other operations and maintenance | Other operations and maintenance | 216,851 | | | 223,257 | | | 221,146 | |
| Depreciation and amortization | Depreciation and amortization | 178,231 | | | 173,498 | | | 166,987 | |
| Taxes other than income taxes | Taxes other than income taxes | 55,075 | | | 49,598 | | | 44,631 | |
| Regulatory disallowance | Regulatory disallowance | 13,841 | | | — | | | — | |
| | Total operating expenses | Total operating expenses | 1,361,491 | | | 1,037,450 | | | 826,954 | |
| | Total operating expenses | |
| | Total operating expenses | |
| Operating income | Operating income | 259,037 | | | 204,187 | | | 205,338 | |
| Interest income | Interest income | 5,082 | | | 3,294 | | | 3,362 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | 3,740 | | | 9,905 | | | 998 | |
| Other expense, net | Other expense, net | (7,081) | | | (19,561) | | | (12,259) | |
| Interest charges | Interest charges | | | Interest charges | | | | | |
| Interest charges, net | Interest charges, net | 90,035 | | | 75,804 | | | 75,393 | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | (1,817) | | | (2,714) | | | (1,408) | |
| Total interest charges | Total interest charges | 88,218 | | | 73,090 | | | 73,985 | |
| Income before income taxes | Income before income taxes | 172,560 | | | 124,735 | | | 123,454 | |
| Federal and state income tax expense (benefit) | 2,503 | | | (9,353) | | | 26,799 | |
| Federal and state income tax (benefit) expense | |
| Net income | Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 96,655 | |
| The accompanying notes are an integral part of the consolidated financial statements. | The accompanying notes are an integral part of the consolidated financial statements. | | | | | The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
|
| Consolidated Statements of Comprehensive Income | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | 134,088 | |
| Other comprehensive income, net of tax | | | | | |
| Postretirement benefits gain (loss) (net of tax benefit of $825, tax expense of $3,525, and tax expense of $2,024, respectively) | (2,237) | | | 9,567 | | | 6,254 | |
| Amortization of interest rate derivatives to earnings (net of tax expense of $93, $93, and $28, respectively) | 251 | | | 251 | | | 316 | |
| Total other comprehensive income, net of tax | (1,986) | | | 9,818 | | | 6,570 | |
| Comprehensive income, net of tax | $ | 135,163 | | | $ | 179,875 | | | $ | 140,658 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
|
| Consolidated Statements of Comprehensive Income | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 96,655 | |
| Other comprehensive income, net of tax | | | | | |
| Postretirement benefits gain (loss) (net of tax expense of $3,525, tax expense of $2,024, and tax benefit of $855, respectively) | 9,567 | | | 6,254 | | | (2,422) | |
| Amortization of interest rate derivatives to earnings (net of tax expense of $93, $28, and $90, respectively) | 251 | | | 316 | | | 254 | |
| Total other comprehensive income (loss), net of tax | 9,818 | | | 6,570 | | | (2,168) | |
| Comprehensive income, net of tax | $ | 179,875 | | | $ | 140,658 | | | $ | 94,487 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | |
| CLECO POWER |
|
| Consolidated Balance Sheets | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Assets | | | |
| Utility plant and equipment | | | |
| Property, plant, and equipment | $ | 5,969,355 | | | $ | 5,736,526 | |
| Accumulated depreciation | (2,244,217) | | | (2,082,153) | |
| Net property, plant, and equipment | 3,725,138 | | | 3,654,373 | |
| Construction work in progress | 118,249 | | | 113,470 | |
| Total utility plant and equipment, net | 3,843,387 | | | 3,767,843 | |
| Current assets | | | |
| Cash and cash equivalents | 49,211 | | | 14,703 | |
| Restricted cash and cash equivalents | 15,818 | | | 23,549 | |
| Customer accounts receivable (less allowance for credit losses of $3,012 in 2023 and $1,147 in 2022) | 48,949 | | | 72,646 | |
| Accounts receivable - affiliate | 4,543 | | | 3,771 | |
| Other accounts receivable | 27,768 | | | 33,444 | |
| | | |
| Unbilled revenue | 42,856 | | | 46,040 | |
| Fuel inventory, at average cost | 68,387 | | | 57,078 | |
| Materials and supplies, at average cost | 141,688 | | | 116,943 | |
| Energy risk management assets | 3,087 | | | 2,570 | |
| Accumulated deferred fuel | 11,627 | | | 57,881 | |
| Cash surrender value of company-owned life insurance policies | 9,792 | | | 9,471 | |
| Prepayments | 17,375 | | | 11,765 | |
| Regulatory assets | 26,545 | | | 39,438 | |
| Other current assets | 918 | | | 838 | |
| Total current assets | 468,564 | | | 490,137 | |
| | | |
| | | |
| Operating lease right of use assets | 20,070 | | | 22,628 | |
| Restricted cash and cash equivalents | 113,549 | | | 109,392 | |
| | | |
| Note receivable | 11,990 | | | 12,908 | |
| Regulatory assets - deferred taxes, net | 43,866 | | | 8,803 | |
| Regulatory assets | 505,623 | | | 491,978 | |
| Intangible asset - securitization | 398,658 | | | 413,123 | |
| | | |
| | | |
| Other deferred charges | 23,835 | | | 27,361 | |
| Total assets | $ | 5,429,542 | | | $ | 5,344,173 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | |
| (Continued on next page) | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | |
| CLECO POWER |
|
| Consolidated Balance Sheets | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Liabilities and member’s equity | | | |
| Member’s equity | $ | 2,063,237 | | | $ | 2,022,912 | |
| Long-term debt and finance leases, net | 1,697,152 | | | 1,786,447 | |
| Total capitalization | 3,760,389 | | | 3,809,359 | |
| Current liabilities | | | |
| Short-term debt | — | | | 45,000 | |
| Long-term debt and finance leases due within one year | 190,314 | | | 110,344 | |
| Accounts payable | 95,565 | | | 119,435 | |
| | | |
| Accounts payable - affiliate | 13,200 | | | 12,448 | |
| Customer deposits | 56,982 | | | 57,851 | |
| Provision for rate refund | 60,768 | | | 3,074 | |
| | | |
| Taxes payable | 23,709 | | | 15,277 | |
| Interest accrued | 11,752 | | | 15,276 | |
| | | |
| Energy risk management liabilities | 15,112 | | | 4,864 | |
| | | |
| Regulatory liabilities - deferred taxes, net | 21,939 | | | 42,890 | |
| | | |
| Storm reserves | — | | | 9,409 | |
| Postretirement benefit obligations | 30,777 | | | 4,981 | |
| Other current liabilities | 14,617 | | | 13,379 | |
| Total current liabilities | 534,735 | | | 454,228 | |
| Commitments and contingencies (Note 16) | | | |
| Long-term liabilities and deferred credits | | | |
| Accumulated deferred federal and state income taxes, net | 806,560 | | | 770,127 | |
| | | |
| Postretirement benefit obligations | 132,321 | | | 137,754 | |
| | | |
| | | |
| Storm reserves | 111,509 | | | 109,353 | |
| | | |
| | | |
| | | |
| | | |
| Asset retirement obligations | 13,598 | | | 15,301 | |
| Operating lease liabilities | 17,276 | | | 19,790 | |
| Customer advances for construction | 26,815 | | | 9,783 | |
| Other deferred credits | 26,339 | | | 18,478 | |
| Total long-term liabilities and deferred credits | 1,134,418 | | | 1,080,586 | |
| Total liabilities and member’s equity | $ | 5,429,542 | | | $ | 5,344,173 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | |
| CLECO POWER |
|
| Consolidated Balance Sheets | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Assets | | | |
| Utility plant and equipment | | | |
| Property, plant, and equipment | $ | 5,736,526 | | | $ | 5,745,489 | |
| Accumulated depreciation | (2,082,153) | | | (1,919,766) | |
| Net property, plant, and equipment | 3,654,373 | | | 3,825,723 | |
| Construction work in progress | 113,470 | | | 94,573 | |
| Total utility plant and equipment, net | 3,767,843 | | | 3,920,296 | |
| Current assets | | | |
| Cash and cash equivalents | 14,703 | | | 85,667 | |
| Restricted cash and cash equivalents | 23,549 | | | 1,674 | |
| Customer accounts receivable (less allowance for credit losses of $1,147 in 2022 and $1,302 in 2021) | 72,646 | | | 48,551 | |
| Accounts receivable - affiliate | 3,771 | | | 13,612 | |
| Other accounts receivable | 33,444 | | | 21,931 | |
| | | |
| Unbilled revenue | 46,040 | | | 37,663 | |
| Fuel inventory, at average cost | 57,078 | | | 46,121 | |
| Materials and supplies, at average cost | 116,943 | | | 101,502 | |
| Energy risk management assets | 2,570 | | | 5,515 | |
| Accumulated deferred fuel | 57,881 | | | 56,826 | |
| Cash surrender value of company-owned life insurance policies | 9,471 | | | 16,260 | |
| Prepayments | 11,765 | | | 7,784 | |
| Regulatory assets | 39,438 | | | 21,526 | |
| Other current assets | 838 | | | 782 | |
| Total current assets | 490,137 | | | 465,414 | |
| Equity investment in investee | 2,072 | | | 2,072 | |
| Prepayments | 1,493 | | | 1,243 | |
| Operating lease right of use assets | 22,628 | | | 23,970 | |
| Restricted cash and cash equivalents | 109,392 | | | — | |
| | | |
| Note receivable | 12,908 | | | 13,744 | |
| Regulatory assets - deferred taxes, net | 8,803 | | | — | |
| Regulatory assets | 491,978 | | | 680,813 | |
| Intangible asset - securitization | 413,123 | | | — | |
| | | |
| | | |
| Other deferred charges | 23,796 | | | 21,949 | |
| Total assets | $ | 5,344,173 | | | $ | 5,129,501 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| (Continued on next page) | | | |
| | | | | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
| | | | | |
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating activities | | | | | |
| Net income | $ | 137,149 | | | $ | 170,057 | | | $ | 134,088 | |
| Adjustment to reconcile net income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 197,366 | | | 185,029 | | | 182,373 | |
| | | | | |
| Provision for credit losses | 5,506 | | | 3,357 | | | 5,471 | |
| Regulatory disallowance | — | | | 13,841 | | | — | |
| Electric customer credits | 58,700 | | | — | | | — | |
| Unearned compensation expense | 1,661 | | | 858 | | | 1,548 | |
| Allowance for equity funds used during construction | (5,747) | | | (3,740) | | | (9,905) | |
| Deferred income taxes | (21,112) | | | (4,690) | | | (9,211) | |
| | | | | |
| Changes in assets and liabilities | | | | | |
| Accounts receivable | 18,044 | | | (48,353) | | | (19,707) | |
| Accounts receivable - affiliate | 1,286 | | | 13,253 | | | 5,531 | |
| Unbilled revenue | 3,184 | | | (8,377) | | | 2,464 | |
| Fuel inventory and materials and supplies | (36,443) | | | (27,764) | | | 11,767 | |
| Prepayments | (5,407) | | | (3,808) | | | (2,370) | |
| Accounts payable | (19,185) | | | (854) | | | 1,135 | |
| Accounts payable - affiliate | 1,060 | | | (56,714) | | | (2,071) | |
| Customer deposits | 5,311 | | | 6,778 | | | 11,241 | |
| Provision for merger commitments | — | | | — | | | (2,120) | |
| Postretirement benefit obligations | (1,839) | | | 215 | | | 5,586 | |
| Regulatory assets and liabilities, net | 5,604 | | | 19,550 | | | (165,775) | |
| Deferred fuel recoveries | 54,028 | | | 8,742 | | | (29,405) | |
| Asset retirement obligations | (7,124) | | | (4,728) | | | 300 | |
| Other deferred accounts | 4,441 | | | (2,281) | | | (6,199) | |
| Taxes accrued | 6,567 | | | 9,704 | | | (7,647) | |
| Interest accrued | (3,524) | | | 10,196 | | | (277) | |
| Other operating | 417 | | | (6,006) | | | (4,299) | |
| Net cash provided by operating activities | 399,943 | | | 274,265 | | | 102,518 | |
| Investing activities | | | | | |
| Additions to property, plant, and equipment | (220,982) | | | (228,940) | | | (300,957) | |
| | | | | |
| Proceeds from sale of property, plant, and equipment | 859 | | | 905 | | | 1,558 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Return of equity investment in investee | 80 | | | — | | | 7,000 | |
| Return of investment in company-owned life insurance | 417 | | | 6,496 | | | 820 | |
| Other investing | 969 | | | 846 | | | 834 | |
| Net cash used in investing activities | (218,657) | | | (220,693) | | | (290,745) | |
| | | | | |
| | | | | |
| | | | | |
| Financing activities | | | | | |
| Draws on revolving credit facility | 25,000 | | | 162,000 | | | 185,000 | |
| Payments on revolving credit facility | (70,000) | | | (117,000) | | | (260,000) | |
| Issuances of long-term debt | 100,000 | | | 424,946 | | | 325,000 | |
| Repayments of long-term debt | (109,574) | | | (350,000) | | | — | |
| | | | | |
| Payment of financing costs | (104) | | | (6,960) | | | (3,141) | |
| | | | | |
| Distributions to member | (94,838) | | | (105,500) | | | — | |
| Other financing | (836) | | | (755) | | | (682) | |
| Net cash (used in) provided by financing activities | (150,352) | | | 6,731 | | | 246,177 | |
| Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents | 30,934 | | | 60,303 | | | 57,950 | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 147,644 | | (1) | 87,341 | | | 29,391 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 178,578 | | (2) | $ | 147,644 | | (1) | $ | 87,341 | |
|
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | |
| CLECO POWER |
|
| Consolidated Balance Sheets | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Liabilities and member’s equity | | | |
| Member’s equity | $ | 2,022,912 | | | $ | 1,948,537 | |
| Long-term debt and finance leases, net | 1,786,447 | | | 1,800,854 | |
| Total capitalization | 3,809,359 | | | 3,749,391 | |
| Current liabilities | | | |
| Short-term debt | 45,000 | | | — | |
| Long-term debt and finance leases due within one year | 110,344 | | | 25,755 | |
| Accounts payable | 119,435 | | | 114,493 | |
| | | |
| Accounts payable - affiliate | 12,448 | | | 69,729 | |
| Customer deposits | 57,851 | | | 60,852 | |
| Provision for rate refund | 3,074 | | | 5,682 | |
| | | |
| Taxes payable, net | 15,277 | | | 5,494 | |
| Interest accrued | 15,276 | | | 5,080 | |
| | | |
| Energy risk management liabilities | 4,864 | | | 597 | |
| | | |
| Regulatory liabilities - deferred taxes, net | 42,890 | | | 44,072 | |
| | | |
| Storm reserves | 9,409 | | | — | |
| Other current liabilities | 18,360 | | | 23,467 | |
| Total current liabilities | 454,228 | | | 355,221 | |
| Commitments and contingencies (Note 15) | | | |
| Long-term liabilities and deferred credits | | | |
| Accumulated deferred federal and state income taxes, net | 770,127 | | | 707,479 | |
| | | |
| Postretirement benefit obligations | 137,754 | | | 205,214 | |
| | | |
| Regulatory liabilities - deferred taxes, net | — | | | 51,472 | |
| Storm reserves | 109,353 | | | — | |
| | | |
| | | |
| | | |
| | | |
| Asset retirement obligations | 15,301 | | | 19,456 | |
| Operating lease liabilities | 19,790 | | | 21,100 | |
| Other deferred credits | 28,261 | | | 20,168 | |
| Total long-term liabilities and deferred credits | 1,080,586 | | | 1,024,889 | |
| Total liabilities and member’s equity | $ | 5,344,173 | | | $ | 5,129,501 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | |
| | | | | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
| | | | | |
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Supplementary cash flow information | | | | | |
| Interest paid, net of amount capitalized | $ | 98,143 | | | $ | 71,912 | | | $ | 68,373 | |
| | | | | |
| Supplementary non-cash investing and financing activities | | | | | |
| Accrued additions to property, plant, and equipment | $ | 4,196 | | | $ | 9,954 | | | $ | 9,696 | |
| | | | | |
| Reduction in property, plant, and equipment due to regulatory disallowance | $ | — | | | $ | 13,841 | | | $ | — | |
| Reduction in property, plant, and equipment due to securitization of capitalized storm costs | $ | — | | | $ | 197,689 | | | $ | — | |
(1) Includes cash and cash equivalents of $14,703, current restricted cash and cash equivalents of $23,549, and non-current restricted cash and cash equivalents of $109,392. (2) Includes cash and cash equivalents of $49,211, current restricted cash and cash equivalents of $15,818, and non-current restricted cash and cash equivalents of $113,549. |
| The accompanying notes are an integral part of the consolidated financial statements. |
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
| | | | | |
| Consolidated Statements of Changes in Member’s Equity | | | | | |
| (THOUSANDS) | MEMBER’S
EQUITY | | AOCI | | TOTAL MEMBER’S EQUITY |
| Balances, Dec. 31, 2020 | $ | 1,832,632 | | | $ | (24,753) | | | $ | 1,807,879 | |
| | | | | |
| | | | | |
| Net income | 134,088 | | | — | | | 134,088 | |
| Other comprehensive income, net of tax | — | | | 6,570 | | | 6,570 | |
| Balances, Dec. 31, 2021 | $ | 1,966,720 | | | $ | (18,183) | | | $ | 1,948,537 | |
| Distributions to member | (105,500) | | | — | | | (105,500) | |
| Net income | 170,057 | | | — | | | 170,057 | |
| Other comprehensive income, net of tax | — | | | 9,818 | | | 9,818 | |
| Balances, Dec. 31, 2022 | $ | 2,031,277 | | | $ | (8,365) | | | $ | 2,022,912 | |
| Distributions to member | (94,838) | | | — | | | (94,838) | |
| | | | | |
| Net income | 137,149 | | | — | | | 137,149 | |
| Other comprehensive loss, net of tax | — | | | (1,986) | | | (1,986) | |
| Balances, Dec. 31, 2023 | $ | 2,073,588 | | | $ | (10,351) | | | $ | 2,063,237 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
| | | | | |
| Consolidated Statements of Cash Flows | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Operating activities | | | | | |
| Net income | $ | 170,057 | | | $ | 134,088 | | | $ | 96,655 | |
| Adjustment to reconcile net income to net cash provided by operating activities | | | | | |
| Depreciation and amortization | 185,029 | | | 182,373 | | | 172,452 | |
| | | | | |
| Provision for credit losses | 3,357 | | | 5,471 | | | 5,100 | |
| Regulatory disallowance | 13,841 | | | — | | | — | |
| | | | | |
| | | | | |
| Allowance for equity funds used during construction | (3,740) | | | (9,905) | | | (998) | |
| Deferred income taxes | (4,690) | | | (9,211) | | | 6,165 | |
| | | | | |
| Changes in assets and liabilities | | | | | |
| Accounts receivable | (48,353) | | | (19,707) | | | (21,289) | |
| Accounts receivable - affiliate | 13,253 | | | 5,531 | | | 3,403 | |
| Unbilled revenue | (8,377) | | | 2,464 | | | (6,920) | |
| Fuel inventory and materials and supplies | (27,764) | | | 11,767 | | | (16,609) | |
| Prepayments | (3,808) | | | (2,370) | | | (1,414) | |
| Accounts payable | (854) | | | 1,135 | | | (27,401) | |
| Accounts payable - affiliate | (56,714) | | | (2,071) | | | (276) | |
| Customer deposits | 6,778 | | | 11,241 | | | 6,663 | |
| Provision for merger commitments | — | | | (2,120) | | | (1,752) | |
| Postretirement benefit obligations | 215 | | | 5,586 | | | (12,321) | |
| Regulatory assets and liabilities, net | 19,550 | | | (165,775) | | | (78,416) | |
| Deferred fuel recoveries | 8,742 | | | (29,405) | | | (4,142) | |
| Asset retirement obligations | (4,728) | | | — | | | — | |
| Other deferred accounts | (2,281) | | | (6,199) | | | (17,710) | |
| Taxes accrued | 9,704 | | | (7,647) | | | 23,442 | |
| Interest accrued | 10,196 | | | (277) | | | (2,614) | |
| Other operating | (5,148) | | | (2,451) | | | 5,761 | |
| Net cash provided by operating activities | 274,265 | | | 102,518 | | | 127,779 | |
| Investing activities | | | | | |
| Additions to property, plant, and equipment | (228,940) | | | (300,957) | | | (377,044) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Return of equity investment in investee | — | | | 7,000 | | | 8,000 | |
| Return of investment in company-owned life insurance | 6,496 | | | 820 | | | 1,912 | |
| Other investing | 1,751 | | | 2,392 | | | 1,196 | |
| Net cash used in investing activities | (220,693) | | | (290,745) | | | (365,936) | |
| | | | | |
| | | | | |
| | | | | |
| Financing activities | | | | | |
| Draws on revolving credit facility | 162,000 | | | 185,000 | | | 150,000 | |
| Payments on revolving credit facility | (117,000) | | | (260,000) | | | (75,000) | |
| Issuances of long-term debt | 424,946 | | | 325,000 | | | 125,000 | |
| Repayments of long-term debt | (350,000) | | | — | | | (11,055) | |
| | | | | |
| Payment of financing costs | (6,960) | | | (3,141) | | | (1,732) | |
| | | | | |
| Distributions to member | (105,500) | | | — | | | — | |
| Other financing | (755) | | | (682) | | | (617) | |
| Net cash provided by financing activities | 6,731 | | | 246,177 | | | 186,596 | |
| Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents | 60,303 | | | 57,950 | | | (51,561) | |
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period | 87,341 | | (1) | 29,391 | | | 80,952 | |
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period | $ | 147,644 | | (2) | $ | 87,341 | | (1) | $ | 29,391 | |
|
| | | | | |
| | | | | | |
| | | | | |
| Supplementary cash flow information | | | | | |
| Interest paid, net of amount capitalized | $ | 71,912 | | | $ | 68,373 | | | $ | 67,799 | |
| | | | | |
| Supplementary non-cash investing and financing activities | | | | | |
| Accrued additions to property, plant, and equipment | $ | 9,954 | | | $ | 9,696 | | | $ | 6,824 | |
| | | | | |
| Reduction in property, plant, and equipment due to regulatory disallowance | $ | 13,841 | | | $ | — | | | $ | — | |
| Reduction in property, plant, and equipment due to securitization of capitalized storm costs | $ | 197,689 | | | $ | — | | | $ | — | |
(1) Includes cash and cash equivalents of $85,667 and current restricted cash and cash equivalents of $1,674. (2) Includes cash and cash equivalents of $14,703, current restricted cash and cash equivalents of $23,549, and non-current restricted cash and cash equivalents of $109,392. |
| The accompanying notes are an integral part of the consolidated financial statements. |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | |
| | | | | |
| Consolidated Statements of Changes in Member’s Equity | | | | | |
| (THOUSANDS) | MEMBER’S
EQUITY | | AOCI | | TOTAL MEMBER’S EQUITY |
| Balances, Dec. 31, 2019 | $ | 1,735,977 | | | $ | (22,585) | | | $ | 1,713,392 | |
| | | | | |
| | | | | |
| Net income | 96,655 | | | — | | | 96,655 | |
| Other comprehensive loss, net of tax | — | | | (2,168) | | | (2,168) | |
| Balances, Dec. 31, 2020 | $ | 1,832,632 | | | $ | (24,753) | | | $ | 1,807,879 | |
| | | | | |
| Net income | 134,088 | | | — | | | 134,088 | |
| Other comprehensive income, net of tax | — | | | 6,570 | | | 6,570 | |
| Balances, Dec. 31, 2021 | $ | 1,966,720 | | | $ | (18,183) | | | $ | 1,948,537 | |
| Distributions to member | (105,500) | | | — | | | (105,500) | |
| Net income | 170,057 | | | — | | | 170,057 | |
| Other comprehensive income, net of tax | — | | | 9,818 | | | 9,818 | |
| Balances, Dec. 31, 2022 | $ | 2,031,277 | | | $ | (8,365) | | | $ | 2,022,912 | |
| The accompanying notes are an integral part of the consolidated financial statements. | | | | | |
| | | | | | | | |
| CLECO | |
| CLECO POWER | | 2022 FORM 10-K
| | | | | | | | | | | | | | |
| Index to Applicable Notes to the Financial Statements of the Registrants |
| | | | | | | | |
| Note 1 | The Company | Cleco and Cleco Power |
| Note 2 | Summary of Significant Accounting Policies | Cleco and Cleco Power |
| Note 3 | Discontinued Operations | Cleco |
| Note 4 | Leases | Cleco and Cleco Power |
Note 45 | Revenue Recognition | Cleco and Cleco Power |
Note 56 | Regulatory Assets and Liabilities | Cleco and Cleco Power |
Note 67 | Jointly Owned Generation FacilitiesUnits | Cleco and Cleco Power |
Note 78 | Fair Value Accounting Instruments | Cleco and Cleco Power |
Note 89 | Derivative Instruments | Cleco and Cleco Power |
Note 910 | Debt | Cleco and Cleco Power |
Note 1011 | Pension Plan and Employee Benefits | Cleco and Cleco Power |
Note 1112 | Income Taxes | Cleco and Cleco Power |
Note 1213 | Segment Disclosures about Segments | Cleco |
Note 1314 | Regulation and Rates | Cleco and Cleco Power |
Note 1415 | Variable Interest Entities | Cleco and Cleco Power |
Note 1516 | Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees | Cleco and Cleco Power |
Note 1617 | Affiliate Transactions | Cleco and Cleco Power |
Note 1718 | Intangible Assets Intangible Liabilities, and Goodwill | Cleco and Cleco Power |
Note 1819 | Accumulated Other Comprehensive Loss | Cleco and Cleco Power |
Note 19 | Securitization | Cleco and Cleco Power |
| | | | | | | | | | | | | | |
| Notes to the Financial Statements |
Cleco is composed of the following:
•Cleco Power, a regulated electric utility subsidiary, which owns nine generating units with a total rated capacity of 3,035 MW and serves approximately 293,000295,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi.Louisiana. Cleco Power also owns a 50% interest in Oxbow. Cleco Power owns all of the outstanding membership interests in Cleco Securitization I, a special purpose limited liability company that is consolidated with Cleco Power in its financial statements. For more information on Oxbow and Cleco Securitization I, see Note 1415 — “Variable Interest Entities.”
•Cleco Cajun, an unregulated electric utility subsidiary, which owns 14generating units with a total rated capacity of 3,379 MW and supplies wholesale power and capacity in Arkansas, Louisiana,Louisiana. Cleco Cajun’s Cottonwood Plant is leased to a third-party in which the third party operates the plant and Texas.receives all revenues from the operations of the plant. On November 22, 2023, Cleco Cajun entered into the Cleco Cajun Divestiture Purchase and Sale Agreement to sell its unregulated business, the Cleco Cajun Sale Group. The Cleco Cajun Sale Group is presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, see Note 3 — “Discontinued Operations.”
•Cleco’s other operations consist of the following:
◦Cleco Holdings, a holding company,
◦Support Group, a shared services subsidiary, and
◦Diversified Lands, an investment subsidiary.
| | | | | | | | | | | | | | |
| Note 2 — Summary of Significant Accounting Policies |
Discontinued Operations
On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers. Cleco Holdings’ management determined that the criteria under GAAP for the Cleco Cajun Sale Group to be classified as held for sale were met and the sale will represent a strategic shift that will have a major effect on Cleco’s future operations and financial results. Therefore, the results of operations and financial position of the Cleco Cajun Sale Group are presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. For more information, see Note 3 — “Discontinued Operations.”
Use of Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements of Cleco include the accounts of Cleco Holdings and its majority-owned subsidiaries after elimination of intercompany accounts and transactions.
Following the formation of Cleco Securitization I and the closing of the storm recovery securitization financing on June 22, 2022, Cleco Power became the primary beneficiary of Cleco Securitization I, and as a result, the financial statements
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
of Cleco Securitization I are consolidated with the financial statements of Cleco Power. For additional information about Cleco Securitization I, see Note 1415 — “Variable Interest Entities.” For additional information about the storm recovery securitization financing and its regulatory impacts, see Note 5 —6— “Regulatory Assets and Liabilities — Deferred Storm Restoration Costs” and Note 19 — “Securitization.Costs.”
Goodwill
Goodwill is the excess of the purchase price (consideration transferred and liabilities assumed) over the estimated fair value of net assets of the acquired business and is not subject to amortization. Goodwill is assessed as of August 1 of each year or more often if an event occurs or circumstances change that would indicate the carrying amount may be impaired. For more information on goodwill, see Note 1718 — “Intangible Assets Intangible Liabilities, and Goodwill — Goodwill.”
Intangible Assets and Liabilities
At December 31, 2022, intangibleIntangible assets includedinclude Cleco Securitization I’s right to bill and collect storm recovery charges and fair value adjustments for acquired long-term wholesale power supply agreements. Intangible liabilities included fair value adjustments for acquired long-term wholesale power supply agreements as well as a fair value adjustment for the LTSA assumed for maintenance services related to the Cottonwood Plant. These intangible assets and liabilities are being amortized in a manner that best reflects the economic impact derived from such assets and liabilities.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Prior to being fully impaired during the third quarter of 2021, intangible assets also included an adjustment related to the Cleco Power tradename as a result of the 2016 Merger. Impairment is tested if there are events or circumstances that indicate that an impairment analysis should be performed. If such an event or circumstance occurs, intangible impairment testing is performed prior to goodwill impairment testing. Impairment is calculated as the excess of the asset and liabilities’ respective carrying amounts over their respective fair values. For more information on intangible assets, and liabilities, see Note 1718 — “Intangible Assets Intangible Liabilities, and Goodwill.”
Statements of Cash Flows
Cleco’s and Cleco Power’s Consolidated Statements of Cash Flows are prepared using the indirect method. This method requires adjusting net income to remove the effects of all deferrals and accruals of operating cash receipts and payments and to remove items whose cash effects are related to investing and financing cash flows. Derivatives meeting the definition of an accounting hedge are classified in the same category as the item being hedged.
Regulation
Cleco Power is subject to regulation by FERC and the LPSC. Cleco Cajun is subject to regulation by FERC. Cleco complies with the accounting policies and practices prescribed by its regulatory commissions. Cleco Power’s retail rates are regulated by the LPSC. Cleco Power’s and Cleco Cajun’s rates for transmission services are regulated by FERC. Rates for wholesale power sales are based on market-based rates. Cleco Power must evaluate its various transactions related to regulatory orders and accounting guidance to ensure the appropriate timing of revenue recognition, the evaluation of cost deferral, and the recoverability of certain assets and refund of certain liabilities. Cleco Power capitalizes or defers certain costs for recovery from its customers and recognizes a liability for amounts expected to be returned to its customers based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process. Regulatory assets and liabilities are amortized consistent with the treatment in the ratemaking process. Pursuant to this regulatory process, Cleco has recorded regulatory assets and liabilities.
Any future plan adopted by the LPSC for purposes of transitioning utilities from LPSC regulation to retail competition
may affect the regulatory assets and liabilities recorded by Cleco if the criteria for the application of the authoritative guidelines for industry regulated operations cannot continue to be met. At this time, Cleco cannot predict whether any legislation or regulation affecting Cleco will be enacted or adopted and, if enacted, what form such legislation or regulation may take.
For more information regarding the regulatory assets and liabilities recorded by Cleco Power, see Note 56 — “Regulatory Assets and Liabilities.” For more information on Cleco Power’s retail rates, see Note 14 — “Regulation and Rates.”
AROs
Cleco and Cleco Power recognize an ARO when there is a legal obligation under existing or enacted law, statute, written or oral contract, or by legal construction under the doctrine of promissory estoppel to incur costs to remove an asset when the asset is retired. These guidelines also require an ARO,
which is conditional on a future event, to be recorded even if the event has not yet occurred.
Cleco and Cleco Power recognize AROs at the present value of the projected liability in the period in which it is incurred, if a reasonable estimate of fair value can be made. The liability is accreted to its present value each accounting period. Cleco Power defers this accretion as a regulatory asset based on its determination that these costs can be collected from customers. Concurrent with the recognition of the liability, Cleco and Cleco Power capitalize these costs to the related property, plant, and equipment asset. These capitalized costs are depreciated over the same period as the related property asset. Cleco Power also defers the current depreciation of the asset retirement cost as a regulatory asset.
For more information on the regulatory treatment of Cleco Power’s AROs, see Note 5 — “Regulatory Assets and Liabilities — AROs.” For more information on Cleco’s ARO activity, see Note 1516 — “Litigation, Other Commitments and Contingencies, and Disclosures andabout Guarantees — Other Commitments.”
Property, Plant, and Equipment
Property, plant, and equipment consists primarily of electric utility generation and energy transmission and distribution assets. Property, plant, and equipment are stated at the cost to acquire or construct the assets, 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 and Cleco Cajun’s share of the cost to construct or purchase the respective assets. For information on jointly owned assets, see Note 67 — “Jointly Owned Generation Facilities.Units.”
At the date of the 2016 Merger, Cleco’s gross balance of fixed depreciable assets was adjusted to be net of accumulated depreciation, as no accumulated depreciation existed on such date. Since pushdown accounting was not elected at the Cleco Power level, Cleco Power retained its accumulated depreciation.
Cleco’s cost of improvements to property, plant, and equipment is capitalized. Costs associated with repairs and major maintenance projects are expensed as incurred. Cleco capitalizes the cost to purchase or develop software for internal use. Cleco Power defers project costs to construction work in progress that it believes are prudently incurred and probable of recovery through future rates. These deferred costs are related to the initial stage of a construction project during which time the feasibility of the construction of property, plant, and equipment is being investigated.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Upon retirement or disposition, the cost of Cleco Power’s depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation. For Cleco’s other subsidiaries, upon disposition or retirement of depreciable assets, the difference between the net book value of the property and any proceeds received for the property is recorded as a gain or loss on asset disposition on Cleco’s Consolidated Statements of Income. Any cost incurred to remove the asset is charged to expense.
The amounts of unamortized computer software costs on Cleco’s Consolidated Balance Sheets at December 31, 2023, and 2022 and 2021 were $168.6$156.7 million and $172.7$164.5 million, respectively. The amounts of unamortized computer software costs on Cleco Power’s Consolidated Balance Sheets at December 31, 2023, and 2022 and 2021 were $162.3$154.9 million and $167.4$162.3 million, respectively. Amortization of capitalized computer software costs charged to expense in Cleco’s and Cleco Power’s Consolidated Statements of Income for the years ending December 31, 2023, 2022, 2021, and 20202021 is shown in the following tables:
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | Cleco | Cleco | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Amortization | Amortization | $ | 12,228 | | | $ | 11,878 | | | $ | 11,015 | |
| | Cleco Power | Cleco Power | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Amortization | Amortization | $ | 11,614 | | | $ | 11,268 | | | $ | 10,379 | |
Depreciation on property, plant, and equipment is calculated primarily on a straight-line basis over the useful lives of the assets. The following table presents the useful lives of depreciable assets for Cleco and Cleco Power:
| | CATEGORY (YEARS) | CATEGORY (YEARS) | CLECO | | CLECO POWER | CATEGORY (YEARS) | YEARS |
| Utility Plants | Utility Plants | |
| Generation | |
| Generation | |
| Generation | Generation | 10 | – | 55 | | 10 | – | 55 | 10 | – | 55 |
| Distribution | Distribution | 15 | – | 50 | | 15 | – | 50 | Distribution | 15 | – | 50 |
| Transmission | Transmission | 5 | – | 55 | | 5 | – | 55 | Transmission | 5 | – | 55 |
| Other utility plant | Other utility plant | 5 | – | 45 | | 5 | – | 45 | Other utility plant | 5 | – | 45 |
| Other property, plant, and equipment | Other property, plant, and equipment | 5 | – | 45 | | 5 | – | 45 | Other property, plant, and equipment | 5 | – | 45 |
At December 31, 2022,2023, and 2021,2022, Cleco’s and Cleco Power’s property, plant, and equipment consisted of the following:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Utility plants | Utility plants | |
| Generation | |
| Generation | |
| Generation | Generation | $ | 2,737,597 | | | $ | 2,704,536 | |
| Distribution | Distribution | 1,429,374 | | | 1,494,411 | |
| Transmission | Transmission | 811,199 | | | 797,694 | |
| Other utility plant | Other utility plant | 457,339 | | | 412,577 | |
| Other property, plant, and equipment | Other property, plant, and equipment | 9,557 | | | 7,504 | |
| Total property, plant, and equipment | Total property, plant, and equipment | 5,445,066 | | | 5,416,722 | |
| Accumulated depreciation | Accumulated depreciation | (946,576) | | | (700,991) | |
| Net property, plant, and equipment | Net property, plant, and equipment | $ | 4,498,490 | | | $ | 4,715,731 | |
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Regulated utility plants | Regulated utility plants | |
| Generation | |
| Generation | |
| Generation | Generation | $ | 2,321,640 | | | $ | 2,314,285 | |
| Distribution | Distribution | 1,866,662 | | | 1,933,389 | |
| Transmission | Transmission | 1,000,783 | | | 988,122 | |
| Other utility plant | Other utility plant | 547,441 | | | 509,693 | |
| Total property, plant, and equipment | Total property, plant, and equipment | 5,736,526 | | | 5,745,489 | |
| Accumulated depreciation | Accumulated depreciation | (2,082,153) | | | (1,919,766) | |
| Net property, plant, and equipment | Net property, plant, and equipment | $ | 3,654,373 | | | $ | 3,825,723 | |
During 2022,2023, Cleco Power’s regulated utility property, plant, and equipment decreasedincreased primarily due to the securitizationdistribution system restoration and modernization project and the construction of storm restoration costs in June 2022. This decrease was partially offset by increased costs related to transmission projects and other capital projects. For more
information on the securitization of storm restoration costs, see Note 19 — “Securitization.”new substations.
Cleco Power’s property, plant, and equipment includes plant acquisition costs related primarily to the acquisition of Acadia Unit 1 in 2010. The plant acquisition adjustment and accumulated amortization are reported in Property, plant, and equipment and Accumulated depreciation, respectively, on Cleco’s and Cleco Power’s Consolidated Balance Sheets at December 31, 2022,2023, and 2021,2022, and are shown in the following tables:
| | Cleco | Cleco | | | |
| AT DEC. 31, | |
| Cleco | |
| Cleco | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | |
| (THOUSANDS) | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | |
| Acadia Unit 1 | Acadia Unit 1 | | |
| Acadia Unit 1 | |
| Acadia Unit 1 | |
| Plant acquisition adjustment | |
| Plant acquisition adjustment | |
| Plant acquisition adjustment | Plant acquisition adjustment | $ | 76,116 | | | $ | 76,116 | | |
| Accumulated amortization | Accumulated amortization | (21,383) | | | (18,201) | | |
| Accumulated amortization | |
| Accumulated amortization | |
| Net plant acquisition adjustment | |
| Net plant acquisition adjustment | |
| Net plant acquisition adjustment | Net plant acquisition adjustment | $ | 54,733 | | | $ | 57,915 | | |
|
| | Cleco Power | Cleco Power | | | |
| AT DEC. 31, | |
| Cleco Power | |
| Cleco Power | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | |
| (THOUSANDS) | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | |
| Acadia Unit 1 | Acadia Unit 1 | | |
| Acadia Unit 1 | |
| Acadia Unit 1 | |
| Plant acquisition adjustment | |
| Plant acquisition adjustment | |
| Plant acquisition adjustment | Plant acquisition adjustment | $ | 95,578 | | | $ | 95,578 | | |
| Accumulated amortization | Accumulated amortization | (40,846) | | | (37,663) | | |
| Accumulated amortization | |
| Accumulated amortization | |
| Net plant acquisition adjustment | |
| Net plant acquisition adjustment | |
| Net plant acquisition adjustment | Net plant acquisition adjustment | $ | 54,732 | | | $ | 57,915 | | |
|
Deferred Project Costs
Cleco Power defers costs related to the initial stage of a construction project during which time the feasibility of the construction of property, plant, and equipment is being investigated. At December 31, 2022, and 2021, Cleco Power had deferred $5.8 million and $4.5 million, respectively, for projects that are in the initial stages of development. These amounts are classified as Other deferred charges on Cleco Power’s Consolidated Balance Sheets.
Fuel Inventory and Materials and Supplies
At December 31, 2023, and 2022, fuel inventory consisted primarily of petroleum coke, coal, limestone, and natural gas used to generate electricity. Prior to the retirement of the Dolet Hills Power Station on December 31, 2021, fuel inventory also consisted of lignite.
Materials and supplies consists of transmission and distribution line construction and repair materials. It also consists of generating station and transmission and distribution substation repair materials.
Both fuel inventory and materials and supplies are recorded at the lower of cost or net realizable value using the average cost method and are issued from stock using the average cost of existing stock. Fuel inventory is recorded when purchased and subsequently charged to expense when used. Materials and supplies are recorded when purchased and subsequently charged to expense or capitalized to property, plant, and equipment when installed.
Reserves for Credit Losses
Customer accounts receivable are recorded at the invoiced amount and do not bear interest. Customer accounts
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
receivables are generally considered to become past due 20 days after the billing date. Cleco recognizes write-offs within the allowance for credit losses once all recovery methods have been exhausted. It is the policy of management to review
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
accounts receivable and unbilled revenue monthly using a reserve matrix based on historical bad debt write-offs as well as current and forecasted economic conditions to establish a credit loss estimate. Management’s historical credit loss analysis included periods of economic recessions, natural disasters, and temporary changes to collection policies. Due to the critical necessity of electricity, none of these past events have significantly impacted Cleco’s credit loss rates.
As a result of the market price volatility of natural gas experienced throughout 2022, Cleco has experienced significant increases to the pass-through fuel component of retail customer energy bills. Due to these increased customer fuel costs, along with the impacts of a 40-year high inflation rate, Cleco has experienced increases in credit loss reserves. These factors have not been and are not expected to be material to Cleco’s results of operations, financial condition, or cash flows.
Cleco’s credit losses at December 31, 2023, are within normal levels and historical trends.
The table below presents the changes in the allowance for credit losses by receivable for Cleco and Cleco Power:
| | Cleco | Cleco | |
| (THOUSANDS) | (THOUSANDS) | ACCOUNTS
RECEIVABLE | OTHER* | TOTAL |
| Balances, Dec. 31, 2020 | $ | 2,758 | | $ | 1,638 | | $ | 4,396 | |
| (THOUSANDS) | |
| (THOUSANDS) | | ACCOUNTS
RECEIVABLE | OTHER | TOTAL |
| Balances, Dec. 31, 2021 | |
| | Current period provision | Current period provision | 4,003 | | — | | 4,003 | |
| Charge-offs | (6,919) | | — | | (6,919) | |
| Recovery | 1,460 | | — | | 1,460 | |
| Balances, Dec. 31, 2021 | 1,302 | | 1,638 | | 2,940 | |
| | Current period provision | |
| Current period provision | Current period provision | 3,362 | | — | | 3,362 | |
| Charge-offs | Charge-offs | (4,800) | | — | | (4,800) | |
| Recovery | Recovery | 1,283 | | — | | 1,283 | |
| Balances, Dec. 31, 2022 | Balances, Dec. 31, 2022 | $ | 1,147 | | $ | 1,638 | | $ | 2,785 | |
* Loan held at Diversified Lands that was fully reserved for at December 31, 2020. | | | Current period provision | |
| Current period provision | |
| Current period provision | |
| Charge-offs | |
| Recovery | |
| Balances, Dec. 31, 2023 | |
| | | | | |
| Cleco Power | |
| (THOUSANDS) | ACCOUNTS
RECEIVABLE |
Balance,Balances, Dec. 31, 20202021 | $ | 2,758 | |
| |
Current period provision | 4,003 | |
Charge-offs | (6,919) | |
Recovery | 1,460 | |
Balance, Dec. 31, 2021 | 1,302 | |
| |
| Current period provision | 3,362 | |
| Charge-offs | (4,800) | |
| Recovery | 1,283 | |
Balance,Balances, Dec. 31, 2022 | $1,147 | |
| |
| Current period provision | 1,1475,506 | |
| Charge-offs | (4,939) | |
| Recovery | 1,298 | |
| Balances, Dec. 31, 2023 | $ | 3,012 | |
Other Reserves
Cleco maintains property insurance on generating stations, buildings and contents, and substations. Cleco is self-insured for any damage to its power lines. To mitigate the exposure to potential financial loss for storm-related damage to lines and property, the LPSC approved Cleco Power to establish a newly funded storm reserve. For more information on the storm reserve, see Note 56 — “Regulatory Assets and Liabilities — Storm Reserves.”
Cleco also maintains liability and workers’ compensation insurance to mitigate financial losses due to injuries and damages to the property of others. Cleco’s insurance covers
claims that exceed certain self-insured limits. For claims within certain self-insured limits, Cleco maintains reserves. At December 31, 2022,2023, and 2021,2022, the general liability and
workers compensation reserves together were $6.9$6.7 million and $6.0$6.9 million, respectively.
Additionally, Cleco maintains directors and officers insurance to protect managers from claims which may arise from their decisions and actions taken within the scope of their regular duties.
Cash Equivalents
Cleco considers highly liquid, marketable securities, and other similar instruments with original maturity dates of three months or less to be cash equivalents.
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 company purposes.
Cleco’s and Cleco Power’s restricted cash and cash equivalents consisted of the following:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | |
| Cleco Katrina/Rita’s storm recovery surcharge | $ | — | | | $ | 1,674 | |
| Cleco Power’s storm restoration costs - Hurricane Ida | |
| Cleco Power’s storm restoration costs - Hurricane Ida | |
| Cleco Power’s storm restoration costs - Hurricane Ida | Cleco Power’s storm restoration costs - Hurricane Ida | 9,409 | | | — | |
| Cleco Securitization I’s operating expenses and storm recovery bond issuance costs and debt service | Cleco Securitization I’s operating expenses and storm recovery bond issuance costs and debt service | 14,140 | | | — | |
| Total current | Total current | 23,549 | | | 1,674 | |
| Non-current | Non-current | |
| Diversified Lands’ mitigation escrow | Diversified Lands’ mitigation escrow | 23 | | | 22 | |
| Cleco Cajun’s defense fund | 733 | | | 723 | |
| Diversified Lands’ mitigation escrow | |
| Diversified Lands’ mitigation escrow | |
| Cleco Power’s future storm restoration costs | Cleco Power’s future storm restoration costs | 103,306 | | | — | |
| Cleco Power’s storm restoration costs - Hurricane Ida | Cleco Power’s storm restoration costs - Hurricane Ida | 6,086 | | | — | |
| | Total non-current | Total non-current | 110,148 | | | 745 | |
| Total non-current | |
| Total non-current | |
| Total restricted cash and cash equivalents | Total restricted cash and cash equivalents | $ | 133,697 | | | $ | 2,419 | |
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | |
| Cleco Katrina/Rita’s storm recovery surcharges | $ | — | | | $ | 1,674 | |
| Storm restoration costs - Hurricane Ida | |
| Storm restoration costs - Hurricane Ida | |
| Storm restoration costs - Hurricane Ida | Storm restoration costs - Hurricane Ida | 9,409 | | | — | |
| Cleco Securitization I’s operating expenses and storm recovery bond issuance costs and debt service | Cleco Securitization I’s operating expenses and storm recovery bond issuance costs and debt service | 14,140 | | | — | |
| Total current | Total current | 23,549 | | | 1,674 | |
| Non-current | Non-current | |
| Future storm restoration costs | Future storm restoration costs | 103,306 | | | — | |
| Future storm restoration costs | |
| Future storm restoration costs | |
| Storm restoration costs - Hurricane Ida | Storm restoration costs - Hurricane Ida | 6,086 | | | — | |
| | Total non-current | Total non-current | 109,392 | | | — | |
| Total non-current | |
| Total non-current | |
| Total restricted cash and cash equivalents | Total restricted cash and cash equivalents | $ | 132,941 | | | $ | 1,674 | |
In April 2021, after paymentsOn September 20, 2023, the LPSC approved a settlement for all final administrative and winding up activitiesthe prudency review of Cleco Katrina/Rita were made, Cleco Katrina/Rita transferred itsthe remaining restricted cash tounrecovered Hurricane Ida storm restoration costs deferred as a regulatory asset. The settlement allowed Cleco Power to be used to benefit retail customers in a manner to be approved by the LPSC. In September 2022,withdraw the remaining $1.6 million was refunded to Cleco Power’s retail customers.unrecovered Hurricane Ida storm restoration costs, plus a carrying charge through September 2023, from the
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
On June 22, 2022,Hurricane Ida storm reserve. The settlement also approved the transfer of the remaining balance of the Hurricane Ida storm recovery securitization financing was completed. In connection with this financing, and as approved byreserve to the LPSC, newly funded storm reservesrestricted reserve for future storm restoration costs andcosts. As a result of the settlement, the corresponding Hurricane Ida storm restoration costs were established at Cleco Power. The establishment of these reserves resulted in the establishment of corresponding restricted cash and cash equivalents accounts. Additionally,was reduced by $10.3 million and the remaining balance was transferred to the restricted cash and cash equivalents accounts were establishedaccount for payment of Cleco Securitization I’s estimated operating expenses,future storm recovery bond issuance costs, and payment of debt service on those storm recovery bonds.restoration costs. For more information onabout the regulatory asset and storm recovery securitization financing,reserves, see Note 196— “Regulatory Assets and Liabilities — “Securitization.Storm Reserves.”
Equity Investments
Cleco and Cleco Power account for investments in unconsolidated affiliated companies using the equity method of accounting. The amounts reported on Cleco’s and Cleco Power’s Consolidated Balance Sheets represent assets contributed by Cleco or Cleco Power, plus their share of the net income of the affiliate, less any distributions of earnings (dividends) received from the affiliate. The revenues and expenses (excluding income taxes) of these affiliates are netted and reported on one line item as equity income from investees on Cleco’s and Cleco Power’s Consolidated Statements of Income.
Cleco evaluates for impairments of equity method investments at each balance sheet date to determine if events and circumstances have occurred that indicate a possible other-than-temporary decline in the fair value of the investment and the possible inability to recover the carrying value through operations. Cleco uses estimates of the future cash flows from the investee and observable market transactions in order to calculate fair value and recoverability. An impairment is recognized when an other-than-temporary decline in market value occurs and recovery of the carrying value is not probable. There were no impairments recorded for 2023, 2022, 2021, or 2020.2021. For more information on Cleco’s equity investments, see Note 1415 — “Variable Interest Entities.”
Income Taxes
Cleco accounts for income taxes under the asset and liability method. Income taxes recorded on the income statement and related balance sheet amounts are comprised of a current portion and a deferred portion. The current portion represents Cleco’s estimate of the income taxes payable or receivable for the current year. The deferred portion represents Cleco’s estimate of the future income tax effects of events that have been recognized in the financial statements or income tax returns in the current or prior years. Cleco makes assumptions and estimates when it records income taxes, such as its ability to deduct items on its tax returns, the timing of the deduction, and the effect of regulation on income taxes. Cleco’s income tax expense and benefit and related assets and liabilities could be affected by changes in its assumptions and estimates and by ultimate resolution of assumptions and estimates with taxing authorities and changes in tax regulations, theregulations. The actual results may differ from the estimated results based on these assumptions and may have a material effect on Cleco’s results of operations. Cleco Group files a federal income tax return for all wholly owned subsidiaries. Cleco Power computes its federal and state income taxes as if it were a stand-alone taxpayer. The LPSC generally requires Cleco Power to flow the
effects of state income taxes to customers. For more information on income taxes, see Note 1112 — “Income Taxes.”
Investment Tax Credits
Investment tax credits, which were deferred for financial statement purposes, are amortized as a reduction to income tax expense over the estimated service lives of the properties that gave rise to the credits.
Debt Issuance Costs, Premiums, and Discounts
Issuance costs, premiums, and discounts applicable to debt securities are amortized to interest expense ratably over the lives of the related issuances. Expenses and call premiums related to refinanced Cleco Power debt are deferred and amortized over the life of the new issuance. Debt issuance costs, premiums, and discounts are presented as a direct deduction from the carrying value of the related debt liability.
Revenue and Fuel Costs
Utility Revenue
Revenue from retail sales and transmission of electricity is recognized when the service is provided. The costs of fuel and purchased power used for Cleco Power’s retail customers currently are recovered from its customers through Cleco Power’s FAC. These costs are subject to audit and final determination by the LPSC. Sales taxes and pass-through fees collected on the sale of electricity are not recorded in utility revenue.
Cleco recognizes wholesale revenue, inclusive of both energy and capacity performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice.
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. Cleco Power uses actual customer energy consumption data available from AMI to calculate unbilled revenues.
Other Operations Revenue
Other operations revenue is recognized at the time products or services are provided to and accepted by customers, and collectability is reasonably assured.
Sales and Use Taxes
Cleco collects a sales and use tax on the sale of electricity that subsequently is remitted to the state in accordance with state law. These amounts are not recorded as income or expense on Cleco’s or Cleco Power’s Consolidated Statements of Income but are reflected at gross amounts on Cleco’s and Cleco Power’s Consolidated Balance Sheets as a receivable until the tax is collected and as a payable until the liability is paid.
Franchise and Consumer Fees
Cleco Power operates under nonexclusive franchise rights granted by municipalities through franchise agreements in which franchise fees are collected and paid. A portion of the franchise fees associated with these franchise agreements is collected by Cleco Power from its retail customers and submitted to the municipality. These fees are recorded as a
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
receivable until it is collected and as a payable until the liability is paid.
Cleco Power also pays periodic franchise fees to the government units, which may include upfront payments upon
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
the renewal of the franchise agreement. The upfront payments are amortized over the life of the franchise agreement and the periodic fees are expensed in the period in which they are incurred. These amounts are recovered from retail customers through base rates.
Cleco Power collects a consumer fee for one of its franchise agreements. This fee is not recorded on Cleco’s and Cleco Power’s Consolidated Statements of Income as revenue and expense, but is reflected at gross amounts on Cleco’s and Cleco Power’s Consolidated Balance Sheets as a receivable until it is collected and as a payable until the liability is paid.
AFUDC and Capitalized Interest
The capitalization of AFUDC by Cleco Power is a utility accounting practice prescribed by FERC and the LPSC.
AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance construction of new and existing facilities. While cash is not realized currently from
such allowance, AFUDC increases the revenue requirement over the same life of the plant through a higher rate base and higher depreciation. Under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. For 2020, Cleco Power’s average short-term debt balance exceeded its average construction work-in-progress balance; however, Cleco Power elected the FERC capital structure waiver contained in FERC Docket Number AC20-127-000. The FERC waiver allowed Cleco Power to substitute the average short-term debt of the prior year for the short-term debt balance in the AFUDC rate calculation to compensate for effects of carrying larger short-term debt balances to accommodate unexpected COVID-19 expenses.
The capitalization of interest by Cleco Cajun represents the cost of capital funds used to finance plant additions during the construction period. Interest is capitalized as part of the cost of the utility plant and amortized over the related assets’ useful lives.
The following tables show the composite AFUDC rates, including borrowed and other funds and the capitalized interest rate for the years ended December 31, 2023, 2022, 2021, and 2020:2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | | | | |
| | | | | FOR THE YEAR ENDED DECEMBER 31, | | |
| 2022 | | 2021 | | 2020 | | |
| PRETAX BASIS | NET OF TAX | | PRETAX BASIS | NET OF TAX | | PRETAX BASIS | NET OF TAX | | |
| AFUDC composite rate | 9.06 | % | 7.09 | % | | 10.05 | % | 7.81 | % | | 10.14 | % | 7.96 | % | | |
| Capitalized interest rate | 3.68 | % | N/A | | 1.80 | % | N/A | | 1.98 | % | N/A | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Cleco Power | | | |
| | | FOR THE YEAR ENDED DECEMBER 31, | |
| 2022 | | 2021 | | 2020 | |
| PRETAX BASIS | NET OF TAX | | PRETAX BASIS | NET OF TAX | | PRETAX BASIS | NET OF TAX | |
| | | | | FOR THE YEAR ENDED DEC. 31, | |
| | | | | FOR THE YEAR ENDED DEC. 31, | |
| | | | | FOR THE YEAR ENDED DEC. 31, | |
| 2023 | |
| 2023 | |
| 2023 | |
| PRETAX BASIS | |
| PRETAX BASIS | |
| PRETAX BASIS | |
| AFUDC composite rate | |
| AFUDC composite rate | |
| AFUDC composite rate | AFUDC composite rate | 9.06 | % | 7.09 | % | | 10.05 | % | 7.81 | % | | 10.14 | % | 7.96 | % | |
|
Fair Value Measurements and Disclosures
Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power disclose the fair value of certain assets and liabilities by one of three levels when required for recognition purposes. For more information about fair value levels, see Note 78 — “Fair Value Accounting Instruments.”
Derivatives and Other Risk Management Activity
Accounting guidance requires derivative instruments and hedging activities to be recognized at fair value on the balance sheet. Cleco may elect the normal purchase and normal sale scope exception to the application of fair value accounting for these instruments and activities if they meet certain accounting criteria. Cleco’s Energy Market Risk Management Policy authorizes hedging against commodity price risk with physical or financially settled derivative instruments. For Cleco Power, due to regulatory treatment, associated mark-to-market adjustments for changes in fair value of recognized derivatives are generally recognized in Accumulated deferred fuel on the balance sheet. For Cleco Cajun, the changes in the fair value of recognized natural gas derivatives are recorded in current earnings.continuing operations. Cleco Cajun’s FTR activity is recorded in discontinued operations. For
more information on derivative instruments, see Note 89 — “Derivative Instruments.”
Accounting for MISO Transactions
Cleco Power and Cleco Cajun participateparticipates in MISO’s Energy and Operating Reserve market and have the opportunity to participate in the MISO capacity market. IfFor Cleco Power, the hourly activity nets topower sales the resultsand purchases are netted. Net sales and net purchases are reported in Electric operations on Cleco’s and Cleco Power’s Consolidated Statements of Income. If the hourly activity nets to purchases, the results are reported in Purchased power, respectively, on Cleco’s and Cleco Power’s Consolidated Statements of Income. Power sales and purchases in the MISO market are made at prevailing market prices, also known as LMP, which represents the cost of providing the next MW of electrical energy at a specific location on the grid. LMP includes a component directly
related to congestion on the transmission system and, as a result, can be different based on the location and time of the day the energy is dispatched causing energy costs to increase.
Power sales and purchases for Cleco Cajun are reported in discontinued operations. For more information, see Note 3 — “Discontinued Operations.”
Leases
Cleco determines if a contract is a lease at its inception. A lease is deemed to exist when the right to control the use of identified property, plant, or equipment is conveyed through a contract for a certain period of time and consideration is paid.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
If a contract is determined to be a lease, Cleco recognizes a ROU asset and lease liability at the commencement date based on the present value of lease payments over the lease term. The present value of the lease payments is determined by using the implicit interest rate if readily determinable. Cleco’s incremental borrowing rate for a term similar to the duration of the lease based on information available at the commencement date is used if the implicit interest rate is not readily determinable.
Cleco recognizes ROU assets and lease liabilities for leasing arrangements with terms greater than one year. Except for the marine transportation asset class, Cleco accounts for lease and non-lease components in a contract as a single lease component for all classes of underlying assets. Cleco’s marine transportation contracts, which include barges and towboats, contain non-lease components, such as maintenance and labor. Cleco allocates the consideration in these contracts between lease and non-lease components based on estimates of fair value from third parties that typically execute leases for this class of assets.
Expense for a lessee operating lease is recognized as a single lease cost on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the leased asset’s function. Income for a lessor operating lease is recognized as a single lease income item on a straight-line basis over the lease term and reflected in the appropriate income statement line item based on the lease asset’s function. For more information on leases, see Note 34 — “Leases.”
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Recent Authoritative Guidance
In March 2020, FASB issued optional guidance, for a limited period of time, that applies to entities meeting certain criteria for the contract modifications or hedging relationships that are referencing LIBOR or another reference rate expected to be discontinued due to reference rate reform. The guidance includes a general principal that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The optional guidance could be applied from March 12, 2020, through December 31, 2022. Management has identified contracts with reference rates that will be discontinued, primarily related to long-term debt obligations. Certain debt contracts have been amended to include fallback provisions that provide substitute reference rates in the event LIBOR is discontinued or deemed to no longer be representative or prior to such events, at the option of Cleco and the administrative agent. Management will continue to modify contracts to include similar fallback language and expects to apply this guidance on an ongoing basis. Management does not expect this guidance to have a significant impact on the Registrants’ results of operations, financial condition, or cash flows.
In November 2021, FASB issued guidance requiring annual disclosures about government assistance with the objective of increasing transparency and reducing existing diversity in practice. This guidance requires disclosure of the types of assistance, an entity’s accounting for the assistance, and the effect of the assistance on the entity’s financial statements. This guidance is effective for annual periods beginning after December 15, 2021. Funding is being sought for relief of incurred storm costs. In addition, a congressional appropriation has been secured, subject to the U.S.
Department of Energy’s grant process, to help offset future costs associated with Cleco Power’s Project Diamond Vault. Management will continue to monitor this activity to determine what, if any, disclosures are required. Management does not expect this guidance to have a significant impact on the results of operations, financial condition, or cash flows of the Registrants.
A congressional appropriation has been secured, subject to the U.S. Department of Energy’s (DOE) grant process, to help offset current and future costs associated with Cleco Power’s Project Diamond Vault through November 2024. As of December 31, 2023, Cleco Power received $2.8 million of the $9.0 million congressional appropriation, and these funds were recorded against the deferred project costs incurred and reflected as construction work in progress. Cleco Power has commitments to complete the FEED study, comply with the DOE approved grant budget, and provide 20% of the funding of the total costs. The Louisiana Department of Economic Development (LED) has commitments to review plans and invoices, be the scientific and technical liaison, and conduct annual project reviews and meetings. The LED also has rights to audit costs submitted for reimbursement. If an audit finds that Cleco Power received funds that were not within the scope of the DOE grant, those amounts could be recaptured. On March 1, 2024, Cleco Power received an additional $1.4 million of the congressional appropriation. For more information related to the accounting for deferred project costs, see “— Property, Plant, and Equipment.”
In March 2023, FASB issued guidance that applies to leases between entities under common control. The guidance provides a practical expedient for determining whether an arrangement between entities under common control is a lease as well as the classification of the lease. In addition, the leasehold improvements amortization period is to be determined by the useful life to the common group rather than the term of the lease. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Cleco has arrangements between entities under common control and management is evaluating the impacts of this guidance on the results of operations, financial condition, and cash flows of the Registrants.
In November 2023, FASB issued guidance to improve reportable segment disclosure requirements. The guidance enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss, provides new segment disclosure requirements for entities with a single reportable segment, and contains other disclosure requirements. Disclosure requirements include disclosing significant segment expenses by reportable segment if they are regularly provided to the chief operating decision maker and included in each reported measure of segment profit or loss. Disclosures are required on both an annual and an interim basis. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. Management does not expect this guidance to have a
significant impact on the results of operations, financial condition, or cash flows of the Registrants.
| | | | | | | | | | | | | | |
| Note 3 — Discontinued Operations |
In 2022, Cleco Holdings began a strategic review process related to its investment in Cleco Cajun. In March 2023, Cleco Holdings’ management, with the support of its Board of Managers, committed to a plan of action for the disposition of the Cleco Cajun Sale Group. On November 22, 2023, the Cleco Cajun Divestiture Purchase and Sale Agreement was entered into between the Cleco Cajun Sellers and the Cleco Cajun Purchasers whereby the Cleco Cajun Sellers have agreed to sell the Cleco Cajun Sale Group to the Cleco Cajun Purchasers for the purchase price of $600.0 million, with $500.0 million due at closing and $100.0 million payable 24 months after closing. The purchase price is subject to the closing purchase price adjustment as set forth in the Cleco Cajun Divestiture Purchase and Sale Agreement, including adjustments based on net working capital.
The Cleco Cajun Sellers and the Cleco Cajun Purchasers have each made customary representations, warranties, and covenants in the Cleco Cajun Divestiture Purchase and Sale Agreement. The closing of the transaction is subject to customary closing conditions, including (i) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (ii) approval of FERC, (iii) approval of the Federal Communication Commission, and (iv) customary conditions regarding the accuracy of the representations and warranties and compliance by the parties with their respective obligations under the Cleco Cajun Divestiture Purchase and Sale Agreement. The Cleco Cajun Divestiture Purchase and Sale Agreement includes customary termination provisions, including if the closing of the transaction does not occur within nine months of November 22, 2023. The parties expect the transaction to close in the second quarter of 2024.
Cleco Holdings’ management determined that the criteria under GAAP for the Cleco Cajun Sale Group to be classified as held for sale were met and the sale will represent a strategic shift that will have a major effect on Cleco’s future operations and financial results. Therefore, the results of operations and financial position of the Cleco Cajun Sale Group are presented as discontinued operations, and the financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect this presentation. Certain expenses incurred by the Cleco Cajun Sale Group as a result of common services provided by Support Group are reflected in Cleco’s results of continuing operations due to the expected ongoing nature of those expenses. In addition, revenue recognized by Cleco Power from transmission services provided to the Cleco Cajun Sale Group is no longer eliminated upon consolidation of Cleco's financial statements and is reflected in Cleco’s results of continuing operations due to the expected ongoing nature of these services.
In February 2019 in connection with the approval of the Cleco Cajun Acquisition, Cleco made commitments to the LPSC that included the repayment of $400.0 million of Cleco Holdings’ debt by December 31, 2024. Proceeds from the divestiture of the Cleco Cajun Sale Group must be used to satisfy the LPSC commitment. At December 31, 2023, $66.7 million of that debt remains outstanding. Interest expense on that debt is included in discontinued operations.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco determined that the estimated fair value less the estimated cost to sell the Cleco Cajun Sale Group was less than the carrying value of the Cleco Cajun Sale Group at March 31, 2023, June 30, 2023, September 30, 2023, and December 31, 2023. These determinations resulted in a total impairment charge of $173.0 million for the year ended December 31, 2023, of which $19.0 million was recognized in the three months ended December 31, 2023. The additional impairment charge recognized in the three months ended December 31, 2023, was primarily due to changes in assumptions related to the expected sale proceeds and the expected closing date. The impairment charge recognized for the year ended December 31, 2023, reduced the carrying value of the Cleco Cajun Sale Group to its estimated fair value less estimated cost to sell and is recorded in Loss from discontinued operations, net of income taxes on Cleco's Consolidated Statement of Income. The estimated fair value was determined using the income approach. The fair value estimates involved a number of judgments and assumptions including the future performance of the Cleco Cajun Sale Group through the expected divestiture date, the expected net
working capital adjustment to the sale proceeds from the Cleco Cajun Divestiture Purchase and Sale Agreement, and the weighted average cost of capital or discount rate. The fair value measurement of the Cleco Cajun Sale Group is classified as Level 3 in the fair value hierarchy.
At December 31, 2023, Cleco also recognized a write-down of $25.0 million related to Cleco Cajun’s coal fuel inventory. This write-down was primarily due to indications that the probable net realizable value of the coal fuel inventory, which was driven by forecasted market prices of power in the MISO South region, was less than its net book value. The write-down reduced the carrying value of the Cleco Cajun Sale Group and is reflected as a reduction to Fuel Inventory, at average cost and an increase to Fuel used for electric generation in the following tables.
The following table presents the amounts that have been reclassified from continuing operations and included in discontinued operations within Cleco’s Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating revenue, net | | | | | |
| Electric operations | $ | 543,519 | | | $ | 496,042 | | | $ | 398,226 | |
| Other operations | 125,816 | | | 148,823 | | | 128,750 | |
| Gross operating revenue | 669,335 | | | 644,865 | | | 526,976 | |
| Electric customer credits | — | | | — | | | 244 | |
| Operating revenue, net | 669,335 | | | 644,865 | | | 527,220 | |
| Operating expenses | | | | | |
| Fuel used for electric generation | 126,130 | | | 169,195 | | | 87,091 | |
| Purchased power | 230,284 | | | 380,233 | | | 257,703 | |
| Other operations and maintenance | 87,599 | | | 70,611 | | | 65,786 | |
| Depreciation and amortization | 15,891 | | | 69,999 | | | 52,102 | |
| Taxes other than income taxes | 13,160 | | | 12,330 | | | 11,666 | |
| Total operating expenses | 473,064 | | | 702,368 | | | 474,348 | |
| Operating income (loss) | 196,271 | | | (57,503) | | | 52,872 | |
| Other income (expense), net | 47 | | | 127 | | | (618) | |
| Interest, net | (6,919) | | | (6,079) | | | (5,523) | |
| Loss on classification as held for sale | (173,000) | | | — | | | — | |
| Income (loss) from discontinued operations before income taxes | 16,399 | | | (63,455) | | | 46,731 | |
| Federal and state income tax expense (benefit) | 1,757 | | | (19,118) | | | 11,778 | |
| Income (loss) from discontinued operations, net of income taxes | $ | 14,642 | | | $ | (44,337) | | | $ | 34,953 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table presents the assets and liabilities of the Cleco Cajun Sale Group that have been reclassified as held for sale within Cleco’s Consolidated Balance Sheets as of December 31, 2023, and 2022:
| | | | | | | | | | | |
| (THOUSANDS) | AT DEC. 31, 2023 | | AT DEC. 31, 2022 |
| Cash, cash equivalents, and restricted cash equivalents | $ | 4,100 | | | $ | 4,067 | |
| | | |
| Accounts receivable | 70,001 | | | 57,822 | |
| | | |
| | | |
| | | |
| Fuel inventory, at average cost | 47,243 | | | 33,153 | |
| Materials and supplies, at average cost | 36,283 | | | 34,195 | |
| Energy risk management assets | 1,066 | | | 518 | |
| | | |
| | | |
| | | |
| | | |
| Property, plant, and equipment, net | 648,676 | | | 649,067 | |
| Prepayments | 18,587 | | | 23,601 | |
| | | |
| | | |
| | | |
| Intangible assets - other | 32,569 | | | 36,548 | |
| | | |
| Other assets | 20,207 | | | 23,619 | |
| Loss recognized on classification as held for sale | (173,000) | | | — | |
| | | |
| Total assets held for sale - discontinued operations | $ | 705,732 | | | $ | 862,590 | |
| | | |
| Accounts payable | $ | 30,442 | | | $ | 56,609 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Deferred lease revenue | 19,945 | | | 22,246 | |
| Intangible liabilities | 12,695 | | | 13,956 | |
| Asset retirement obligations | 46,165 | | | 63,725 | |
| | | |
| Other liabilities | 5,705 | | | 6,508 | |
| | | |
| Total liabilities held for sale - discontinued operations | $ | 114,952 | | | $ | 163,044 | |
Cleco has elected to present cash flows of discontinued operations combined with cash flows of continuing operations. The following table presents the cash flows from discontinued operations related to the Cleco Cajun Sale Group for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net cash provided by operating activities - discontinued operations | $ | 8,778 | | | $ | 6,878 | | | $ | 9,082 | |
| Net cash used in investing activities - discontinued operations | $ | (8,745) | | | $ | (6,867) | | | $ | (9,081) | |
Cleco maintains operating and finance leases in its ordinary course of business activities.
Operating Leases
Cleco Power leases utility systems from two municipalities and one non-municipal public body. One municipal lease has a term of 10 years and expires on August 11, 2031. The second municipal lease has a term of 10 years and expires on May 13, 2028. The non-municipal lease has a term of 27 years and expires on July 31, 2039. Each utility system lease contains fixed and variable components, as well as provisions for extensions.
During 2021, Cleco Power renewed itshas a lease for 113 railcars for coal transportation, whichto transport its coal. This lease expires on March 31, 2024. Cleco Power reassesses its need for the railcars upon the expiration of each term. Cleco Power pays a monthly rental fee per car. The railcar lease does not contain contingent rent payments.
Cleco Power has leases for three towboats in order to transport petroleum coke to Madison Unit 3. Each of the towboat leases has a term of 10 years and expires on March
31, 2028. Under these agreements, the rates are adjusted annually per the Producer Price Index. Each lease contains provisions for a five-year extension.
Cleco’s and Cleco Power’s remaining operating leases provide for office and operating facilities, office equipment, and tower rentals.
The following is a schedule by year of future minimum lease payments due under Cleco’s and Cleco Power’s long-term operating leases together with the present value of the net minimum lease payments as of December 31, 2022:2023:
| | (THOUSANDS) | (THOUSANDS) | CLECO POWER | | CLECO |
| Years ending Dec. 31, | Years ending Dec. 31, | |
| 2023 | $ | 3,534 | | | $ | 3,565 | |
| Years ending Dec. 31, | |
| Years ending Dec. 31, | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | 3,398 | | | 3,422 | |
| 2025 | 2025 | 3,275 | | | 3,278 | |
| 2026 | 2026 | 3,241 | | | 3,244 | |
| 2027 | 2027 | 3,221 | | | 3,221 | |
| 2028 | |
| Thereafter | Thereafter | 10,026 | | | 10,026 | |
| Total minimum lease payments | Total minimum lease payments | 26,695 | | | 26,756 | |
| Less: amount representing interest | Less: amount representing interest | 4,002 | | | 4,011 | |
| Present value of net minimum operating lease payments | Present value of net minimum operating lease payments | $ | 22,693 | | | $ | 22,745 | |
| Current liabilities | Current liabilities | $ | 2,903 | | | $ | 2,926 | |
| Non-current liabilities | Non-current liabilities | $ | 19,790 | | | $ | 19,819 | |
Finance Lease
In April 2018, Cleco Power entered into an agreement with Savage Inland Marine for continued use of 42 barges used to transport petroleum coke to Madison Unit 3 through March 2033. The agreement meets the accounting definition of a finance lease.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
The barge lease rate contains both a fixed and variable component, of which the latter is adjusted every third anniversary of the agreement for estimated executory costs. If the barges are idle, the lessor is required to attempt to sublease the barges to third parties with the revenue reducing Cleco Power’s lease payment. This agreement contains a provision for early termination upon the occurrence of any one of four cancellation events.
For each of the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco Power paid $2.2 million in lease payments. For the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco Power received $2.6 million, $0.6 million, $0.2 million, and $0.8$0.2 million, respectively, of revenue from subleases.
The following is an analysis of the leased property under the finance lease:
| | (THOUSANDS) | (THOUSANDS) | AT DEC. 31, 2022 | | AT DEC. 31, 2021 | (THOUSANDS) | AT DEC. 31, 2023 | | AT DEC. 31, 2022 |
| Barges | Barges | $ | 16,800 | | | $ | 16,800 | |
| Accumulated amortization | Accumulated amortization | (5,320) | | | (4,200) | |
| Net finance lease asset | Net finance lease asset | $ | 11,480 | | | $ | 12,600 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following is a schedule by year of future minimum lease payments due under the finance lease together with the present value of the net minimum lease payments as of December 31, 2022:2023:
| | (THOUSANDS) | (THOUSANDS) | |
| Years ending Dec. 31, | Years ending Dec. 31, | |
| 2023 | $ | 2,203 | |
| Years ending Dec. 31, | |
| Years ending Dec. 31, | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | 2,203 | |
| 2025 | 2025 | 2,203 | |
| 2026 | 2026 | 2,203 | |
| 2027 | 2027 | 2,203 | |
| 2028 | |
| Thereafter | Thereafter | 11,066 | |
| Total minimum lease payments | Total minimum lease payments | 22,081 | |
| Less: amount representing interest | Less: amount representing interest | 8,274 | |
| Present value of net minimum finance lease payments | Present value of net minimum finance lease payments | $ | 13,807 | |
| Current liabilities | Current liabilities | $ | 836 | |
| Non-current liabilities | Non-current liabilities | $ | 12,971 | |
Additional Lessee Disclosures
Cleco’s and Cleco Power’s total lease cost includes amounts on the income statement, as well as amounts capitalized as part of property, plant, or equipment or inventory. The following tables reflect total lease costs for Cleco and Cleco Power for the years ended December 31, 2022,2023, and 2021:2022:
| | Cleco | Cleco | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Finance lease cost | Finance lease cost | |
| Amortization of ROU assets | |
| Amortization of ROU assets | |
| Amortization of ROU assets | Amortization of ROU assets | $ | 1,120 | | | $ | 1,120 | |
| Interest on lease liabilities | Interest on lease liabilities | 1,448 | | | 1,521 | |
| Operating lease cost | Operating lease cost | 3,710 | | | 3,985 | |
| | Variable lease cost | Variable lease cost | 508 | | | 385 | |
| Variable lease cost | |
| Variable lease cost | |
| | Total lease cost | Total lease cost | $ | 6,786 | | | $ | 7,011 | |
| Total lease cost | |
| Total lease cost | |
| | | | | | | | | | | |
| Cleco Power | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Finance lease cost | | | |
| Amortization of ROU assets | $ | 1,120 | | | $ | 1,120 | |
| Interest on lease liabilities | 1,367 | | | 1,448 | |
| Operating lease cost | 3,581 | | | 3,675 | |
| | | |
| Variable lease cost | 790 | | | 508 | |
| | | |
| Total lease cost | $ | 6,858 | | | $ | 6,751 | |
| | | | | | | | | | | |
| Cleco Power | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Finance lease cost | | | |
| Amortization of ROU assets | $ | 1,120 | | | $ | 1,120 | |
| Interest on lease liabilities | 1,448 | | | 1,521 | |
| Operating lease cost | 3,675 | | | 3,845 | |
| | | |
| Variable lease cost | 508 | | | 385 | |
| | | |
| Total lease cost | $ | 6,751 | | | $ | 6,871 | |
The following tables present additional information related to Cleco’s and Cleco Power’s operating and finance leases as of and for the years ended December 31, 2022,2023, and 2021:2022:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| | AT DEC. 31, | |
| | AT DEC. 31, | |
| | AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2022 | | 2021 | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2023 | | 2022 |
| Supplemental balance sheet information | Supplemental balance sheet information | |
| ROU assets | ROU assets | |
| ROU assets | |
| ROU assets | |
| Operating | |
| Operating | |
| Operating | Operating | Operating lease right of use assets | $ | 22,673 | | | $ | 24,014 | |
| Finance | Finance | Property, plant, and equipment | 11,480 | | | 12,600 | |
| Total ROU assets | Total ROU assets | $ | 34,153 | |
| $ | 36,614 | |
| Current lease liabilities | Current lease liabilities | |
| Operating | Operating | Other current liabilities | $ | 2,926 | | | $ | 2,854 | |
| Operating | |
| Operating | |
| Finance | Finance | Long-term debt and finance leases due within one year | 836 | | | 755 | |
| Non-current lease liabilities | Non-current lease liabilities | |
| Operating | Operating | Operating lease liabilities | 19,819 | | | 21,128 | |
| Operating | |
| Operating | |
| Finance | Finance | Long-term debt and finance leases, net | 12,971 | | | 13,807 | |
| Total lease liabilities | Total lease liabilities | $ | 36,552 | | | $ | 38,544 | |
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| | AT DEC. 31, | |
| | AT DEC. 31, | |
| | AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2022 | | 2021 | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2023 | | 2022 |
| Supplemental balance sheet information | Supplemental balance sheet information | |
| ROU assets | ROU assets | |
| ROU assets | |
| ROU assets | |
| Operating | |
| Operating | |
| Operating | Operating | Operating lease right of use assets | $ | 22,628 | | | $ | 23,970 | |
| Finance | Finance | Property, plant, and equipment | 11,480 | | | 12,600 | |
| Total ROU assets | Total ROU assets | $ | 34,108 | |
| $ | 36,570 | |
| Current lease liabilities | Current lease liabilities | |
| Operating | Operating | Other current liabilities | $ | 2,903 | | | $ | 2,832 | |
| Operating | |
| Operating | |
| Finance | Finance | Long-term debt and finance leases due within one year | 836 | | | 755 | |
| Non-current lease liabilities | Non-current lease liabilities | |
| Operating | Operating | Operating lease liabilities | 19,790 | | | 21,100 | |
| Operating | |
| Operating | |
| Finance | Finance | Long-term debt and finance leases, net | 12,971 | | | 13,807 | |
| Total lease liabilities | Total lease liabilities | $ | 36,500 | | | $ | 38,494 | |
| | Cleco | Cleco | | |
| FOR THE YEAR ENDED DEC. 31, |
| | FOR THE YEAR ENDED DEC. 31, | |
| | FOR THE YEAR ENDED DEC. 31, | |
| | FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | | 2022 | | 2021 | (THOUSANDS) | | 2023 | | 2022 |
| Supplemental cash flow information | Supplemental cash flow information | |
| Cash paid for amounts included in the measurement of lease liabilities | Cash paid for amounts included in the measurement of lease liabilities | |
| Cash paid for amounts included in the measurement of lease liabilities | |
| Cash paid for amounts included in the measurement of lease liabilities | |
| Operating cash flows from operating leases | |
| Operating cash flows from operating leases | |
| Operating cash flows from operating leases | Operating cash flows from operating leases | $ | 3,720 | | | $ | 3,938 | |
| Operating cash flows from finance leases | Operating cash flows from finance leases | $ | 1,448 | | | $ | 1,521 | |
| Financing cash flows from finance leases | Financing cash flows from finance leases | $ | 755 | | | $ | 682 | |
|
| | | | | | | | | | | | | | |
| Cleco Power | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | | 2023 | | 2022 |
| Supplemental cash flow information | | | |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows from operating leases | $ | 3,562 | | | $ | 3,685 | |
| Operating cash flows from finance leases | $ | 1,367 | | | $ | 1,448 | |
| Financing cash flows from finance leases | $ | 836 | | | $ | 755 | |
| | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | |
| Cleco Power | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | | 2022 | | 2021 |
| Supplemental cash flow information | | | |
| Cash paid for amounts included in the measurement of lease liabilities | | | |
| Operating cash flows from operating leases | $ | 3,685 | | | $ | 3,800 | |
| Operating cash flows from finance leases | $ | 1,448 | | | $ | 1,521 | |
| Financing cash flows from finance leases | $ | 755 | | | $ | 682 | |
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| | | | | | | | | | | | | | |
| Cleco | | | |
| | AT DEC. 31, |
| (THOUSANDS) | | 2023 | | 2022 |
| Other supplemental information | | | |
| Operating leases | | | |
| Weighted-average remaining lease term | 12.2 years | | 12.5 years |
| Weighted-average discount rate | 4.30 | % | | 4.36 | % |
| Finance leases | | | |
| Weighted-average remaining lease term | 9.3 years | | 10.3 years |
| Weighted-average discount rate | 10.18 | % | | 10.18 | % |
| | | | | | | | | | | | | | |
| Cleco | | | |
| | AT DEC. 31, |
| (THOUSANDS) | | 2022 | | 2021 |
| Other supplemental information | | | |
| Operating leases | | | |
| Weighted-average remaining lease term | 12.5 years | | 9.0 years |
| Weighted-average discount rate | 4.36 | % | | 4.30 | % |
| Finance leases | | | |
| Weighted-average remaining lease term | 10.3 years | | 11.3 years |
| Weighted-average discount rate | 10.18 | % | | 10.18 | % |
| | | | | | | | | | | | | | |
| Cleco Power | | | |
| | AT DEC. 31, 2022 |
| (THOUSANDS) | | 2022 | | 2021 |
| Other supplemental information | | | |
| Operating leases | | | |
| Weighted-average remaining lease term | 11.4 years | | 9.0 years |
| Weighted-average discount rate | 4.35 | % | | 4.30 | % |
| Finance leases | | | |
| Weighted-average remaining lease term | 10.3 years | | 11.3 years |
| Weighted-average discount rate | 10.18 | % | | 10.18 | % |
Cottonwood Sale Leaseback Agreement
Upon closing the Cleco Cajun Transaction, the Cottonwood Sale Leaseback was executed. Under the terms of the lease, NRG Energy will operate the Cottonwood Plant, incur all costs, and receive all revenues from the operations of the plant. Cottonwood Energy will receive fixed lease payments of $40.0 million per year and variable lease payments for LTSA costs and property taxes paid by NRG Energy on behalf of Cleco. Cleco may terminate the lease contract under specific circumstances stated in the lease contract. The residual value under the Cottonwood Sale Leaseback is expected to be recovered through sales of power generation from the plant. The residual value of the Cottonwood Plant has been determined using the plant’s estimated economic life.
Cleco Cajun is Cleco’s only subsidiary with lessor arrangements. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback is included in Other operations within Cleco’s Consolidated Statement of Income. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback for the years ended December 31, 2022, and 2021 was as follows:
| | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Fixed payments | $ | 40,000 | | | $ | 40,000 | |
| Variable payments | 22,359 | | | 18,226 | |
Amortization of deferred lease liability (1) | 9,205 | | | 9,205 | |
| Total lease income | $ | 71,564 | | | $ | 67,431 | |
(1) Consists of amortization of the deferred lease revenue resulting from the fair value of the lease between Cottonwood Energy and a special-purpose entity that is a subsidiary of NRG Energy.
The remaining minimum lease payments to be received under the Cottonwood Sale Leaseback are as follows:
| | | | | |
| (THOUSANDS) | |
| Years ending Dec. 31, | |
| 2023 | $ | 40,000 | |
| 2024 | 40,000 | |
| 2025 | 16,667 | |
| Total payments | $ | 96,667 | |
Depreciation expense associated with Cleco’s property under the Cottonwood Sale Leaseback for the years ended December 31, 2022, 2021, and 2020, was $33.9 million, $32.0 million, and $29.3 million, respectively. Cleco calculated depreciation on a straight-line basis over the useful life of the asset. Property associated with the Cottonwood Sale Leaseback was as follows:
| | | | | | | | | | | |
| | | AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Property, plant, and equipment | $ | 572,044 | | | $ | 552,659 | |
| Accumulated depreciation | (117,981) | | | (84,065) | |
| Net property, plant, and equipment | $ | 454,063 | | | $ | 468,594 | |
| | | | | | | | | | | | | | |
| Cleco Power | | | |
| | AT DEC. 31, 2023 |
| (THOUSANDS) | | 2023 | | 2022 |
| Other supplemental information | | | |
| Operating leases | | | |
| Weighted-average remaining lease term | 12.2 years | | 11.4 years |
| Weighted-average discount rate | 4.30 | % | | 4.35 | % |
| Finance leases | | | |
| Weighted-average remaining lease term | 9.3 years | | 10.3 years |
| Weighted-average discount rate | 10.18 | % | | 10.18 | % |
| | | | | | | | | | | | | | |
Note 45 — Revenue Recognition |
Revenue from Contracts with Customers
Retail Revenue
Retail revenue from contracts with customers is generated primarily from Cleco’s regulated electric sales from residential, commercial, and industrial customers. Cleco Power recognizes retail revenue from these contracts as a series, and progress towards satisfaction of the performance obligation is measured using an output method based on kWh delivered. Accordingly, revenue from electricity sales is recognized as energy is delivered to the customer. Cleco Power bills retail customers, based on rates regulated by the LPSC, on a monthly basis with payments generally due within 20 days of the invoice date.
Included in retail revenue is unbilled electric revenue, which represents the amount customers will be billed for services rendered from the meter reading from the most recent bill to the end of the respective accounting period. Actual customer energy consumption data available from AMI is used to calculate unbilled revenue. Also included in retail revenue is electric customer credits, which primarily represents the credits to retail customers for the federal tax-related benefits of the TCJA prior to the settlement of the current retail rate plan. Subsequent to the settlementimplementation of the current retail rate plan on July 1, 2021, these credits offset base revenue.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Wholesale Revenue
Cleco’s wholesale revenue is generated primarily through the sale of energy and capacity to electric cooperatives and municipalities. The electricity revenue performance obligations, representing both energy and capacity, are satisfied as a series of performance obligations, and progress towards satisfaction of the performance obligations are measured using
an output method. The energy performance obligation measure of progress is based on kWh delivered. The capacity performance obligation measure of progress is based on time elapsed and is recognized each month as Cleco’s generating units stand ready to deliver electricity to the customer. Cleco recognizes wholesale revenue, inclusive of both performance obligations, under the invoice practical expedient for the amount Cleco has the right to invoice. Cleco, through Cleco Power and Cleco Cajun, charges its wholesaleWholesale customers are charged market based rates that are subject to FERC’s triennial market power analysis. Cleco also enters into transactions through MISO for spot energy sales which are transacted in the Day-Ahead Energy and Operating Reserves Market and the Real-Time Energy and Operating Reserves Market.
Transmission Revenue
Cleco Power and Cleco Cajun earnearns transmission revenues pursuant to MISO’s FERC filed tariff. The performance obligation of transmission service is satisfied as service is provided. Revenue from the transmission of electricity for Cleco Power and Cleco Cajun is recorded based on a separate FERC-approved annual filing rate mechanism effective June 1 of each year. These rates are based on the respective costs to provide transmission services.
Other Revenue
Other revenue from contracts with customers, which is not a significant source of Cleco’s revenue, consisted of customer-forfeited discounts and reconnect fees, electric property rental, and other miscellaneous fees. The performance obligation
under these contracts is satisfied and revenue is recognized as control of the products is delivered or services are rendered.
Revenue Unrelated to Contracts with Customers
On September 1, 2022, Cleco Power began billing and collecting, on behalf of Cleco Securitization I, a new storm recovery surcharge from all retail customers. This surcharge represents the recovery of costs incurred by Cleco Power as a result of Hurricanes Laura, Delta, Zeta, and Ida and Winter Storms Uri and Viola, as well as interest and associated expenses. Cleco Power remits the collected storm recovery surcharge to Cleco Securitization I to service Cleco Securitization I’s storm recovery bonds. The storm recovery surcharge will continue to be billed and collected from Cleco Power’s retail customers through the life of the Cleco Securitization I storm recovery bonds. For more information about the securitization of storm costs, see Note 19 — “Securitization.”
Cleco’s energy-related transactions with the following characteristics qualify as derivative contracts and are recorded pursuant to derivatives and hedging accounting guidance: a) their value is based on the notional amount or payment provisions of an underlying asset; b) they require no or a diminutive initial net investment; and c) their terms require or permit net settlement.
Cleco Cajun’s other revenue primarily includes fixed lease payments and certain variable payments for costs paid by NRG Energy on behalf of Cleco. For more information on the Cottonwood lease agreement, see Note 3 — “Leases — Additional Lessee Disclosures — Cottonwood Sale Leaseback Agreement.”
Disaggregated Revenue
Operating revenue, net for the years ended December 31, 2023, 2022, 2021, and 20202021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2022 |
| (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue from contracts with customers | | | | | | | | | |
| Retail revenue | | | | | | | | | |
Residential (1) | $ | 558,247 | | | $ | — | | | $ | — | | | $ | — | | | $ | 558,247 | |
Commercial (1) | 370,678 | | | — | | | — | | | — | | | 370,678 | |
Industrial (1) | 229,634 | | | — | | | — | | | — | | | 229,634 | |
Other retail (1) | 18,727 | | | — | | | — | | | — | | | 18,727 | |
| Electric customer credits | (7,674) | | | — | | | — | | | — | | | (7,674) | |
| Total retail revenue | 1,169,612 | | | — | | | — | | | — | | | 1,169,612 | |
| Wholesale, net | 331,906 | | (1) | 496,042 | | (2) | (9,680) | | (3) | — | | | 818,268 | |
| Transmission | 63,545 | | | 77,187 | | | — | | | (10,212) | | | 130,520 | |
| Other | 21,966 | | | — | | | — | | | — | | | 21,966 | |
Affiliate (4) | 6,377 | | | — | | | 109,015 | | | (115,392) | | | — | |
| Total revenue from contracts with customers | 1,593,406 | | | 573,229 | | | 99,335 | | | (125,604) | | | 2,140,366 | |
| Revenue unrelated to contracts with customers | | | | | | | | | |
| Securitization | 13,247 | | | — | | | — | | | — | | | 13,247 | |
| Other | 13,875 | | (5) | 71,636 | | (6) | 9 | | | (1) | | | 85,519 | |
| Total revenue unrelated to contracts with customers | 27,122 | | | 71,636 | | | 9 | | | (1) | | | 98,766 | |
| Operating revenue, net | $ | 1,620,528 | | | $ | 644,865 | | | $ | 99,344 | | | $ | (125,605) | | | $ | 2,239,132 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2023 |
| (THOUSANDS) | CLECO POWER | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue from contracts with customers | | | | | | | |
| Retail revenue | | | | | | | |
Residential (1) | $ | 469,099 | | | $ | — | | | $ | — | | | $ | 469,099 | |
Commercial (1) | 304,422 | | | — | | | — | | | 304,422 | |
Industrial (1) | 179,506 | | | — | | | — | | | 179,506 | |
Other retail (1) | 16,543 | | | — | | | — | | | 16,543 | |
| Electric customer credits | (60,689) | | | — | | | — | | | (60,689) | |
| Total retail revenue | 908,881 | | | — | | | — | | | 908,881 | |
| Wholesale, net | 221,547 | | (1) | (9,454) | | (2) | — | | | 212,093 | |
| Transmission | 56,701 | | | — | | | — | | | 56,701 | |
| Other | 20,797 | | | — | | | — | | | 20,797 | |
Affiliate (3) | 8,904 | | | 120,716 | | | (129,620) | | | — | |
| Total revenue from contracts with customers | 1,216,830 | | | 111,262 | | | (129,620) | | | 1,198,472 | |
| Revenue unrelated to contracts with customers | | | | | | | |
| Securitization | 34,063 | | | — | | | — | | | 34,063 | |
| Other | 6,252 | | (4) | 5 | | | (1) | | | 6,256 | |
| Total revenue unrelated to contracts with customers | 40,315 | | | 5 | | | (1) | | | 40,319 | |
| Operating revenue, net | $ | 1,257,145 | | | $ | 111,267 | | | $ | (129,621) | | | $ | 1,238,791 | |
(1) Includes fuel recovery revenue.
(2) Includes $(14.4) million of amortization of intangible assets and liabilities related to Cleco Cajun’s wholesale power supply agreements.
(3) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.
(4)(3) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.
(5)(4) Represents realized gains associated with FTRs.
(6) Includes $62.4 million in lease revenue related to the Cottonwood Sale Leaseback and $9.2 million of deferred lease revenue amortization.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | FOR THE YEAR ENDED DEC. 31, 2021 |
| FOR THE YEAR ENDED DEC. 31, 2022 | | | FOR THE YEAR ENDED DEC. 31, 2022 |
| (THOUSANDS) | (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | OTHER | | ELIMINATIONS | | TOTAL | (THOUSANDS) | CLECO POWER | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue from contracts with customers | Revenue from contracts with customers | |
| Retail revenue | Retail revenue | |
| Retail revenue | |
| Retail revenue | |
Residential (1) | |
Residential (1) | |
Residential (1) | Residential (1) | $ | 453,873 | | | $ | — | | | $ | — | | | $ | — | | | $ | 453,873 | |
Commercial (1) | Commercial (1) | 294,553 | | | — | | | — | | | — | | | 294,553 | |
Industrial (1) | Industrial (1) | 175,134 | | | — | | | — | | | — | | | 175,134 | |
Other retail (1) | Other retail (1) | 16,105 | | | — | | | — | | | — | | | 16,105 | |
| | Electric customer credits | Electric customer credits | (41,007) | | | — | | | — | | | — | | | (41,007) | |
| Electric customer credits | |
| Electric customer credits | |
| Total retail revenue | Total retail revenue | 898,658 | | | — | | | — | | | — | | | 898,658 | |
| Wholesale, net | Wholesale, net | 250,987 | | (1) | 398,226 | | (2) | (9,680) | | (3) | 1 | | | 639,534 | |
| Transmission, net | Transmission, net | 55,963 | | (4) | 61,500 | | (5) | — | | | (7,615) | | | 109,848 | |
| Other | Other | 18,791 | | | — | | | 8 | | | — | | | 18,799 | |
Affiliate (6) | 5,641 | | | — | | | 113,623 | | | (119,264) | | | — | |
Affiliate (3) | |
| Total revenue from contracts with customers | Total revenue from contracts with customers | 1,230,040 | | | 459,726 | | | 103,951 | | | (126,878) | | | 1,666,839 | |
| Revenue unrelated to contracts with customers | Revenue unrelated to contracts with customers | |
| Securitization | |
| Securitization | |
| Securitization | |
| Other | Other | 11,597 | | (7) | 67,493 | | (8) | — | | | — | | | 79,090 | |
| Total revenue unrelated to contracts with customers | Total revenue unrelated to contracts with customers | 11,597 | | | 67,493 | | | — | | | — | | | 79,090 | |
| Operating revenue, net | Operating revenue, net | $ | 1,241,637 | | | $ | 527,219 | | | $ | 103,951 | | | $ | (126,878) | | | $ | 1,745,929 | |
(1) Includes fuel recovery revenue.
(2) Includes $(13.5) million of amortizationAmortization of intangible assets and liabilities related to Cleco Cajun’sPower’s wholesale power supply agreements.agreements..
(3) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.
(4) Represents realized gains associated with FTRs.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2021 |
| (THOUSANDS) | CLECO POWER | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue from contracts with customers | | | | | | | |
| Retail revenue | | | | | | | |
Residential (1) | $ | 453,873 | | | $ | — | | | $ | — | | | $ | 453,873 | |
Commercial (1) | 294,553 | | | — | | | — | | | 294,553 | |
Industrial (1) | 175,134 | | | — | | | — | | | 175,134 | |
Other retail (1) | 16,105 | | | — | | | — | | | 16,105 | |
| Electric customer credits | (41,007) | | | — | | | — | | | (41,007) | |
| Total retail revenue | 898,658 | | | — | | | — | | | 898,658 | |
| Wholesale, net | 250,987 | | (1) | (9,680) | | (2) | — | | | 241,307 | |
| Transmission | 55,963 | | (4) | — | | | — | | | 55,963 | |
| Other | 18,791 | | | 8 | | | — | | | 18,799 | |
Affiliate (3) | 5,641 | | | 113,623 | | | (119,264) | | | — | |
| Total revenue from contracts with customers | 1,230,040 | | | 103,951 | | | (119,264) | | | 1,214,727 | |
| Revenue unrelated to contracts with customers | | | | | | | |
| Other | 11,597 | | (5) | — | | | — | | | 11,597 | |
| Total revenue unrelated to contracts with customers | 11,597 | | | — | | | — | | | 11,597 | |
| Operating revenue, net | $ | 1,241,637 | | | $ | 103,951 | | | $ | (119,264) | | | $ | 1,226,324 | |
(1) Includes fuel recovery revenue.
(2) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.
(4) Includes $0.1 million of electric customer credits.
(5) Includes $0.2 million of electric customer credits.
(6)(3) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.
(7) Represents realized gains associated with FTRs.
(8) Includes $58.2 million in lease revenue related to the Cottonwood Sale Leaseback and $9.2 million of deferred lease revenue amortization.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2020 |
| (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue from contracts with customers | | | | | | | | | |
| Retail revenue | | | | | | | | | |
Residential (1) | $ | 402,050 | | | $ | — | | | $ | — | | | $ | — | | | $ | 402,050 | |
Commercial (1) | 256,964 | | | — | | | — | | | — | | | 256,964 | |
Industrial (1) | 137,920 | | | — | | | — | | | — | | | 137,920 | |
Other retail (1) | 14,235 | | | — | | | — | | | — | | | 14,235 | |
| Storm recovery surcharge | 2,440 | | | — | | | — | | | — | | | 2,440 | |
| Electric customer credits | (52,208) | | | — | | | — | | | — | | | (52,208) | |
| Total retail revenue | 761,401 | | | — | | | — | | | — | | | 761,401 | |
| Wholesale, net | 192,187 | | (1) | 365,555 | | (2) | (9,680) | | (3) | — | | | 548,062 | |
| Transmission | 49,164 | | (4) | 51,449 | | (5) | — | | | (6,463) | | | 94,150 | |
| Other | 15,162 | | | — | | | — | | | 1 | | | 15,163 | |
Affiliate (6) | 5,156 | | | 204 | | | 129,126 | | | (134,486) | | | — | |
| Total revenue from contracts with customers | 1,023,070 | | | 417,208 | | | 119,446 | | | (140,948) | | | 1,418,776 | |
| Revenue unrelated to contracts with customers | | | | | | | | | |
| Other | 9,222 | | (7) | 70,145 | | (8) | 3 | | | — | | | 79,370 | |
| Total revenue unrelated to contracts with customers | 9,222 | | | 70,145 | | | 3 | | | — | | | 79,370 | |
| Operating revenue, net | $ | 1,032,292 | | | $ | 487,353 | | | $ | 119,449 | | | $ | (140,948) | | | $ | 1,498,146 | |
(1) Includes fuel recovery revenue.
(2) Includes $(12.4) million of amortization of intangible assets and liabilities related to Cleco Cajun’s wholesale power supply agreements.
(3) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.
(4) Includes $(0.9)$0.1 million of electric customer credits.
(5) Includes $(0.2) million of electric customer credits.
(6) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.
(7) Represents realizedRealized gains associated with FTRs.
(8) Includes $60.9 million in lease revenue related to the Cottonwood Sale Leaseback and $9.2 million of deferred lease revenue amortization.
Cleco and Cleco Power have unsatisfied performance obligations under contracts with electric cooperatives and municipalities with durations ranging between 21 and 1211 years that primarily relate to stand-ready obligations as part of fixed capacity minimums. At December 31, 2022,2023, Cleco and Cleco Power had $231.2$300.0 million of unsatisfied fixed performance obligations that will be recognized as revenue over the term of such contracts as the stand-ready obligation to provide energy is provided.
| | | | | | | | | | | | | | |
Note 56 — Regulatory Assets and Liabilities |
Cleco Power recognizes an asset for certain costs capitalized or deferred for recovery from customers and recognizes a liability for amounts expected to be returned to customers or collected for future expected costs. Cleco Power records these assets and liabilities based on regulatory approval and management’s ongoing assessment that it is probable these items will be recovered or refunded through the ratemaking process.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Under the current regulatory environment, Cleco Power believes these regulatory assets will be fully recoverable; however, ifrecoverable. If in the future, as a result of regulatory changes or competition, Cleco Power’s ability to recover these regulatory assets would no longer be probable, then to the extent that such regulatory assets were determined not to be recoverable, Cleco Power would be required to write-down such assets. In
addition, potential deregulation of the industry or possible future changes in the method of rate regulation of Cleco Power, could require discontinuance of the application of the authoritative guidance of regulated operations.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table summarizes Cleco Power’s regulatory assets and liabilities:
| | Cleco Power | Cleco Power | | | |
| AT DEC. 31, | | REMAINING RECOVERY PERIOD (YRS.) | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | |
| (THOUSANDS) | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | REMAINING RECOVERY PERIOD (YRS.) | |
| | | Regulatory assets | Regulatory assets | |
| | Regulatory assets | |
| | Regulatory assets | |
| Acadia Unit 1 acquisition costs | Acadia Unit 1 acquisition costs | $ | 1,807 | | | $ | 1,913 | | | 17 | |
| Acadia Unit 1 acquisition costs | |
| Acadia Unit 1 acquisition costs | |
Accumulated deferred fuel (1) | |
Accumulated deferred fuel (1) | |
Accumulated deferred fuel (1) | Accumulated deferred fuel (1) | 57,881 | | | 56,826 | | | Various | (9) | 11,627 | | | 57,881 | | 57,881 | | | Various | | Various | (9) |
| Affordability study | Affordability study | 11,715 | | | 13,094 | | | 8.5 | |
| AFUDC equity gross-up | AFUDC equity gross-up | 63,477 | | | 66,574 | | | Various | (2) |
| AFUDC equity gross-up | |
| AFUDC equity gross-up | | 60,381 | | | 63,477 | | | Various | (2) |
| AMI deferred revenue requirement | AMI deferred revenue requirement | 1,499 | | | 2,045 | | | 3.25 | |
AROs (1)(8) | 17,218 | | | 15,141 | | |
AROs (8) | |
AROs (8) | |
AROs (8) | |
| Bayou Vista to Segura transmission project deferred revenue requirement | |
| Bayou Vista to Segura transmission project deferred revenue requirement | |
| Bayou Vista to Segura transmission project deferred revenue requirement | Bayou Vista to Segura transmission project deferred revenue requirement | 2,510 | | | 1,392 | | | 0.5 | |
| Coughlin transaction costs | Coughlin transaction costs | 815 | | | 845 | | | 26.5 | |
| Coughlin transaction costs | |
| Coughlin transaction costs | |
COVID-19 executive order (8) | COVID-19 executive order (8) | 2,953 | | | 2,953 | | |
Deferred lignite and mine closure costs (8) | 133,587 | | | 136,980 | | |
COVID-19 executive order (8) | |
COVID-19 executive order (8) | |
Deferred lignite and mine closure costs (7) | |
Deferred lignite and mine closure costs (7) | |
Deferred lignite and mine closure costs (7) | |
Deferred storm restoration costs - Hurricane Delta (6) | Deferred storm restoration costs - Hurricane Delta (6) | 109 | | | 17,113 | | |
Deferred storm restoration costs - Hurricane Ida (7) | 9,409 | | | 37,617 | | |
Deferred storm restoration costs - Hurricane Delta (6) | |
Deferred storm restoration costs - Hurricane Delta (6) | |
| Deferred storm restoration costs - Hurricane Ida | |
| Deferred storm restoration costs - Hurricane Ida | |
| Deferred storm restoration costs - Hurricane Ida | |
Deferred storm restoration costs - Hurricane Laura (6) | |
Deferred storm restoration costs - Hurricane Laura (6) | |
Deferred storm restoration costs - Hurricane Laura (6) | Deferred storm restoration costs - Hurricane Laura (6) | 457 | | | 54,282 | | |
Deferred storm restoration costs - Hurricane Zeta (6) | Deferred storm restoration costs - Hurricane Zeta (6) | 9 | | | 3,296 | | |
| Deferred storm restoration costs - Winter Storms Uri & Viola | — | | | 1,912 | | |
Dolet Hills Power Station closure costs (8) | 147,082 | | | 145,844 | | |
| Deferred storm restoration costs - Hurricane Zeta (6) | |
Deferred storm restoration costs - Hurricane Zeta (6) | |
| Deferred taxes, net | |
| Deferred taxes, net | |
| Deferred taxes, net | | 43,866 | | | 8,803 | | | Various | (9) |
Dolet Hills Power Station closure costs (7) | |
| Energy efficiency | Energy efficiency | 235 | | | 1,645 | | | 0.25 | |
| Energy efficiency | |
| Energy efficiency | |
Financing costs (1) | |
Financing costs (1) | |
Financing costs (1) | Financing costs (1) | 6,456 | | | 6,826 | | | Various | (3) | 6,087 | | | 6,456 | | 6,456 | | | Various | | Various | (3) |
| Interest costs | Interest costs | 3,210 | | | 3,459 | | | Various | (2) | Interest costs | 2,961 | | | 3,210 | | 3,210 | | | Various | | Various | (2) |
| Madison Unit 3 property taxes | Madison Unit 3 property taxes | 13,038 | | | 8,362 | | | Various | (9) | Madison Unit 3 property taxes | 13,297 | | | 13,038 | | 13,038 | | | Various | | Various | (9) |
| | Non-service cost of postretirement benefits | Non-service cost of postretirement benefits | 14,810 | | | 12,950 | | | Various | (2) | Non-service cost of postretirement benefits | 14,526 | | | 14,810 | | 14,810 | | | Various | | Various | (2) |
| Other | Other | 14,114 | | | 11,224 | | | Various | (9) | Other | 10,483 | | | 14,114 | | 14,114 | | | Various | | Various | (9) |
| Postretirement costs | Postretirement costs | 47,317 | | | 117,773 | | | Various | (4) | Postretirement costs | 64,399 | | | 47,317 | | 47,317 | | | Various | | Various | (4) |
| Production operations and maintenance expenses | Production operations and maintenance expenses | 10,443 | | | 11,058 | | | Various | (5) | Production operations and maintenance expenses | 7,002 | | | 10,443 | | 10,443 | | | Various | | Various | (5) |
Rodemacher Unit 2 deferred costs (8) | Rodemacher Unit 2 deferred costs (8) | 12,645 | | | 6,931 | | |
| St. Mary Clean Energy Center | St. Mary Clean Energy Center | 4,350 | | | 6,089 | | | 2.5 | |
| | St. Mary Clean Energy Center | |
| St. Mary Clean Energy Center | |
| Training costs | |
| Training costs | |
| Training costs | Training costs | 5,774 | | | 5,929 | | | 37 | |
| Tree trimming costs | Tree trimming costs | 6,377 | | | 9,092 | | | 2.25 | |
| Tree trimming costs | |
| Tree trimming costs | |
| Total regulatory assets | |
| Total regulatory assets | |
| Total regulatory assets | Total regulatory assets | 589,297 | | | 759,165 | | |
| Regulatory liabilities | Regulatory liabilities | | |
| | Regulatory liabilities | |
| Regulatory liabilities | |
| Deferred taxes, net | |
| Deferred taxes, net | |
| Deferred taxes, net | Deferred taxes, net | (34,087) | | | (95,544) | | | Various | (9) | (21,939) | | | (42,890) | | (42,890) | | | Various | | Various | (9) |
| Storm reserves | Storm reserves | (118,762) | | | — | | | Various | (9) |
| Total regulatory liabilities | Total regulatory liabilities | (152,849) | | | (95,544) | | |
| Total regulatory liabilities | |
| Total regulatory liabilities | |
| Total regulatory assets, net | Total regulatory assets, net | $ | 436,448 | | | $ | 663,621 | | | | |
(1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2022, and 2021, respectively. All other assets are earning a return on investment. (2) Amortized over the estimated lives of the respective assets. (3) Amortized over the terms of the related debt issuances. (4) Amortized over the average service life of the remaining plan participants. (5) Deferral is recovered over the following three-year regulatory period. (6) From June 1, 2021, through August 31, 2022, these were being recovered through the interim storm recovery rate. For more information, see Note 19 — “Securitization.” (7) Currently not in a recovery period. The balance remaining represents amounts under prudency review by the LPSC. (8) Currently not in a recovery period. (9) For more information on the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability. | |
| Total regulatory assets, net | |
| Total regulatory assets, net | |
| (1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2023, and 2022, respectively. All other assets are earning a return on investment. (2) Amortized over the estimated lives of the respective assets. (3) Amortized over the terms of the related debt issuances. (4) Amortized over the average service life of the remaining plan participants. (5) Deferral is recovered over the following three-year regulatory period. (6) From June 1, 2021, through August 31, 2022, these were being recovered through the interim storm recovery rate. The storm recovery surcharge became effective on September 1, 2022. (7) Currently not in a recovery period. The balance remaining represents amounts under prudency review by the LPSC. (8) Currently not in a recovery period. (9) For more information on the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability. | |
| (1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2023, and 2022, respectively. All other assets are earning a return on investment. (2) Amortized over the estimated lives of the respective assets. (3) Amortized over the terms of the related debt issuances. (4) Amortized over the average service life of the remaining plan participants. (5) Deferral is recovered over the following three-year regulatory period. (6) From June 1, 2021, through August 31, 2022, these were being recovered through the interim storm recovery rate. The storm recovery surcharge became effective on September 1, 2022. (7) Currently not in a recovery period. The balance remaining represents amounts under prudency review by the LPSC. (8) Currently not in a recovery period. (9) For more information on the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability. | |
| (1) Represents regulatory assets for past expenditures that were not earning a return on investment at December 31, 2023, and 2022, respectively. All other assets are earning a return on investment. (2) Amortized over the estimated lives of the respective assets. (3) Amortized over the terms of the related debt issuances. (4) Amortized over the average service life of the remaining plan participants. (5) Deferral is recovered over the following three-year regulatory period. (6) From June 1, 2021, through August 31, 2022, these were being recovered through the interim storm recovery rate. The storm recovery surcharge became effective on September 1, 2022. (7) Currently not in a recovery period. The balance remaining represents amounts under prudency review by the LPSC. (8) Currently not in a recovery period. (9) For more information on the remaining recovery period, refer to the following disclosures for each specific regulatory asset or liability. | |
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
The following table summarizes Cleco’s net regulatory assets and liabilities:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Total Cleco Power regulatory assets, net | Total Cleco Power regulatory assets, net | $ | 436,448 | | | $ | 663,621 | |
2016 Merger adjustments (1) | 2016 Merger adjustments (1) | |
| Fair value of long-term debt | |
| Fair value of long-term debt | |
| Fair value of long-term debt | Fair value of long-term debt | 104,748 | | | 112,150 | |
| Postretirement costs | Postretirement costs | 11,436 | | | 13,424 | |
| Financing costs | Financing costs | 6,904 | | | 7,248 | |
| Debt issuance costs | Debt issuance costs | 4,587 | | | 4,920 | |
| Total Cleco regulatory assets, net | Total Cleco regulatory assets, net | $ | 564,123 | | | $ | 801,363 | |
(1) Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.
Acadia Unit 1 Acquisition Costs
In 2009, the LPSC approved Cleco Power’s request to establish a regulatory asset for costs incurred as a result of the acquisition by Cleco Power of Acadia Unit 1 and half of Acadia Power Station’s related common facilities. TheIn 2010, Cleco Power began recovering the Acadia Unit 1 acquisition costs are being recovered over a 30-year period beginning February 2010.period.
Accumulated Deferred Fuel
Cleco Power is allowed to recover the cost of fuel used for electric generation and power purchased for utility customers through the LPSC-established FAC or related wholesale contract provisions, which enable Cleco Power to pass on to its customers substantially all such charges. The difference between fuel and purchased power revenues collected from retail and wholesale customers and the current fuel and purchased power costs is generally recorded as Accumulated deferred fuel on Cleco Power’s Consolidated Balance Sheet. At December 31, 2023, Accumulated deferred fuel decreased $46.3 million as a result of lower fuel costs. For 2022,2023, approximately 78%77% of Cleco Power’s total fuel cost was regulated by the LPSC.
Affordability Study
On June 16,In July 2021, as approved by the LPSC approvedin Cleco Power’s current retail rate plan. As a result,plan, Cleco Power was allowed to establish a regulatory asset related to outside consulting fees for the assessment of Cleco Power’s practices and assistance in the identification of potential cost savings opportunities, while maintaining superior levels of employee safety, reliability, customer service, environmental stewardship, community involvement, and regulatory transparency. In July 2021, the regulatory asset began being amortized over 10 years.
AFUDC Equity Gross-Up
Cleco Power capitalizes equity AFUDC as a cost component of construction projects. Cleco Power has recorded a regulatory asset to recover the tax gross-up related to the equity component of AFUDC. These costs are being amortized over the estimated lives of the respective assets constructed.
AMI Deferred Revenue Requirement
In February 2011, the LPSC approved Cleco Power’s stipulated settlement in Docket No. U-31393 allowing Cleco Power to defer the estimated revenue requirements for the AMI project as a regulatory asset. In June 2014, the LPSC approved Cleco Power’s recovery of the AMI regulatory asset over the average
life of the AMI meters, or 11 years. In July 2014,years, and Cleco Power began recovering the AMI deferred revenue requirement.
AROs
Cleco Power recorded an ARO liability for the retirement of certain ash disposal facilities. The ARO regulatory asset represents the accretion of the ARO liability and the depreciation of the related assets. For more information on the accounting treatment and net changes of Cleco Power’s AROs, see Note 2 — “Summary of Significant Accounting Policies — AROs,” and Note 1516 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Other Commitments.”
Bayou Vista To Segura Transmission Project Deferred Revenue Requirement
On June 16,In July, 2021, as approved by the LPSC approvedin Cleco Power’s current retail rate plan. As a result,plan, Cleco Power was allowed to establish a regulatory asset and recover the revenue requirements, including interest at Cleco Power’s weighted average cost of capital, starting in the month after completion of each phase of the Bayou Vista to Segura Transmission project. The northern phase of the project was completed in August 2021, and the southern phase was completed in December 2021. At December 31, 2022, Cleco Power had a2023, the regulatory asset for the deferred revenue associated with the Bayou Vista to Segura Transmission project. The regulatory asset is being amortized over 12 months beginning July 1, 2022.was fully amortized.
Coughlin Transaction Costs
In January 2014, the LPSC authorized Cleco Power to create a regulatory asset for the transaction costs related to the transfer of Coughlin from Evangeline to Cleco Power. TheIn 2014, Cleco Power began recovering the Coughlin transaction costs are being recovered over a 35-year period beginning July 2014.period.
COVID-19 Executive Order
OnIn March 13, 2020, the LPSC issued an executive order prohibiting the disconnection of utilities for nonpayment. This order resulted in an increase of expenses and a loss of revenue for Cleco Power. OnIn April 29, 2020, the LPSC issued an order allowing utilities to establish a regulatory asset for expenses incurred from the suspension of disconnections and collection of late fees imposed by the LPSC executive order. On July 1, 2020, the LPSC issued an order terminating the moratorium on disconnections effective July 16, 2020. Cleco began resuming disconnections and late fees and utilizing collection agencies onin October 1, 2020. OnIn December 4, 2020, Cleco Power made a filing with the LPSC requesting the recovery of the regulatory asset as well as the lost revenue associated with the disconnection fees and incremental costs over a four-year period. Cleco Power has a regulatory asset for expenses incurred related to the executive order and anticipates approval by the LPSC for recovery of these expenses in the second quarter of 2023.late March 2024.
Deferred Lignite and Mine Closure Costs
OnIn October 6, 2020, Cleco Power and SWEPCO made a joint filing with the LPSC seeking authorization to close the Oxbow mine and to include and defer certain accelerated mine closing costs in fuel and related ratemaking treatment. OnIn March 17, 2021, the LPSC approved the establishment of a regulatory asset for certain lignite costs that would otherwise be billed through Cleco Power’s FAC and any reasonable incremental third-party professional costs related to the closure of the mine. Cleco Power has a regulatory asset for deferred
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CLECO POWER | | 2022 FORM 10-K |
fuel and mine-related incurred costs, which were included in the application filed with the LPSC on January 31, 2022. Recovery of these costs is subject to a prudency review by the LPSC, which is
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
currently in progress. For more informationManagement has estimated that a loss resulting from a potential disallowance ranging between $58.7 million and $228.0 million is probable. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on the Oxbow mine, see Note 15 — “Litigation, Other CommitmentsCleco’s and Contingencies,Cleco Power’s Balance Sheets and Disclosures about Guarantees — RisksElectric customer credits on Cleco’s and Uncertainties.”Cleco Power’s Statements of Income. For more information on the prudency review related to the deferred fuel and other mine-related closure costs, see Note 1516 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Reviews — Deferred Lignite and Mine Closure Costs.Review.”
Deferred Storm Restoration Costs
In 2020 and 2021, Cleco Power’s distribution and transmission systems sustained substantial damage from four separate hurricanes, Hurricanes Laura, Delta, Zeta, and Ida, and two severe winter storms, Winter Storms Uri and Viola. Cleco Power established a separate regulatory asset to track and defer non-capital expenses associated with each corresponding storm, as approved by the LPSC.
On June 22, 2022, through Cleco Securitization I, Cleco Power completed a securitized financing of Storm Recovery Property, which included the previously mentioned storm restoration costs that were deferred as regulatory assets. In connection with that securitization financing, Cleco Securitization I used the net proceeds from its issuance of storm recovery bonds to purchase the Storm Recovery Property from Cleco Power. Prior to September 1, 2022, certain costs for Hurricanes Laura, Delta, and Zeta were recovered through the interim storm recovery rate. On September 30, 2023, the LPSC approved a settlement allowing Cleco Power to withdraw the remaining unrecovered Hurricane Ida storm restoration costs, plus a carrying charge through September 2023, totaling $10.3 million from the Hurricane Ida storm reserve. The balances remaining at December 30, 2022,31, 2023, for Hurricanes Laura, Delta, and Zeta are due to the timing of collections of the interimfor storm ratepreparation costs and are expected to be funded by the storm reserve, pending approval by the LPSC. The costs remaining at December 31, 2022, for Hurricane Ida are currently under a prudency review by the LPSC. Cleco Power is unable to determine the outcome or timing of such review. For more information on the storm recovery securitization financing, see Note 19 — “Securitization.”
Dolet Hills Power Station Closure Costs
In June 2020, Cleco Power revised depreciation rates for the Dolet Hills Power Station to utilize the December 31, 2021, expected end-of-life and early retirement of the Dolet Hills Power Station and defer depreciation expense to a regulatory asset for the amount in excess of the previously LPSC-approved depreciation rates.
The Dolet Hills Power Station was retired on December 31, 2021. On January 31, 2022, Cleco Power filed an application with the LPSC requesting approval of the regulatory treatment and recovery of stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station over 20 years. Cleco Power has a regulatory asset for the stranded costs. Thesecosts, and these costs are currently under a prudency review by the LPSC. For more information on the Dolet Hills Power Station,prudency review, see Note 1516 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.” For more information on the prudency review for these costs see, “— Risks and Uncertainties.Dolet Hills Prudency Review.”
Energy Efficiency
In December 2018, Cleco Power filed a letter of intent with the LPSC to recover the under recovery of the accumulated decrease in revenues, also known as the LCFC, associated with the energy
efficiency program for years 2014 through 2018 to be recovered over a four-year period. Cleco Power began collecting the accumulated LCFC revenues in Cleco Power’s energy efficiency rates effective March 1, 2019. OnIn October 21, 2019, Cleco Power received notice of approval from the LPSC allowing recovery of the accumulated LCFC revenues. At December 31, 2023, the accumulated LCFC revenues were fully recovered.
Financing Costs
In 2011, Cleco Power entered into and settled two treasury rate locks. Of the $26.8 million in settlements, $7.4 million was deferred as a regulatory asset relating to ineffectiveness of the hedge relationships. Also in 2011, Cleco Power entered into a forward starting swap contract. These derivatives were entered into in order to mitigate the interest rate exposure on coupon payments related to forecasted debt issuances. In May 2013, the forward starting interest rate swap was settled at a loss of $3.3 million. Cleco Power deferred $2.9 million of the losses as a regulatory asset, which is being amortized over the terms of the related debt issuances.
Interest Costs
Cleco Power’s deferred interest costs include additional deferred capital construction financing costs authorized by the LPSC. These costs are being amortized over the estimated lives of the respective assets.
Madison Unit 3 Property Taxes
On June 16,Beginning in July 2021, as approved by the LPSC approvedin Cleco Power’s current retail rate plan. As a result, beginning July 1, 2022,plan, Cleco Power is allowed to recover property taxes paid for Madison Unit 3, including a carrying charge at Cleco Power’s weighted average cost of capital, grossed up for income taxes. The amount included in the cost recovery mechanism each year will amortize over 12 months.
Non-Service Cost of Postretirement Benefits
On January 1,In 2018, FASB’s amended guidance related to defined benefit pension and other postretirement plans became effective. The amendment allows only the service cost component of net benefit cost to be eligible for capitalization within property, plant, and equipment. Beginning January 1,in 2018, Cleco Power’s non-service cost previously eligible for capitalization into property, plant, and equipment are being deferred to a regulatory asset and will be amortized over the estimated lives of the respective assets.
Other
On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan resulting in Cleco Power establishing several regulatory assets. Annually, Cleco Power is allowed to defer, as a regulatory asset, the undercollection of revenues related to the Northlake Transmission Agreement. The amount recorded in the regulatory asset will be amortized over the following regulatory period, beginning on July 1. At December 31, 2022,2023, Cleco Power had a regulatory asset of $2.9$1.0 million relating to the Northlake Transmission Agreement.
In addition, the LPSC approved recovery of other previously deferred costs associated with Cleco Power’s current retail rate plan, which began being amortized over four
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CLECO POWER | | 2022 FORM 10-K |
years on July 1, 2021. At December 31, 2022,2023, Cleco Power had a regulatory asset of $7.3$2.9 million for these deferred costs.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
In June 2017, the LPSC approved the establishment of a regulatory asset upon the completion of the Coughlin Pipeline project for the revenue requirement associated with the project, until Cleco Power’s current retail rate plan was approved. As approved by the LPSC in Cleco Power’s current retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021. At December 31, 2022,2023, Cleco Power had a regulatory asset of $3.4$2.0 million related to the deferred revenue associated with the Coughlin Pipeline project.
Effective for income tax periods beginning on or after January 1, 2022, the Louisiana state corporate income tax rate was decreased from 8% to 7.5% and the state deduction for federal income taxes paid was eliminated. These changes resulted in an increase in income tax expense. Therefore, Cleco Power established a regulatory asset of $2.3 million for the increased revenue requirements associated with the income tax expense in excess of the amount previously approved by the LPSC. Cleco Power plans to seek recovery of this regulatory asset in its nextcurrent rate case, which is requiredwas filed on June 30, 2023, with anticipated new rates being effective July 1, 2024. At December 31, 2023, Cleco Power had a balance of $4.5 million related to be filed by March 31, 2023.this regulatory asset.
Postretirement Costs
Cleco Power recognizes the funded status of its postretirement benefit plans as a net liability or asset. The net liability or asset is defined as the difference between the benefit obligation and the fair market value of plan assets. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. Historically, the LPSC has allowed Cleco Power to recover pension plan expense. Cleco Power, therefore, recognizes a regulatory asset based on its determination that these costs can be collected from customers. These costs are amortized to pension expense over the average service life of the remaining plan participants (approximately five years as of December 31, 2022,2023, for Cleco’s plan) when it exceeds certain thresholds. The amount and timing of the recovery will be based on the changing funded status of the pension plan in future periods. For more information on Cleco’s pension plan and adoption of these authoritative guidelines, see Note 1011 — “Pension Plan and Employee Benefits.”
Production Operations and Maintenance Expenses
Annually, Cleco Power is allowed to defer, as a regulatory asset, production operations and maintenance expenses, net of fuel and payroll, above the retail jurisdictional portion of $34.9 million, adjusted annually for a growth factor (deferral threshold). The amount of the regulatory asset is capped at $25.0 million. The LPSC allows Cleco Power to recover the amount deferred in any calendar year over the following three-year regulatory period, beginning on July 1, when the annual rates are set. Cleco Power had no deferral in 2023 and a deferral of $2.4 million in 2022 and a deferral of $9.7 million in 2021.2022.
Rodemacher Unit 2 Deferred Costs
As a result of environmental regulations enacted during 2020, Cleco Power revised Rodemacher Unit 2’s expected end-of-life to coincide with its application to the EPA for an alternative closure date of October 17, 2028. Rodemacher Unit 2’s depreciation expense in excess of the previously LPSC-approved depreciation rates are deferred to a regulatory asset.
St. Mary Clean Energy Center
Cleco Power has a regulatory asset for the revenue requirements related to the planning and construction costs incurred for the St. Mary Clean Energy Center. As approved by the LPSC in Cleco Power’s current retail rate plan, the regulatory asset began being amortized over four years on July 1, 2021.
OnIn September 21, 2022, the LPSC approved a settlement disallowing recovery of $15.0 million, which resulted in a $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value. The approved settlement also included refunding $10.4 million to Cleco Power’s retail customers. As a result, a regulatory asset of $3.8 million was recognized for the incurred refund liability for retail revenues that will continue to be collected until Cleco Power’s current base rates are reset, which is expected to be on July 1, 2024, in its next rate case, which is expected on July 1, 2024.FRP. On October 1, 2022, Cleco Power began amortizing the $3.8 million regulatory asset to Electric customer credits on its Consolidated Statement of Income as amounts are collected from customers. For more information on the settlement and disallowance,the costs disallowed for recovery, see Note 1514 — “Litigation, Other Commitments“Regulation and Contingencies, and Disclosures about GuaranteesRates — Litigation — LPSC Audits and Reviews — Prudency Reviews — St. Mary Clean Energy Center.Regulatory Disallowance.”
Training Costs
In 2008, the LPSC approved Cleco Power’s request to establish a regulatory asset for training costs associated with existing processes and technology for new employees at Madison Unit 3. Recovery of these expenditures was approved by the LPSC in 2009. In 2010, Cleco Power began amortizing the regulatory asset over a 50-year period.
Tree Trimming Costs
In October 2016, the LPSC approved Cleco Power to defer and recover through its base rates tree trimming costs. The LPSC authorized a deferral up to $10.9 million, excluding debt carrying costs. Cleco Power is currently collecting deferred tree trimming costs through its base rates and expects them to be fully amortized by 2026.
Cleco Holdings’ 2016 Merger Adjustments
As a result of the 2016 Merger, Cleco implemented acquisition accounting, which eliminated AOCI at the Cleco consolidated level on the date of the 2016 Merger. Cleco will continue to recover expenses related to certain postretirement costs; therefore, Cleco recognized a regulatory asset based on its determination that these costs that are probable of recovery continue to be collected from customers. These costs will be amortized to Other operations expense over the average remaining service period of participating employees. Cleco will also continue to recover financing costs associated with the settlement of two treasury rate locks and a forward starting swap contract that were previously recognized in AOCI. Additionally, as a result of the 2016 Merger, a regulatory asset was recorded for debt issuance costs that were eliminated at Cleco and a regulatory asset was recorded for the difference between the carrying value and the fair value of long-term debt. These regulatory assets are being amortized over the terms of the related debt issuances, unless the debt is redeemed prior to maturity, at which time any unamortized related regulatory asset will be derecognized.
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Deferred Taxes, Net
The regulatory assets and liabilities recorded for deferred income taxes represent the effect of tax benefits or detriments that must be flowed through to customers as they are received or paid. The amounts deferred are attributable to differences between book and tax recovery periods. In 2017, the TCJA
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
was enacted. Changes in the IRC from the TCJA had a material impact on the Registrants’ financial statements in 2017. Tax effects of changes in tax laws must be recognized in the period in which the law is enacted. Also, deferred tax assets and liabilities must be measured at the enacted tax rate expected to apply when temporary differences are to be realized or settled. At December 31, 2022,2023, and 2021,2022, Cleco and Cleco Power had $257.4$211.5 million and $302.0$257.4 million, respectively, accrued for the excess ADIT as a result of the TCJA. For more information on the status of the TCJA regulatory liability, see Note 1314 — “Regulation and Rates — Regulatory Refunds — TCJA.”
Storm Reserves
On June 22, 2022, in conjunction with the storm recovery securitization financing and pursuant to the financing order issued by the LPSC on April 1, 2022, newly funded storm reserves for future storm restoration costs and Hurricane Ida storm restoration costs were established. Upon the closing of the securitization financing, Cleco Power withdrew $79.6 million from the LPSC approved Hurricane Ida storm reserve. At December 31, 2022, Cleco Power had total storm
reserves of $118.8 million, comprised of $103.3 million for future storm restoration costs and $15.5 million related to the Hurricane Ida storm reserve. The current portion of $9.4 millionrecorded for the Hurricane Ida storm reserve is recorded in Other current liabilities on Cleco’s and Cleco Power’s Consolidated Balance Sheets. The current portion represents those deferred storm costs recorded in the relateda regulatory asset of $9.4 million for non-capital expenses associated with Hurricane Ida regulatory asset that are currentlywere under a prudency review by the LPSC.
On September 20, 2023, the LPSC approved a settlement allowing Cleco Power to withdraw the remaining unrecovered Hurricane Ida storm restoration costs, plus a carrying charge through September 2023, totaling $10.3 million from the Hurricane Ida storm reserve. The settlement also approved the transfer of the remaining balance of the Hurricane Ida storm reserve to the restricted reserve for future storm restoration costs. At December 31, 2023, all amounts remaining in the storm reserve are for future storm restoration costs.
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Note 67 — Jointly Owned Generation FacilitiesUnits |
Cleco Power and Cleco Cajun operateoperates electric generation units that are jointly owned with other utilities. The joint-owners are responsible for their own share of the capital and the operating and maintenance costs of the respective units. Cleco Power and Cleco Cajun areis responsible for theirits own share of the direct expenses of their respectiveits jointly owned generation units. Cleco Power’s share of expenses is included in the operating expenses on Cleco’s and Cleco Power’s Consolidated Statements of Income. Cleco Cajun’s share of expenses is included in the operating expenses on Cleco’s Consolidated Statement of Income.
At December 31, 2022,2023, the investment in and accumulated depreciation for each generating facility on Cleco’s and Cleco Power’s Consolidated Balance Sheets were as follows:
| | Cleco | Cleco | | | | |
| Cleco | |
| Cleco | |
| | |
| | |
| | | | | AT DEC. 31, 2022 | | | | AT DEC. 31, 2023 |
| (THOUSANDS, EXCEPT PERCENTAGES AND MW) | (THOUSANDS, EXCEPT PERCENTAGES AND MW) | UTILITY PLANT
IN SERVICE | | | ACCUMULATED DEPRECIATION | | CONSTRUCTION WORK IN PROGRESS | | OWNERSHIP INTEREST PERCENTAGE | | RATED
CAPACITY (MW) | | OWNERSHIP INTEREST (MW) | (THOUSANDS, EXCEPT PERCENTAGES AND MW) | UTILITY PLANT
IN SERVICE | | | | ACCUMULATED DEPRECIATION | | CONSTRUCTION WORK IN PROGRESS | | OWNERSHIP INTEREST PERCENTAGE | | RATED
CAPACITY (MW) | | OWNERSHIP INTEREST (MW) |
Acadia Power Station common facilities (1) | Acadia Power Station common facilities (1) | $ | 16,959 | | | | $ | 2,846 | | | $ | 874 | | | 50 | % | |
Bayou Cove common facilities (2) | $ | 13,476 | | | | $ | 2,901 | | | $ | — | | | 75 | % | |
| Big Cajun II | | | |
| Unit 3 | $ | 19,418 | | | | $ | 4,548 | | | $ | 178 | | | 58 | % | | 588 | | | 341 | |
| Common facilities - Units 1, 2, and 3 | $ | 60,319 | | | | $ | 8,230 | | | $ | — | | | 86 | % | |
| Brame Energy Center | Brame Energy Center | | | |
| Brame Energy Center | |
| Brame Energy Center | |
| Rodemacher Unit 2 | |
| Rodemacher Unit 2 | |
| Rodemacher Unit 2 | Rodemacher Unit 2 | $ | 82,222 | | | | $ | 29,130 | | | $ | 1,039 | | | 30 | % | | 523 | | | 157 | |
| Common facilities - Nesbitt Unit 1 and Rodemacher Unit 2 | Common facilities - Nesbitt Unit 1 and Rodemacher Unit 2 | $ | 3,337 | | | | $ | 556 | | | $ | 7 | | | 62 | % | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | Common facilities - Rodemacher Unit 2 and Madison Unit 3 | $ | 2,894 | | | | $ | 255 | | | $ | 66 | | | 69 | % | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | $ | 10,444 | | | | $ | 1,761 | | | $ | 57 | | | 77 | % | |
|
(1) Cleco Power has a 100% ownership interest in Acadia Unit 1. The common facilities at the Acadia Power Station are jointly owned.
(2) Cleco Cajun has a 100% ownership interest in Bayou Cove Units 2, 3, and 4. The common facilities at Bayou Cove are jointly owned.
| | Cleco Power | Cleco Power | | | | |
| Cleco Power | |
| Cleco Power | |
| | |
| | |
| | | AT DEC. 31, 2022 | AT DEC. 31, 2023 |
| (THOUSANDS, EXCEPT PERCENTAGES AND MW) | (THOUSANDS, EXCEPT PERCENTAGES AND MW) | UTILITY PLANT
IN SERVICE | | ACCUMULATED DEPRECIATION | | CONSTRUCTION WORK IN PROGRESS | | | OWNERSHIP INTEREST PERCENTAGE | | RATED
CAPACITY (MW) | | OWNERSHIP INTEREST (MW) | (THOUSANDS, EXCEPT PERCENTAGES AND MW) | UTILITY PLANT
IN SERVICE | | ACCUMULATED DEPRECIATION | | CONSTRUCTION WORK IN PROGRESS | | | | | | OWNERSHIP INTEREST PERCENTAGE | | RATED
CAPACITY (MW) | | OWNERSHIP INTEREST (MW) |
Acadia Power Station common facilities (1) | Acadia Power Station common facilities (1) | $ | 17,733 | | | $ | 3,620 | | | $ | 874 | | | | 50 | % | |
| Brame Energy Center | Brame Energy Center | | | |
| Brame Energy Center | |
| Brame Energy Center | |
| Rodemacher Unit 2 | |
| Rodemacher Unit 2 | |
| Rodemacher Unit 2 | Rodemacher Unit 2 | $ | 155,802 | | | $ | 102,710 | | | $ | 1,039 | | | | 30 | % | | 523 | | | 157 | |
| Common facilities - Nesbitt Unit 1 and Rodemacher Unit 2 | Common facilities - Nesbitt Unit 1 and Rodemacher Unit 2 | $ | 4,744 | | | $ | 1,964 | | | $ | 7 | | | | 62 | % | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | Common facilities - Rodemacher Unit 2 and Madison Unit 3 | $ | 2,984 | | | $ | 345 | | | $ | 66 | | | | 69 | % | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | |
| Common facilities - Rodemacher Unit 2 and Madison Unit 3 | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | $ | 20,487 | | | $ | 11,804 | | | $ | 57 | | | | 77 | % | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | |
| Common facilities - Nesbitt Unit 1, Rodemacher Unit 2, and Madison Unit 3 | |
(1) Cleco Power has a 100% ownership interest in Acadia Unit 1. The common facilities at the Acadia Power Station are jointly owned.
| | | | | | | | | | | | | | |
Note 78 — Fair Value Accounting Instruments |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a
principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
observable, market corroborated, or generally unobservable inputs. Cleco makes certain assumptions it believes that market participants would use in pricing assetsan asset or liabilities, including assumptions about risks such as the risks inherent ina liability. Cleco’s valuation techniques maximize the use of observable market-based inputs and risks associated with inputs to those valuation techniques.minimize the use of unobservable inputs. Credit risk of Cleco and its counterparties is incorporated in the valuation of assets and liabilities through the use of credit reserves, the impact of which were immaterial at December 31, 2022, and 2021. Cleco’s valuation techniques maximize the use of observable market-based inputs and minimize the use of unobservable inputs.reserves.
ACleco utilizes a three-tier fair value hierarchy has been established that prioritizes the inputs to valuation techniquesthat may be used to measure fair value in three broad levels.value. The fair value hierarchy gives the highest priority to unadjusted
quoted prices unadjusted, in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. Significant increases or decreases in any of those inputs in isolation could result in a significantly different fair value measurement. Cleco
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
classifies fair value balances based on the fair value hierarchy defined as follows:
•Level 1 — observable inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that Cleco can observe as of the reportingmeasurement date.
•Level 2 — observable inputs other than Level 1 prices, such as quoted prices included within Level 1for similar assets or liabilities in active markets, quoted market prices in markets that are similar and directlynot active, or other inputs that are observable for the asset or liability or indirectly observable through corroboration withcan be corroborated by observable market data.data for substantially the full term of the assets or liabilities.
•Level 3 — unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
Cleco applies the provisions of the fair value measurement standard to its non-recurring, non-financial measurements including business combinations as well as impairment related to goodwill and other long-lived assets. For information on the impairment related to discontinued operations, see Note 3 — “Discontinued Operations.”
Fair Value Measurements on a Recurring Basis
The amounts reflected in Cleco’s and Cleco Power’s Consolidated Balance Sheets at December 31, 2022,2023, and 2021,2022, for cash equivalents, restricted cash equivalents, accounts receivable, other accounts receivable, short-term debt, and accounts payable approximate fair value because of their short-term nature.
The following tables disclose the fair value of financial assets and liabilities measured on a recurring basis on Cleco’s and Cleco Power’s Consolidated Balance Sheets. These amounts are presented on a gross basis before consideration of amounts netted under master netting agreements and the application of collateral received or paid:basis.
| | Cleco | Cleco | | |
| | | FAIR VALUE MEASUREMENTS AT REPORTING DATE |
| | |
| | | FAIR VALUE MEASUREMENTS AT REPORTING DATE |
| (THOUSANDS) | (THOUSANDS) | AT DEC. 31, 2022 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | | AT DEC. 31, 2021 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | (THOUSANDS) | AT DEC. 31, 2023 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | | AT DEC. 31, 2022 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) |
| Asset Description | Asset Description | | | | | | | | | | | | | | | | Asset Description | | | | | |
| Money market funds | $ | 182,574 | | | $ | 182,574 | | | $ | — | | | $ | — | | | $ | 145,033 | | | $ | 145,033 | | | $ | — | | | $ | — | |
| Short-term investments | |
| FTRs | FTRs | 3,088 | | | — | | | — | | | 3,088 | | | 6,977 | | | — | | | — | | | 6,977 | |
| Natural gas derivatives | Natural gas derivatives | 105,646 | | | — | | | 105,646 | | | — | | | 87,464 | | | — | | | 87,464 | | | — | |
| Total assets | Total assets | $ | 291,308 | | | $ | 182,574 | | | $ | 105,646 | | | $ | 3,088 | | | $ | 239,474 | | | $ | 145,033 | | | $ | 87,464 | | | $ | 6,977 | |
| Liability Description | Liability Description | | | | | | | | | | | | | | | | Liability Description | | | | | |
| | FTRs | FTRs | $ | 1,862 | | | $ | — | | | $ | — | | | $ | 1,862 | | | $ | 834 | | | $ | — | | | $ | — | | | $ | 834 | |
| Natural gas derivatives | Natural gas derivatives | 6,979 | | | — | | | 6,979 | | | — | | | — | | | — | | | — | | | — | |
| Total liabilities | Total liabilities | $ | 8,841 | | | $ | — | | | $ | 6,979 | | | $ | 1,862 | | | $ | 834 | | | $ | — | | | $ | — | | | $ | 834 | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | Cleco Power | Cleco Power | | |
| | | FAIR VALUE MEASUREMENTS AT REPORTING DATE |
| | |
| | | FAIR VALUE MEASUREMENTS AT REPORTING DATE |
| (THOUSANDS) | (THOUSANDS) | AT DEC. 31, 2022 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | | AT DEC. 31, 2021 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | (THOUSANDS) | AT DEC. 31, 2023 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | | AT DEC. 31, 2022 | | QUOTED
PRICES IN
ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) |
| Asset Description | Asset Description | | | | | | | | | | | | | | | | Asset Description | | | | | |
| Money market funds | $ | 139,752 | | | $ | 139,752 | | | $ | — | | | $ | — | | | $ | 82,411 | | | $ | 82,411 | | | $ | — | | | $ | — | |
| Short-term investments | |
| FTRs | FTRs | 2,570 | | | — | | | — | | | 2,570 | | | 5,515 | | | — | | | — | | | 5,515 | |
| | Total assets | Total assets | $ | 142,322 | | | $ | 139,752 | | | $ | — | | | $ | 2,570 | | | $ | 87,926 | | | $ | 82,411 | | | $ | — | | | $ | 5,515 | |
| Total assets | |
| Total assets | |
| Liability Description | Liability Description | | | | | | | | | | | | | | | | Liability Description | | | | | | | |
| | FTRs | FTRs | $ | 294 | | | $ | — | | | $ | — | | | $ | 294 | | | $ | 597 | | | $ | — | | | $ | — | | | $ | 597 | |
| Natural gas derivatives | Natural gas derivatives | 4,570 | | | — | | | 4,570 | | | — | | | — | | | — | | | — | | | — | |
| Total liabilities | Total liabilities | $ | 4,864 | | | $ | — | | | $ | 4,570 | | | $ | 294 | | | $ | 597 | | | $ | — | | | $ | — | | | $ | 597 | |
Cleco has consistently applied the Level 2 and Level 3 fair value techniques between comparative fiscal periods. During the years ended December 31, 2022,2023, and 2021,2022, Cleco did not experience any transfers into or out of Level 3 of the fair value hierarchy.
Money Market FundsShort-term Investments
At December 31, 2023, Cleco and Cleco Power havehad short-term investments in money market funds and treasury bills that have a maturity of three months or less when purchased. At December 31, 2022, Cleco and Cleco Power had short-term
investments in money market funds that had a maturity of three months or less when purchased.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following tables present the money market fundsshort-term investments as recorded on Cleco’s and Cleco Power’s Consolidated Balance Sheets at December 31, 2022,2023, and 2021:2022:
| | Cleco | Cleco | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 49,613 | | | $ | 145,011 | |
| Current restricted cash and cash equivalents | Current restricted cash and cash equivalents | $ | 20,202 | | | $ | — | |
| Non-current restricted cash and cash equivalents | Non-current restricted cash and cash equivalents | $ | 112,759 | | | $ | 22 | |
| | Cleco Power | Cleco Power | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 6,813 | | | $ | 82,411 | |
| Current restricted cash and cash equivalents | Current restricted cash and cash equivalents | $ | 20,202 | | | $ | — | |
| Non-current restricted cash and cash equivalents | Non-current restricted cash and cash equivalents | $ | 112,737 | | | $ | — | |
FTRs
FTRs are financial instruments used to provide a financial hedge to manage the risk of transmission congestion charges between MISO nodes in MISO’s Day-Ahead Energy Market. Cleco Power and Cleco Cajun areis awarded and/or purchasepurchases FTRs in auctions facilitated by MISO. FTRs are derivatives not designated as hedging instruments for accounting purposes.
FTRs are valued using MISO’s monthly auction prices as a price index reference (Level 3). For Cleco Power, unrealizedUnrealized gains or losses are deferred as a component of Accumulated
deferred fuel on the balance sheet in accordance with regulatory policy, and at settlement, realized gains or losses are included in Cleco Power’s FAC and reflected on customers’ bills as a component of the fuel charge. For Cleco Cajun, unrealized gains or losses as well as realized gains or losses at settlement are recorded on the income statement as a component of purchased power expense.
The following tables summarizetable summarizes the net changes in the net fair value of FTR assets and liabilities classified as Level 3 in the fair value hierarchy for Cleco and Cleco Power:
| | | | | | | | | | | | | | | | | |
| Cleco | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Beginning balance | $ | 6,143 | | | $ | 3,180 | | | $ | 5,778 | |
| Unrealized (losses) gains * | (931) | | | 2,567 | | | 187 | |
| Purchases | 7,467 | | | 12,061 | | | 11,333 | |
| Settlements | (11,453) | | | (11,665) | | | (14,118) | |
| Ending balance | $ | 1,226 | | | $ | 6,143 | | | $ | 3,180 | |
| * Cleco Power’s unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco’s Consolidated Balance Sheet. Cleco Cajun’s unrealized gains (losses) are reported through Purchased power on Cleco’s Consolidated Statement of Income. |
| | Cleco Power | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Beginning balance | Beginning balance | $ | 4,918 | | | $ | 3,216 | | | $ | 5,725 | |
| Unrealized (losses) gains * | Unrealized (losses) gains * | (495) | | | 2,828 | | | 450 | |
| Purchases | Purchases | 7,270 | | | 9,871 | | | 9,378 | |
| Settlements | Settlements | (9,417) | | | (10,997) | | | (12,337) | |
| Ending balance | Ending balance | $ | 2,276 | | | $ | 4,918 | | | $ | 3,216 | |
* Unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco Power's Consolidated Balance Sheets. | | * Unrealized (losses) gains are reported through Accumulated deferred fuel on Cleco Power's Consolidated Balance Sheets. | | * Unrealized (losses) gains are reported through Accumulated deferred fuel on Cleco Power's Consolidated Balance Sheets. |
The following tables quantifytable quantifies the significant unobservable inputs used in developing the fair value of Level 3 positions for Cleco and Cleco Power as of December 31, 2022,2023, and 2021:2022:
| | Cleco | | | | |
| FAIR VALUE | | VALUATION TECHNIQUE | | SIGNIFICANT
UNOBSERVABLE INPUTS | | FORWARD PRICE RANGE |
| FAIR VALUE | | | FAIR VALUE | | VALUATION TECHNIQUE | | SIGNIFICANT
UNOBSERVABLE INPUTS | | FORWARD PRICE RANGE |
| (THOUSANDS, EXCEPT DOLLAR PER MWh) | (THOUSANDS, EXCEPT DOLLAR PER MWh) | Assets | | Liabilities | | Low | | High | (THOUSANDS, EXCEPT DOLLAR PER MWh) | Assets | | Liabilities | | | | | | Low | | High |
| FTRs at Dec. 31, 2023 | |
| FTRs at Dec. 31, 2022 | FTRs at Dec. 31, 2022 | $ | 3,088 | | | $ | 1,862 | | | RTO auction pricing | | FTR price - per MWh | | $ | (11.21) | | | $ | 13.65 | |
| FTRs at Dec. 31, 2021 | $ | 6,977 | | | $ | 834 | | | RTO auction pricing | | FTR price - per MWh | | $ | (3.94) | | | $ | 9.25 | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | | | | | |
| FAIR VALUE | | VALUATION TECHNIQUE | | SIGNIFICANT
UNOBSERVABLE INPUTS | | FORWARD PRICE RANGE |
| (THOUSANDS, EXCEPT DOLLAR PER MWh) | Assets | | Liabilities | | | | | | Low | | High |
| FTRs at Dec. 31, 2022 | $ | 2,570 | | | $ | 294 | | | RTO auction pricing | | FTR price - per MWh | | $ | (5.11) | | | $ | 13.65 | |
| FTRs at Dec. 31, 2021 | $ | 5,515 | | | $ | 597 | | | RTO auction pricing | | FTR price - per MWh | | $ | (4.91) | | | $ | 9.25 | |
Natural Gas Derivatives
Cleco Power and Cleco Cajunmay enter into physical and financial natural gas commodityfixed price or options contracts from time to time.that financially settle or are physically delivered at a future date. Management has not elected to apply hedge accounting to these contracts as allowed under applicable accounting standards. Physical instruments include long-term purchase contracts. Financial instruments include swaps contracts. Cleco Power’s natural gas derivative contracts are marked-to-market with the resulting unrealized gain or loss recorded as a component of Accumulated deferred fuel on the balance sheet. At settlement, realized gains or losses are included in Cleco Power’s FAC and reflected on customer’s bills as a component of the fuel charge. Cleco Cajun’s unrealized gains or losses as well as realized gains or losses at settlement are recorded on the income statementstatements as a component of fuel expense.
Fair Value Measurements on a Nonrecurring Basis
The following tables summarize the carrying value and estimated market value of Cleco’s and Cleco Power’s financial instruments not measured at fair value on Cleco’s and Cleco Power’s Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| AT DEC. 31, |
| | 2022 | | 2021 |
| (THOUSANDS) | CARRYING
VALUE* | | FAIR VALUE | | CARRYING
VALUE* | | FAIR VALUE |
| Long-term debt | $ | 3,482,556 | | | $ | 3,180,208 | | | $ | 3,482,405 | | | $ | 3,752,220 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | |
| AT DEC. 31, |
| | 2023 | | 2022 |
| (THOUSANDS) | CARRYING
VALUE* | | FAIR VALUE | | CARRYING
VALUE* | | FAIR VALUE |
| Long-term debt | $ | 3,400,293 | | | $ | 3,177,654 | | | $ | 3,482,556 | | | $ | 3,180,208 | |
* The carrying value of long-term debt does not include deferred issuance costs of $14.2 million at December 31, 2023, and $16.2 million at December 31, 2022, and $13.2 million at December 31, 2021.2022.
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| AT DEC. 31, |
| | 2022 | | 2021 |
| (THOUSANDS) | CARRYING
VALUE* | | FAIR VALUE | | CARRYING
VALUE* | | FAIR VALUE |
| Long-term debt | $ | 1,895,508 | | | $ | 1,825,192 | | | $ | 1,820,254 | | | $ | 2,085,944 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | | |
| AT DEC. 31, |
| | 2023 | | 2022 |
| (THOUSANDS) | CARRYING
VALUE* | | FAIR VALUE | | CARRYING
VALUE* | | FAIR VALUE |
| Long-term debt | $ | 1,886,248 | | | $ | 1,867,559 | | | $ | 1,895,508 | | | $ | 1,825,192 | |
* The carrying value of long-term debt does not include deferred issuance costs of $11.5 million at December 31, 2023, and $12.3 million at December 31, 2022, and $7.9 million at December 31, 2021.2022.
In order to fund capital requirements, Cleco issuesmay issue fixed and variable rate long-term debt with various tenors. The fair value of this class fluctuates as the market interest rates for fixed and variable rate debt with similar tenors and credit ratings change. The fair value of the debt could also change from period to period due to changes in the credit rating of the Cleco entity by which the debt was issued. The fair value of long-term debt is classified as Level 2 in the fair value hierarchy.
Concentrations of Credit Risk
At December 31, 2023, and 2022, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. If the money market fundsshort-term investments failed to perform under the terms of the investments, Cleco and Cleco Power would be exposed to a loss of the invested amounts. Collateral on these
types of investments is not required. The Level 1 money market funds asset consists of a single class. In order to capture interest income and minimize risk, cash is invested in money market funds that invest primarily in short-term securities issued by the
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
U.S. government to maintain liquidity and achieve the goal of a net asset value of a dollar. The risks associated with this class are counterparty risk of the fund manager and risk of price volatility associated with the underlying securities of the fund.
When Cleco enters into commodity derivative or physical commodity transactions directly with market participants, Cleco may be exposed to counterparty credit risk. Cleco is exposed to counterparty credit risk when a counterparty fails to meet their financial obligations causing Cleco to potentially incur replacement cost losses. Cleco enters into long-form contract and master agreements with counterparties that govern the risk of counterparty credit default and allow for collateralization above prenegotiated thresholds to help mitigate potential losses. Alternatively, Cleco may be required to provide credit support with respect to any open tradingbilateral transactions and contracts that Cleco has entered into or may enter into in the future. The amount of credit support that Clecorequired may be required to provide at any point in the future is dependentchange based on the amount of the initial contract,margining formulas, changes in the market price, changes in open contracts, changes in the amounts counterparties owe to Cleco, and any prenegotiated unsecured thresholds agreed to in the master contract. Changes in any of these factors could cause the amount of requested credit support to increaseagency ratings, or decrease.liquidity ratios.
| | | | | | | | | | | | | | |
Note 89 — Derivative Instruments |
In the normal course of business, Cleco is exposed to a number of market risks. Cleco uses derivatives primarily to mitigate commodity price risk, particularly fuel price risk. Cleco Power has limited exposure to effects of market price risk because it operates primarily under cost-based rate regulation. Cleco Power utilizes derivative instruments, such as natural gas derivatives and FTRs, to hedge against the exposuremitigate volatility of transmission congestion costsoverall fuel and price volatility inherent in fuel purchased for electric generation that are recovered from customers.power costs.
On Cleco’s Consolidated Balance Sheets, the fair value of amounts associated with Cleco Cajun’s derivative instruments are offset with related cash collateral balances with the same counterparty. Cleco has not elected to designate any of its current instruments as an accounting hedge. At December 31, 2022, cash collateral received from counterparties by Cleco Cajun was $6.5 million, all of which was netted against the current portion of Energy risk management assets on Cleco’s Consolidated Balance Sheet. At December 31, 2021,2023, there was no cash collateral posted with or received from counterparties that was netted on Cleco’s and Cleco Power’s Consolidated Balance Sheet.Sheets. The following tables present the fair values of derivative instruments and their respective line items as recorded on Cleco’s and Cleco Power’s Consolidated Balance Sheets at December 31, 2022,2023, and 2021:2022:
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | Cleco | Cleco | | | | |
| | | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| | | AT DEC. 31, 2022 |
| | | GROSS AMOUNTS OFFSET ON THE BALANCE SHEET | | | | GROSS AMOUNTS NOT OFFSET ON THE BALANCE SHEET (1) | | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| | AT DEC. 31, 2023 | | | | AT DEC. 31, 2023 | | AT DEC. 31, 2022 |
| | | | | | GROSS AMOUNTS OFFSET ON THE BALANCE SHEET | |
| (THOUSANDS) | |
| (THOUSANDS) | |
| (THOUSANDS) | (THOUSANDS) | BALANCE SHEET LINE ITEM | GROSS ASSET (LIABILITY) | | CASH COLLATERAL | | | NET ASSET (LIABILITY) ON THE BALANCE SHEET | | COLLATERAL | | NET AMOUNT | BALANCE SHEET LINE ITEM | NET ASSET (LIABILITY) ON THE BALANCE SHEET | | GROSS ASSET (LIABILITY) | | CASH COLLATERAL | | NET ASSET (LIABILITY) ON THE BALANCE SHEET | | COLLATERAL | | NET AMOUNT |
| Commodity-related contracts | Commodity-related contracts | | | | | Commodity-related contracts | | | | | | | | | | | |
| FTRs | FTRs | | | | | FTRs | | | | | | | | | | | | |
| Current | Current | Energy risk management assets | $ | 3,088 | | | $ | — | | | | $ | 3,088 | | | $ | — | | | $ | 3,088 | |
| Current | Current | Energy risk management liabilities | (1,862) | | | — | | | | (1,862) | | | — | | | (1,862) | |
| Natural gas derivatives | Natural gas derivatives | | | |
| Current | Current | Energy risk management assets | 53,251 | | | (6,500) | | | | 46,751 | | | (32,578) | | | 14,173 | |
| Current | |
| Current | |
| Non-current | Non-current | Energy risk management assets | 58,895 | | | — | | | | 58,895 | | | (20,422) | | | 38,473 | |
| Current | Current | Energy risk management liabilities | (6,979) | | | — | | | | (6,979) | | | — | | | (6,979) | |
| | Commodity-related contracts, net | Commodity-related contracts, net | $ | 106,393 | | | $ | (6,500) | | | | $ | 99,893 | | | $ | (53,000) | | | $ | 46,893 | |
(1) Represents letters of credit by counterparties.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cleco | | | | | | | | | | | | |
| | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| | AT DEC. 31, 2021 |
| | | | GROSS AMOUNTS OFFSET ON THE BALANCE SHEET | | | | | | GROSS AMOUNTS NOT OFFSET ON THE BALANCE SHEET (1) | | |
| (THOUSANDS) | BALANCE SHEET LINE ITEM | GROSS ASSET (LIABILITY) | | CONTRACT NETTING | | | | NET ASSET (LIABILITY) ON THE BALANCE SHEET | | COLLATERAL | | NET AMOUNT |
| Commodity-related contracts | | | | | | | | | | | |
| FTRs | | | | | | | | | | | |
| Current | Energy risk management assets | $ | 6,977 | | | $ | — | | | | | $ | 6,977 | | | $ | — | | | $ | 6,977 | |
| Current | Energy risk management liabilities | (834) | | | — | | | | | (834) | | | — | | | (834) | |
| Natural gas derivatives | | | | | | | | | | | |
| Current | Energy risk management assets | 37,061 | | | (559) | | | | | 36,502 | | | (15,000) | | | 21,502 | |
| Non-current | Energy risk management assets | 50,962 | | | — | | | | | 50,962 | | | — | | | 50,962 | |
| Current | Energy risk management liabilities | (559) | | | 559 | | | | | — | | | — | | | — | |
| | | | | | | | | | | | |
| Commodity-related contracts, net | $ | 93,607 | | | $ | — | | | | | $ | 93,607 | | | $ | (15,000) | | | $ | 78,607 | |
(1) Represents letters of credit by counterparties.
| | Cleco Power | Cleco Power | | |
| | | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| | | AT DEC. 31, |
| | | DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| | AT DEC. 31, | | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2022 | | 2021 | (THOUSANDS) | BALANCE SHEET LINE ITEM | 2023 | | 2022 |
| Commodity-related contracts | Commodity-related contracts | | | | Commodity-related contracts | | | |
| FTRs | FTRs | | | | | FTRs | | | | |
| Current | Current | Energy risk management assets | $ | 2,570 | | | $ | 5,515 | |
| Current | Current | Energy risk management liabilities | (294) | | | (597) | |
| Natural gas derivatives | Natural gas derivatives | |
| | Current | |
| | Current | |
| | Current | Current | Energy risk management liabilities | (4,570) | | | — | |
| | Commodity-related contracts, net | Commodity-related contracts, net | $ | (2,294) | | | $ | 4,918 | |
| Commodity-related contracts, net | |
| Commodity-related contracts, net | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
The following tables presenttable presents the effect of derivatives not designated as hedging instruments on Cleco’s and Cleco Power’s Consolidated Statements of Income for the years December 31, 2023, 2022, 2021, and 2020:2021:
| | Cleco | Cleco | | |
| | AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES | |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES | |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES | |
| | | | FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | DERIVATIVES LINE ITEM | 2022 | | 2021 | | 2020 | | (THOUSANDS) | DERIVATIVES LINE ITEM | 2023 | | 2022 | | 2021 |
| Commodity contracts | Commodity contracts | | |
FTRs (1) | FTRs (1) | Electric operations | $ | 14,118 | | | $ | 12,797 | | | $ | 9,213 | | |
FTRs (1) | FTRs (1) | Purchased power | (10,829) | | | (14,813) | | (2) | (10,141) | | (2) |
Natural gas derivatives (3) | Fuel used for electric generation | 180,522 | | | 134,144 | | | 12,159 | | (2) |
FTRs (1) | |
FTRs (1) | |
Natural gas derivatives (2) | |
| Total | Total | | $ | 183,811 | | | $ | 132,128 | | | $ | 11,231 | | |
(1) For the years ended December 31, 2023, 2022, 2021, and 2020,2021, unrealized (losses) gains associated with FTRs for Cleco Power of $(0.4) million, $(0.5) million, $2.8 million and $0.5$2.8 million, respectively, were reported through Accumulated deferred fuel on the balance sheet.
(2) PriorFor the year balance has been revised to correct errors that were immaterial for the years ended December 31, 2021,2023, unrealized losses and 2020.
(3)realized losses associated with natural gas derivatives for Cleco Power of $(9.8) million and $(2.0) million, respectively, were reported through Accumulated deferred fuel on the balance sheet. For the year ended December 31, 2022, unrealized gains associated with natural gas derivatives for Cleco Power of $4.9 million were reported through Accumulated deferred fuel on the balance sheet. For the year ended December 31, 2022, Cleco Power had no realized gains (losses) associated with natural gas derivatives. Cleco Power had no natural gas derivatives during the year ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES |
| | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | DERIVATIVES LINE ITEM | 2023 | | 2022 | | 2021 |
| Commodity contracts | | | | | | |
FTRs (1) | Electric operations | $ | 6,320 | | | $ | 14,118 | | | $ | 12,797 | |
FTRs (1) | Purchased power | (4,465) | | | (7,331) | | | (10,360) | |
Natural gas derivatives (2) | Fuel used for electric generation | (22,734) | | | — | | | — | |
| Total | | $ | (20,879) | | | $ | 6,787 | | | $ | 2,437 | |
(1) For the years ended December 31, 2023, 2022, and 2021, unrealized (losses) gains associated with FTRs of $(0.4) million, $(0.5) million, and 2020.$2.8 million, respectively, were reported through Accumulated deferred fuel on the balance sheet.
| | | | | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | | |
| AMOUNT OF GAIN/(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES |
| | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | DERIVATIVES LINE ITEM | 2022 | | 2021 | | 2020 |
Commodity contracts (1) | | | | | | |
FTRs (2) | Electric operations | $ | 14,118 | | | $ | 12,797 | | | $ | 9,213 | |
FTRs (2) | Purchased power | (7,331) | | | (10,360) | | | (6,803) | |
| | | | | | |
| Total | | $ | 6,787 | | | $ | 2,437 | | | $ | 2,410 | |
(1)(2) For the year ended December 31, 2023, unrealized losses and realized losses associated with natural gas derivatives of $(9.8) million and $(2.0) million, respectively, were reported through Accumulated deferred fuel on the balance sheet. For the year ended December 31, 2022, unrealized gains associated with natural gas derivatives of $4.9 million were reported through Accumulated deferred fuel on the balance sheet. For the year ended December 31, 2022, Cleco Power had no realized gains (losses) associated with natural gas derivatives. Cleco Power had no natural gas derivatives during the yearsyear ended December 31, 2021, and 2020.
(2) For the years ended December 31, 2022, 2021, and 2020, unrealized (losses) gains associated with FTRs of $(0.5) million, $2.8 million, and $0.5 million, respectively, were reported through Accumulated deferred fuel on the balance sheet.2021.
The following tables present the volume of commodity-related derivative contracts outstanding at December 31, 2022,2023, and 20212022 for Cleco and Cleco Power:
| | Cleco | Cleco | | |
| TOTAL VOLUME OUTSTANDING |
| UNIT OF MEASURE | | AT DEC. 31, |
| | | TOTAL VOLUME OUTSTANDING | |
| | | TOTAL VOLUME OUTSTANDING | |
| | | TOTAL VOLUME OUTSTANDING | |
| UNIT OF MEASURE | | | UNIT OF MEASURE | | AT DEC. 31, |
| (THOUSAND) | (THOUSAND) | UNIT OF MEASURE | | 2022 | | 2021 | (THOUSAND) | | 2023 | | 2022 |
| Commodity-related contracts | Commodity-related contracts | |
| FTRs | FTRs | MWh | | 14,656 | | | 14,055 | |
| FTRs | |
| FTRs | |
| Natural gas derivatives | Natural gas derivatives | MMBtus | | 85,350 | | | 109,306 | |
| | Cleco Power | Cleco Power | | |
| TOTAL VOLUME OUTSTANDING |
| UNIT OF MEASURE | | AT DEC. 31, |
| | | TOTAL VOLUME OUTSTANDING | |
| | | TOTAL VOLUME OUTSTANDING | |
| | | TOTAL VOLUME OUTSTANDING | |
| UNIT OF MEASURE | | | UNIT OF MEASURE | | AT DEC. 31, |
| (THOUSAND) | (THOUSAND) | UNIT OF MEASURE | | 2022 | | 2021 | (THOUSAND) | | 2023 | | 2022 |
| Commodity-related contracts | Commodity-related contracts | |
| FTRs | FTRs | MWh | | 9,085 | | | 8,899 | |
| FTRs | |
| FTRs | |
| Natural gas derivatives | Natural gas derivatives | MMBtus | | 4,840 | | | — | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Cleco Power’s total long-term indebtedness as of December 31, 2022,2023, and 20212022 was as follows:
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Bonds | Bonds | | | | Bonds | | | |
| Senior notes, 2.94%, due 2022 | $ | — | | | $ | 25,000 | |
| Senior notes, 3.08%, due 2023 | Senior notes, 3.08%, due 2023 | 100,000 | | | 100,000 | |
| Senior notes, 3.17%, due 2024 | Senior notes, 3.17%, due 2024 | 50,000 | | | 50,000 | |
| Senior notes, 3.68%, due 2025 | Senior notes, 3.68%, due 2025 | 75,000 | | | 75,000 | |
| Senior notes, 3.47%, due 2026 | Senior notes, 3.47%, due 2026 | 130,000 | | | 130,000 | |
| Senior notes, 5.96%, due 2026 | |
| Senior notes, 4.33%, due 2027 | Senior notes, 4.33%, due 2027 | 50,000 | | | 50,000 | |
| Senior notes, 3.57%, due 2028 | Senior notes, 3.57%, due 2028 | 200,000 | | | 200,000 | |
| Senior notes, 6.50%, due 2035 | Senior notes, 6.50%, due 2035 | 295,000 | | | 295,000 | |
| Senior notes, 6.00%, due 2040 | Senior notes, 6.00%, due 2040 | 250,000 | | | 250,000 | |
| Senior notes, 5.12%, due 2041 | Senior notes, 5.12%, due 2041 | 100,000 | | | 100,000 | |
| Senior notes, floating rate, due 2023 | — | | | 325,000 | |
| Series A GO Zone bonds, 2.50%, due 2038, mandatory tender in 2025 | Series A GO Zone bonds, 2.50%, due 2038, mandatory tender in 2025 | 50,000 | | | 50,000 | |
| Series B GO Zone bonds, 4.25%, due 2038 | Series B GO Zone bonds, 4.25%, due 2038 | 50,000 | | | 50,000 | |
| | Cleco Securitization I’s storm recovery bonds, 4.016%, due 2033 | |
| Cleco Securitization I’s storm recovery bonds, 4.016%, due 2033 | |
| Cleco Securitization I’s storm recovery bonds, 4.016%, due 2033 | Cleco Securitization I’s storm recovery bonds, 4.016%, due 2033 | 125,000 | | | — | |
| Cleco Securitization I’s storm recovery bonds, 4.646%, due 2044 | Cleco Securitization I’s storm recovery bonds, 4.646%, due 2044 | 300,000 | | | — | |
| Total bonds | Total bonds | 1,775,000 | | | 1,700,000 | |
| Bank term loan, variable rate, due 2024 | Bank term loan, variable rate, due 2024 | 125,000 | | | 125,000 | |
| Finance leases | Finance leases | | | | Finance leases | | | |
| | Barge lease obligations | Barge lease obligations | 13,807 | | | 14,562 | |
| | Barge lease obligations | |
| | Barge lease obligations | |
| Gross amount of long-term debt and finance leases | Gross amount of long-term debt and finance leases | 1,913,807 | | | 1,839,562 | |
| Long-term debt due within one year | Long-term debt due within one year | (109,508) | | | (25,000) | |
| Finance leases classified as long-term debt due within one year | Finance leases classified as long-term debt due within one year | (836) | | | (755) | |
| Unamortized debt discount | Unamortized debt discount | (4,492) | | | (4,746) | |
| Unamortized debt issuance costs | Unamortized debt issuance costs | (12,524) | | | (8,207) | |
| Total long-term debt and finance leases, net | Total long-term debt and finance leases, net | $ | 1,786,447 | | | $ | 1,800,854 | |
Cleco’s total long-term indebtedness as of December 31, 2022,2023, and 20212022 was as follows:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Total Cleco Power long-term debt and finance leases, net | Total Cleco Power long-term debt and finance leases, net | $ | 1,786,447 | | | $ | 1,800,854 | |
| Cleco Holdings’ long-term debt, net | Cleco Holdings’ long-term debt, net | |
| Senior notes, 3.250%, due 2023 | 165,000 | | | 165,000 | |
| Senior notes, 3.250%, due 2025 | |
| Senior notes, 3.250%, due 2025 | |
| Senior notes, 3.250%, due 2025 | |
| Senior notes, 3.743%, due 2026 | Senior notes, 3.743%, due 2026 | 535,000 | | | 535,000 | |
| Senior notes, 3.375%, due 2029 | Senior notes, 3.375%, due 2029 | 300,000 | | | 300,000 | |
| Senior notes, 4.973%, due 2046 | Senior notes, 4.973%, due 2046 | 350,000 | | | 350,000 | |
| Bank term loan, variable rate, due 2024 | Bank term loan, variable rate, due 2024 | 132,300 | | | 200,000 | |
| | Long-term debt due within one year | Long-term debt due within one year | (230,524) | | | (67,700) | |
| Long-term debt due within one year | |
| Long-term debt due within one year | |
Unamortized debt issuance costs(1) | Unamortized debt issuance costs(1) | (3,877) | | | (5,271) | |
| Fair value adjustment | Fair value adjustment | 104,748 | | | 112,150 | |
| Total Cleco long-term debt and finance leases, net | Total Cleco long-term debt and finance leases, net | $ | 3,139,094 | | | $ | 3,390,033 | |
(1) For December 31, 2022,2023, and 2021,2022, this amount includes unamortized debt issuance costs for Cleco Holdings of $8.5$7.0 million and $10.2$8.5 million, respectively, partially offset by deferred debt issuance costs eliminated as a result of the 2016 Merger of $4.6$4.3 million and $4.9$4.6 million, respectively. For more information, see Note 56 — “Regulatory Assets and Liabilities — Cleco Holdings’ 2016 Merger Adjustments.”
The principal amounts payable under long-term debt agreements for each year through 20272028 and thereafter are as follows:
| | (THOUSANDS) | (THOUSANDS) | CLECO POWER | CLECO | (THOUSANDS) | CLECO POWER | CLECO |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 109,574 | | $ | 274,574 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | $ | 189,499 | | $ | 321,799 | |
2025(1) | 2025(1) | $ | 90,087 | | $ | 90,087 | |
| 2026 | 2026 | $ | 145,699 | | $ | 680,699 | |
| 2027 | 2027 | $ | 66,336 | | $ | 66,336 | |
| 2028 | |
| Thereafter | Thereafter | $ | 1,298,805 | | $ | 1,948,805 | |
(1) Does not include Series A GO Zone bonds that have a maturity date of December 2038 but a mandatory tender in May 2025.
The principal amounts payable under the finance lease agreement for each year through 20272028 and thereafter are as follows:
| | (THOUSANDS) | (THOUSANDS) | CLECO POWER | CLECO |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 836 | | $ | 836 | |
| For the year ending Dec. 31, | |
| For the year ending Dec. 31, | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | $ | 925 | | $ | 925 | |
| 2025 | 2025 | $ | 1,023 | | $ | 1,023 | |
| 2026 | 2026 | $ | 1,133 | | $ | 1,133 | |
| 2027 | 2027 | $ | 1,253 | | $ | 1,253 | |
| 2028 | |
| Thereafter | Thereafter | $ | 8,637 | | $ | 8,637 | |
For more information on the finance agreement, see Note 34 — “Leases — Finance Lease.”
Cleco Power
At December 31, 2023, and December 31, 2022, Cleco Power had $110.3 million ofPower’s long-term debt and finance leases due within one year.year was $190.3 million and $110.3 million, respectively. The amountincrease of $80.0 million is primarily due within one year primarily represents $100.0to the reclassification of a $125.0 million bank term loan due May 2024, $50.0 million of Cleco Power’s senior notes due in December 20232024, and $9.6$4.9 million of additional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in March and September 2023.2024. These increases are offset by the refinancing of Cleco Power’s $100.0 million senior notes due in December 2023 with $100.0 million of Cleco Power’s senior notes with a maturity date of December 2026.
On June 22, 2022,December 14, 2023, Cleco Securitization I issued $425.0Power entered into a note purchase agreement for the issuance and sale in a private placement of $100.0 million aggregate principal amount of its senior secured storm recovery bonds.notes at a fixed interest rate of 5.96% and a maturity date of December 14, 2026. The storm recovery bondsproceeds of the issuance were issued in two tranches. One tranche of $125.0used to pay Cleco Power’s $100.0 million aggregate principal amount was issued with an interest rate of 4.016% and an expected weighted average life of 4.79 years. A second tranche of $300.0 million aggregate principal amount was issued with an interest rate of 4.646% and an expected weighted average life of 15 years. The storm recovery bonds are governed by an indenture between Cleco Securitization I and the indenture trustee. The indenture contains certain covenants that restrict Cleco Securitization I’s ability to sell, transfer, convey, exchange, or otherwise dispose of its assets. For more information on the storm recovery securitization financing, see Note 19 — “Securitization.”
On June 23, 2022, following the closing of the storm recovery bonds offering, Cleco Power redeemed its $325.0 million floating rate senior notes issued in September 2021 at par.
Ondue December 16, 2022, Cleco Power repaid its $25.0 million 2.94% fixed rate senior notes issued in December 2017 at par.2023.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Other than Cleco Securitization I’s storm recovery bonds, all of Cleco Power’s debt outstanding at December 31, 2022,2023, and 20212022 is unsecured and unsubordinated.
Cleco
At December 31, 2023, and December 31, 2022, Cleco had $340.9 million ofCleco’s long-term debt and finance leases due within one year.year was $256.8 million and $340.9 million respectively. The long-term debtdecrease of $84.1 million is primarily due within one year at December 31, 2022, primarily representsto the reclassification of Cleco Holdings’ $165.0 million senior notes as a result of the extension of the maturity date to May 2025 and the refinancing
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
of Cleco Holdings’Power’s $100.0 million senior notes due in MayDecember 2023 with $100.0 million of Cleco Power’s senior notes with a maturity date of December 2026. These decreases were partially offset by the reclassification of Cleco Power’s $125.0 million bank term loan due in May 2024, Cleco Power’s $50.0 million senior notes due in December 2023, $65.62024, and $4.9 million of principal payments on Cleco Holdings’ debt as required by the Cleco Cajun Transaction commitments to the LPSC, and $9.6 million ofadditional Cleco Securitization I storm recovery bond principal payments scheduled to be paid in March2024.
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes due in 2023. As a result, the interest rate of the senior notes changed to a floating interest rate equal to SOFR plus 1.725% and September 2023.the maturity date was extended from May 1, 2023, to May 1, 2025.
Other than Cleco Securitization I’s storm recovery bonds, all of Cleco’s debt outstanding at December 31, 2022,2023, and 20212022 is unsecured and unsubordinated.
Upon approval of the Cleco Cajun Transaction,Acquisition, commitments were made to the LPSC by Cleco, including repayment of $400.0 million of Cleco Holdings’ debt by December 31, 2024. As of December 31, 2022,2023, Cleco Holdings was in compliance with these commitments. The cumulative minimum principal amounts committed to be repaid for each year through 2024 are as follows:
| | | | | | | | |
| (THOUSANDS) | | |
| For the year ending Dec. 31, | | |
| 2019 | | $ | 66,700 | |
| 2020 | | $ | 133,300 | |
| 2021 | | $ | 200,000 | |
| 2022 | | $ | 267,700 | |
| 2023 | | $ | 333,300 | |
| 2024 | | $ | 400,000 | |
|
Credit Facilities
At December 31, 2022,2023, Cleco had $109.0 million short-term debt outstanding under its two separate revolving credit facilities.facilities, one for Cleco Holdings’ credit facility,Holdings in the amount of $175.0 million had $64.0with $110.0 million of outstanding borrowings at December 31, 2022.and one for Cleco Power’s credit facility,Power in the amount of $300.0 million had $45.0 million ofwith no outstanding borrowings at December 31, 2022.borrowings. The total of all revolving credit facilities creates a maximum aggregate capacity of $475.0 million. Cleco and Cleco Power had no short-term debt$64.0 million and $45.0 million, respectively, outstanding under their credit facilities at December 31, 2021.2022. Cleco Holdings and Cleco Power had no amounts outstanding under their uncommitted lines of credit at December 31, 2022,2023, and 2021.2022.
On February 17, 2023, Cleco Holdings and Cleco Power amended their respective revolving credit facilities and bank term loans to transition the benchmark interest rate from LIBOR to SOFR.
Cleco Holdings’ revolving credit facility provides funding for working capital and other financing needs. The revolving credit facility includes restrictive financial covenants and expires in May 2026. Under covenants contained in Cleco Holdings’ revolving credit facility, Cleco is required to maintain total indebtedness less than or equal to 65.0%65% of total capitalization. At December 31, 2022,2023, Cleco Holdings was in compliance with the covenants of its revolving credit facility.
At December 31, 2022,2023, the borrowing costs for amounts drawn under the facility were equal to LIBORSOFR plus 1.625%1.725% or ABR plus 0.625%, plus commitment fees of 0.275% paid on the unused portion of the facility. If Cleco Holdings’ credit ratings were to be downgraded one level by the credit rating
agencies, Cleco Holdings may be required to pay incremental interest and commitment fees of 0.125% and 0.05%,
respectively, under the pricing levels of its revolving credit facility.
Cleco Power’s revolving credit facility provides funding for working capital and other financing needs. The revolving credit facility includes restrictive financial covenants and expires in May 2026. Under covenants contained in Cleco Power’s revolving credit facility, Cleco Power is required to maintain total indebtedness less than or equal to 65.0%65% of total capitalization. At December 31, 2022,2023, Cleco Power was in compliance with the covenants of its credit facility. At December 31, 2022,2023, the borrowing costs for amounts drawn under the facility were equal to LIBORSOFR plus 1.25%1.35% or ABR plus 0.25%, plus commitment fees of 0.15% paid on the unused portion of the facility. If Cleco Power’s credit ratings were to be downgraded one level by the credit rating agencies, Cleco Power may be required to pay incremental interest and commitment fees of 0.125% and 0.025%, respectively, under the pricing levels of its revolving credit facility. In February 2023, Cleco Holdings and Cleco Power amended their respective revolving credit facilities and bank term loans to transition the benchmark interest rate from LIBOR to SOFR.
If Cleco Holdings or Cleco Power were not to comply with certain covenants in their respective revolving credit facilities or other debt agreements, they would be unable to borrow additional funds under the facilities, and the lenders under the respective credit facility or debt agreement could accelerate all principal and interest outstanding. Further, if Cleco Power were to default under its revolving credit facility or other debt agreements, Cleco Holdings would be considered in default under its revolving credit facility.
| | | | | | | | | | | | | | |
Note 1011 — Pension Plan and Employee Benefits |
Pension Plan and Other Benefits Plan
Employees hired before August 1, 2007, are covered by a non-contributory, defined benefit pension plan. Benefits under the plan reflect an employee’s years of service, age at retirement, and highest total average compensation for any consecutive five calendar years during the last ten years of employment with Cleco. Cleco’s policy is to base its contributions to the employee pension plan upon actuarial computations utilizing the projected unit credit method, subject to the IRS’s full funding limitation. Cleco didwas not make any required or discretionaryto make contributions to the pension plan in 2023, 2022, or 2021. In December 2020, Cleco made a $15.8 million required contribution to the pension plan. Cleco has not made and does not expect to make any contributions in 2023. The requiredRequired contributions are driven by liability funding target percentages set by law whichand could cause the required contributions to be uneven among the years. Based on the funding assumptions at December 31, 2022,2023, management estimates that $74.5$94.2 million in pension contributions will be required through 2027.2028, of which $25.7 million will be required in 2024. Future discretionary contributions may be made depending on changes in assumptions, the ability to utilize the contribution as a tax deduction, and requirements concerning recognizing a minimum pension liability. Adverse changes in assumptions or adverse actual events could cause additional minimum contributions. The ultimate amount and timing of the contributions may be affected by changes in the discount rate, changes in the funding regulations, and actual returns on fund assets. Cleco Power is the plan sponsor, and Support Group is the plan administrator.
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
The pension plan was amended on February 4, 2019, to include certain former NRG Energy employees who are now Cleco Cajun employees. TheCertain Cleco Cajun employees are eligible to participate as a cash balance participant and are credited with all service that was credited to them under the NRG Pension Plan as of February 4, 2019. Benefits under the plan amendment reflect the employee’s years of
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
service, age at retirement, and accrued benefit at retirement. The interest crediting rate on the cash balance plan was 5.07%5.56% and 3.06%5.07% at December 31, 2023, and 2022, and 2021, respectively.
Cleco’s retirees may be eligible to receive Other Benefits. Dependents of Cleco’s retirees may also be eligible to receive Other Benefits with the exception of life insurance benefits.
Cleco recognizes the expected cost of Other Benefits during the periods in which the benefits are earned.
The employee pension plan and Other Benefits plan obligation, plan assets, and funded status at December 31, 2022,2023, and 20212022 are presented in the following table:
| | | | PENSION BENEFITS | | OTHER BENEFITS | | PENSION BENEFITS | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 | | 2023 | | 2022 |
| Change in benefit obligation | Change in benefit obligation | |
| Benefit obligation at beginning of period | |
| Benefit obligation at beginning of period | |
| Benefit obligation at beginning of period | Benefit obligation at beginning of period | $ | 680,417 | | | $ | 686,384 | | | $ | 55,257 | | | $ | 56,331 | |
| Service cost | Service cost | 8,589 | | | 10,516 | | | 2,204 | | | 2,425 | |
| Interest cost | Interest cost | 19,841 | | | 18,668 | | | 1,484 | | | 1,283 | |
| Plan participants’ contributions | Plan participants’ contributions | — | | | — | | | 1,904 | | | — | |
| Actuarial gain | (174,733) | | | (9,823) | | | (10,289) | | | (81) | |
| Actuarial loss (gain) | |
| Expenses paid | Expenses paid | (3,744) | | | (3,306) | | | — | | | — | |
| | Benefits paid | Benefits paid | (29,501) | | | (25,292) | | | (7,254) | | | (4,701) | |
| Special/contractual termination benefits | — | | | 3,270 | | | — | | | — | |
| | Benefits paid | |
| | Benefits paid | |
| | Benefit obligation at end of period | |
| Benefit obligation at end of period | |
| Benefit obligation at end of period | Benefit obligation at end of period | 500,869 | | | 680,417 | | | 43,306 | | | 55,257 | |
| Change in plan assets | Change in plan assets | |
| Fair value of plan assets at beginning of period | Fair value of plan assets at beginning of period | 527,427 | | | 516,120 | | | — | | | — | |
| Fair value of plan assets at beginning of period | |
| Fair value of plan assets at beginning of period | |
| Actual (loss) gain return on plan assets | Actual (loss) gain return on plan assets | (91,897) | | | 39,905 | | | — | | | — | |
| | Employer contributions | |
| Expenses paid | Expenses paid | (3,744) | | | (3,306) | | | — | | | — | |
| | Benefits paid | Benefits paid | (29,501) | | | (25,292) | | | — | | | — | |
| Benefits paid | |
| Benefits paid | |
| Fair value of plan assets at end of period | Fair value of plan assets at end of period | 402,285 | | | 527,427 | | | — | | | — | |
| Unfunded status | Unfunded status | $ | (98,584) | | | $ | (152,990) | | | $ | (43,306) | | | $ | (55,257) | |
The current and non-current portions of the Pension Benefits liability for Cleco and Cleco Power at December 31, 2023, and 2022 are as follows:
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| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Current | $ | 25,685 | | | $ | — | |
| Non-current | $ | 91,638 | | | $ | 98,584 | |
The employee pension plan accumulated benefit obligation at December 31, 2022,2023, and 20212022 is presented in the following table:
| | | | PENSION BENEFITS | | PENSION BENEFITS |
| AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Accumulated benefit obligation | Accumulated benefit obligation | $ | 481,398 | | | $ | 640,490 | |
The following table presents the net actuarial gains/losses included in other comprehensive income for Other Benefits and in regulatory assets for pension related to current year gains and losses as a result of being included in net periodic benefit costs for the employee pension plan and Other Benefits plan for the years ended December 31, 2022,2023, and 2021:2022:
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| PENSION BENEFITS | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2022 | | 2021 |
| Net actuarial gain occurring during period | $ | (58,124) | | | $ | (26,925) | | | $ | (10,289) | | | $ | (81) | |
| | | | | | | |
| Net actuarial loss amortized during period | $ | 12,332 | | | $ | 20,739 | | | $ | 1,207 | | | $ | 1,523 | |
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| PENSION BENEFITS | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2023 | | 2022 |
| Net actuarial loss (gain) occurring during period | $ | 17,082 | | | $ | (58,124) | | | $ | 5,110 | | | $ | (10,289) | |
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| Net actuarial loss (gain) amortized during period | $ | — | | | $ | 12,332 | | | $ | (45) | | | $ | 1,207 | |
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The pension net actuarial loss was $17.1 million for the year ended December 31, 2023, primarily due to updated demographic assumptions resulting from the completion of an experience study in 2023 and a decrease in the discount rate. This loss was partially offset by higher than expected return on assets. The pension net actuarial gain was $58.1 million for the year ended December 31, 2022, primarily due to an increase
in the discount rate, partially offset by lower than expected return on assets.
The pensionOther Benefits net actuarial gainloss was $26.9$5.1 million for the year ended December 31, 2021,2023, primarily due to updated demographic assumptions resulting from the completion of an increaseexperience study in the discount rate and higher than expected return on assets, partially offset by an update to the census data.
2023. The Other Benefits net actuarial gain was $10.3 million for the year ended December 31, 2022, primarily due to an increase in the discount rate. The Other Benefits net actuarial gain was less than $0.1 million for the year ended December 31, 2021.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table presents net actuarial gains/losses in accumulated other comprehensive income for Other Benefits and in regulatory assets for pension that have not been recognized as components of net periodic benefit costs for the employee pension plan and Other Benefits plans at December 31, 2022,2023, and 2021:2022:
| | PENSION BENEFITS | | OTHER BENEFITS |
| AT DEC. 31, | | AT DEC. 31, |
| PENSION BENEFITS | | | PENSION BENEFITS | | OTHER BENEFITS |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 | | 2023 | | 2022 |
| Net actuarial loss | Net actuarial loss | $ | 47,317 | | | $ | 117,773 | | | $ | 13,705 | | | $ | 22,785 | |
|
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
The non-service components of net periodic pension and Other Benefits cost are included in Other income (expense), net within Cleco’s and Cleco Power’s Consolidated Statements
of Income. The components of net periodic pension and Other Benefits costs for 2023, 2022, 2021, and 20202021 are as follows:
| | | PENSION BENEFITS | | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| | | PENSION BENEFITS | | | | | PENSION BENEFITS | | | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Components of periodic benefit costs | Components of periodic benefit costs | |
| Service cost | |
| Service cost | |
| Service cost | Service cost | $ | 8,589 | | | $ | 10,516 | | | $ | 9,820 | | | $ | 2,204 | | | $ | 2,425 | | | $ | 2,153 | |
| Interest cost | Interest cost | 19,841 | | | 18,668 | | | 20,816 | | | 1,484 | | | 1,283 | | | 1,651 | |
| Expected return on plan assets | Expected return on plan assets | (24,706) | | | (22,801) | | | (24,974) | | | — | | | — | | | — | |
| Amortizations | Amortizations | |
| | Prior service credit | — | | | — | | | (60) | | | — | | | — | | | — | |
| Net loss | 12,332 | | | 20,738 | | | 16,292 | | | 1,210 | | | 1,523 | | | 1,389 | |
| | Net loss (gain) | |
| | Net loss (gain) | |
| | Net loss (gain) | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 16,056 | | | $ | 27,121 | | | $ | 21,894 | | | $ | 4,898 | | | $ | 5,231 | | | $ | 5,193 | |
| Special/contractual termination benefits | Special/contractual termination benefits | — | | | 3,270 | | | — | | | — | | | — | | | — | |
| Total benefit cost | Total benefit cost | $ | 16,056 | | | $ | 30,391 | | | $ | 21,894 | | | $ | 4,898 | | | $ | 5,231 | | | $ | 5,193 | |
Effective September 30, 2021, the pension plan was amended to offer an enhanced pension benefit to certain employees participating in the plan that elected to retire during a certain retirement window. Those certain employees who elected by September 30, 2021, to receive the enhanced pension benefits received a 10% increase in calculated pension benefits. This resulted in a special termination benefit cost for Cleco Power and Support Group of $2.4 million and $0.9 million, respectively, that was included as an expense of the pension plan.
Because Cleco Power is the pension plan sponsor and the related trust holds the assets, the net unfunded status of the pension plan is reflected at Cleco Power. The liability of Cleco’s other subsidiaries is transferred with a like amount of assets to Cleco Power monthly. The expense of the pension plan related to Cleco’s other subsidiaries for the years ended December 31, 2023, 2022, and 2021 and 2020 was $3.2$1.9 million, $4.53.2 million, and $3.5$4.5 million, respectively.
Cleco Holdings is the plan sponsor for the other benefit plans. There are no assets set aside in a trust and the liabilities are reported on the individual subsidiaries’ financial statements. The expense related to Other Benefits reflected in Cleco Power’s Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 and 2020 was $4.4$3.5
million, $4.7$4.4 million, and $4.8$4.7 million, respectively. The current and non-current portions of the Other Benefits liability for Cleco and Cleco Power at December 31, 2022,2023, and 20212022 are as follows:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | $ | 5,024 | | | $ | 5,181 | |
| Non-current | Non-current | $ | 38,282 | | | $ | 50,093 | |
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | $ | 4,310 | | | $ | 4,432 | |
| Non-current | Non-current | $ | 30,082 | | | $ | 39,315 | |
The measurement date used to determine the pension and other postretirement benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows:
| | | | PENSION BENEFITS | | OTHER BENEFITS | | PENSION BENEFITS | | OTHER BENEFITS |
| AT DEC. 31, | | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2023 | | 2022 | | 2023 | | 2022 |
| Weighted-average assumptions used to determine the benefit obligation | Weighted-average assumptions used to determine the benefit obligation | | | | | | | | Weighted-average assumptions used to determine the benefit obligation | | | | | | | |
| Discount rate | Discount rate | 5.44 | % | | 2.98 | % | | 5.61 | % | | 2.82 | % | Discount rate | 5.13 | % | | 5.44 | % | | 5.25 | % | | 5.61 | % |
| Rate of compensation increase | Rate of compensation increase | 2.76 | % | | 2.73 | % | | N/A | | N/A | Rate of compensation increase | 3.50 | % | | 2.76 | % | | N/A | | N/A |
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| | | | PENSION BENEFITS | | | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| | 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
| Weighted-average assumptions used to determine the net benefit cost | | | | | | | | | | | |
| Discount rate | 2.98 | % | | 2.74 | % | | 3.43 | % | | 2.82 | % | | 2.39 | % | | 3.25 | % |
| Expected return on plan assets | 5.25 | % | | 5.00 | % | | 5.91 | % | | N/A | | N/A | | N/A |
| Rate of compensation increase | 2.73 | % | | 2.71 | % | | 2.75 | % | | N/A | | N/A | | N/A |
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
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| | | | PENSION BENEFITS | | | | OTHER BENEFITS |
| FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Weighted-average assumptions used to determine the net benefit cost | | | | | | | | | | | |
| Discount rate | 5.44 | % | | 2.98 | % | | 2.74 | % | | 5.61 | % | | 2.82 | % | | 2.39 | % |
| Expected return on plan assets | 6.60 | % | | 5.25 | % | | 5.00 | % | | N/A | | N/A | | N/A |
| Rate of compensation increase | 2.76 | % | | 2.73 | % | | 2.71 | % | | N/A | | N/A | | N/A |
The expected return on plan assets was determined by examining the risk profile of each target category as compared to the expected return on that risk, within the parameters
determined by theCleco’s Retirement Committee. In assessing the risk as compared to return profile, historical returns as compared to risk were considered. The historical risk compared to returns
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
was adjusted for the expected future long-term relationship between risk and return. The adjustment for the future risk compared to returns was, in part, subjective and not based on any measurable or observable events. For the calculation of the 20232024 periodic expense, Cleco increaseddecreased the discount rate to 5.44%5.13% and increased the expected long-term return on plan assets to 6.60%6.68%. Cleco expects pension expense to decrease in 20232024 by approximately $14.4$1.3 million due to an increase in the discount rate and an increase in expected return on plan assets.assets and a decrease in service costs from increased retirements.
Employee pension plan assets are invested in accordance with the Pension Plan’s Investment Policy Statement. At December 31, 2022,2023, allowable investments included U.S. Equity Portfolios, International Equity - Developed Markets Portfolios, Emerging Markets Equity Portfolios, Multi-Asset Credits, Treasury Separate Trading of Registered Interest and
Principal of Securities (STRIPS), Fixed Income Portfolios - Long Credit and Intermediate Government Credit, and Real Estate Portfolios.
Real estate funds and the pooled separate accounts are stated at estimated market value based on appraisal reports prepared annually by independent real estate appraisers (members of the American Institute of Real Estate Appraisers). The estimated market value of recently acquired properties is assumed to approximate cost.
Fair Value Disclosures
Cleco classifies assets and liabilities measured at their fair value according to three different levels, depending on the inputs used in determining fair value. For more information on the fair value hierarchy, see Note 78 — “Fair Value Accounting Instruments.”
There have been no changes in the methodologies for determining fair value at December 31, 2022,2023, and 2021.2022. The following tables disclose the pension plan’s fair value of financial assets measured on a recurring basis:
| | (THOUSANDS) | (THOUSANDS) | | AT DEC. 31, 2022 | | QUOTED PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) | (THOUSANDS) | | AT DEC. 31, 2023 | | QUOTED PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) |
| Asset Description | Asset Description | | | | | | | | | Asset Description | | |
| Cash equivalents | Cash equivalents | | $ | 7,345 | | | $ | — | | | $ | 7,345 | | | $ | — | |
| | Government securities | Government securities | 33,019 | | | — | | | 33,019 | | | — | |
| Government securities | |
| Government securities | |
| Mutual funds | Mutual funds | |
| Domestic | |
| Domestic | |
| Domestic | Domestic | | 78,349 | | | 78,349 | | | — | | | — | |
| International | International | | 39,722 | | | 39,722 | | | — | | | — | |
| Real estate funds | Real estate funds | | 39,370 | | | — | | | — | | | 39,370 | |
| Corporate debt | Corporate debt | | 103,940 | | | — | | | 103,940 | | | — | |
| Total | Total | | $ | 301,745 | | | $ | 118,071 | | | $ | 144,304 | | | $ | 39,370 | |
| | Investments measured at net asset value* | 98,505 | | |
| Interest accrual | 2,035 | | |
| Total net assets | $ | 402,285 | | |
| *Investments measured at net asset value consist of Common/collective trust. |
| Investments measured at net asset value* | |
| Investments measured at net asset value* | |
| Investments measured at net asset value* | |
| Interest accrual | |
| Interest accrual | |
| Interest accrual | |
| Total net assets | |
| Total net assets | |
| Total net assets | |
| *Investments measured at net asset value consist of Common/ collective trust. | |
| *Investments measured at net asset value consist of Common/ collective trust. | |
| *Investments measured at net asset value consist of Common/ collective trust. | |
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| (THOUSANDS) | | AT DEC. 31, 2021 | | QUOTED PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) |
| Asset Description | | | | | | | | |
| Cash equivalents | | $ | 7,433 | | | $ | — | | | $ | 7,433 | | | $ | — | |
| | | | | | | | |
| Government securities | 75,815 | | | — | | | 75,815 | | | — | |
| Mutual funds | | | | | | | |
| Domestic | | 106,694 | | | 106,694 | | | — | | | — | |
| International | | 56,169 | | | 56,169 | | | — | | | — | |
| Real estate funds | | 39,091 | | | — | | | — | | | 39,091 | |
| Corporate debt | | 166,435 | | | — | | | 166,435 | | | — | |
| Total | | $ | 451,637 | | | $ | 162,863 | | | $ | 249,683 | | | $ | 39,091 | |
| | | | | | | | |
| Investments measured at net asset value* | 73,771 | | | | | | | |
| Interest accrual | 2,019 | | | | | | | |
| Total net assets | $ | 527,427 | | | | | | | |
| *Investments measured at net asset value consist of Common/collective trust. |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
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| (THOUSANDS) | | AT DEC. 31, 2022 | | QUOTED PRICES
IN ACTIVE
MARKETS FOR
IDENTICAL ASSETS
(LEVEL 1) | | SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2) | | SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3) |
| Asset Description | | | | | | | | |
| Cash equivalents | | $ | 7,345 | | | $ | — | | | $ | 7,345 | | | $ | — | |
| | | | | | | | |
| Government securities | 33,019 | | | — | | | 33,019 | | | — | |
| Mutual funds | | | | | | | |
| Domestic | | 78,349 | | | 78,349 | | | — | | | — | |
| International | | 39,722 | | | 39,722 | | | — | | | — | |
| Real estate funds | | 39,370 | | | — | | | — | | | 39,370 | |
| Corporate debt | | 103,940 | | | — | | | 103,940 | | | — | |
| Total | | $ | 301,745 | | | $ | 118,071 | | | $ | 144,304 | | | $ | 39,370 | |
| | | | | | | | |
| Investments measured at net asset value* | 98,505 | | | | | | | |
| Interest accrual | 2,035 | | | | | | | |
| Total net assets | $ | 402,285 | | | | | | | |
| *Investments measured at net asset value consist of Common/ collective trust. |
Level 3 valuations are derived from other valuation methodologies including pricing models, discounted cash flow models, and similar techniques. Level 3 valuations incorporate subjective judgments and consider assumptions including capitalization rates, discount rates, cash flows, and other
factors that are not observable in the market. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
The following is a reconciliation of the beginning and ending balances of the pension plan’s real estate funds measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2022,2023, and 2021:2022:
| | | | | |
| (THOUSANDS) | |
Balance, Dec. 31, 2020 | $ | 35,962 | |
Realized gains | 503 | |
Unrealized gains | 3,524 | |
Purchases | 1,865 | |
Sales | (2,763) | |
| Balance, Dec. 31, 2021 | $ | 39,091 | |
| Realized losses | (2,451) | |
| Unrealized gains | 4,112 | |
| Purchases | 2,027 | |
| Sales | (3,409) | |
| Balance, Dec. 31, 2022 | $ | 39,370 | |
| Realized losses | 66 | |
| Unrealized losses | (5,786) | |
| Purchases | 2,021 | |
| Sales | (639) | |
| Balance, Dec. 31, 2023 | $ | 35,032 | |
The market-related value of plan assets differs from the fair value of plan assets by the amount of deferred asset gains or losses. Actual asset returns that differ from the expected return on plan assets are deferred and recognized in the market-related value of assets on a straight-line basis over a five-year period. For 2022,2023, the return on plan assets was 9.23% compared to an expected long-term return of 6.60%. The 2022 return on pension plan assets was (19.94)% compared to an expected long-term return of 5.25%. The 2021 return on pension plan assets was 7.14% compared to an expected long-term return of 5.00%. As of December 31, 2022,2023, none of the pension plan participants’ future annual benefits are covered by insurance contracts.
Pension Plan Investment ObjectivesStrategic Asset Allocation
In December 2023, Cleco’s Retirement Committee has established investment performance objectives of the pension plan assets. Over a rolling three- to five-year annualized period, the objectives are forrevised the pension plan’s annualized total return to:
•Exceedasset allocation with a focus on increasing the (FAS) actuarial assumed rate of return on plan assets, and
•Exceed the annualized total returnfunded status of the following customized index (based onplan. As the targetfunded ratio of the plan
increases, the portfolio allocation to return-seeking assets (equity and equity-like investments) would be reduced and be offset by an increase in fixed income investments (defined in the glide path) consisting of a mixture of S&P 500 Index, Russell 2500 Index, Morgan Stanley Capital International All Country World ex U.S. Index, Morgan Stanley Capital International Emerging Markets Index, Custom Index relatedpolicy as liability-hedging assets). The purpose is to Multi-Asset Credit asset class, Bloomberg Barclays Capital Long Credit Index, Bloomberg Barclays 15+ Year Treasury STRIPS, Bloomberg Barclays Intermediate/Government Credit Index,reduce the funded ratio volatility and National Council of Real Estate Investment Fiduciaries Index. reduce risk in the portfolio as the funded ratio improves. If the funded ratio declines significantly, Cleco’s Retirement Committee will provide instructions about re-allocations to return-seeking assets.
The general funded status to target portfolio allocations are as follows:
Risk characteristics of the portfolio (annualized standard deviation of returns) should be similar to or less than the custom index. | | | | | | | | | | | | | | |
| FUNDED STATUS | | RETURN-SEEKING | LIABILITY-HEDGING CREDIT | LIABILITY-HEDGING GOVERNMENT |
| ≤ 80% | | 60% | 20% | 20% |
| 80% to 100% | | 60% to 47% | 20% to 37% | 20% to 16% |
| 100% to 115% | | 47% to 10% | 37% to 83% | 16% to 7% |
| ≥ 115% | | 10% | 83% | 7% |
In order to meet thethese objectives and to control risk, theCleco’s Retirement Committee has established the following guidelines that the investment managers must follow:
U.S. Equity Portfolios
•Equity holdingsfollow in any single company (including common stock and convertible securities) must not exceed 10%the management of the manager’s portfolio measured at market value.pension fund assets:
Liability-Hedging Assets
The pension plan investments may include the following liability-hedging assets:
•A minimum of 25 stocks should be owned in the portfolio.
•Equity holdings should represent 90% of the portfolio at all times.High-quality credit-oriented investment grade bonds,
•Equity holdings in any one economic sector (as defined by the Global Industry Classification Standard) should not exceed the lesser of three times the sector’s weighting in the S&P 500 Index or 35% of the portfolio.U.S. Treasuries and other U.S. Government-related securities,
•Marketable common stocks, preferred stocks convertible into common stocks, and fixed incomeMortgage securities convertible into common stocks are the only permissible equity investments.issues,
•Securities in foreign (non-U.S.) entities denominated in U.S. dollars are limited to 10% of the manager’s portfolio measured at market value. Securities denominated in currencies other than U.S. dollars are not permissible investments.Real estate debt,
•The purchase of securities on marginPrivate placement credit, and short sales is prohibited.
•Securitized assets.
International Equity - Developed Markets Portfolios
•Equity holdings in a single company (including common stock and convertible securities) should not exceed 5%Cash equivalents are held to meet the benefit obligations of the manager’s portfolio measured at market value.
•A minimumpension plan and to pay fees. The primary objective of 30 individual stocks should be owned inholding liability-hedging assets is to reduce the portfolio.
•Equity holdings in any industry sector (as defined by the Global Industry Classification Standard) should not exceed 35% of the portfolio measured at market value.
•A minimum of 50% of the countries within the Morgan Stanley Capital International All Country World ex U.S. Index should be represented within the portfolio. The allocation to an individual country should not exceed the lesser of 30% or 5 times the country’s weighting within the Morgan Stanley Capital International All Country World ex U.S. Index.
•Currency hedging decisions are at the discretion of the investment manager.pension plan’s surplus volatility.
Emerging Markets Portfolios
•Equity holdings in any single company (including common stock and convertible securities) should not exceed 10% of the manager’s portfolio measured at market value.
•A minimum of 30 individual stocks should be held within the portfolio.
•Equity holdings in any one industry (as defined by Global Industry Classification Standard) should not exceed 25% of the manager’s portfolio at market value.
•Equity investments must represent at least 75% of the portfolio under normal circumstances.
•A minimum of three countries should be represented within the portfolio.
•Illiquid securities which are not readily marketable may represent no more than 10% of portfolio assets.
•Currency hedging decisions are at the discretion of the investment manager.
Multi-Asset Credits
•Assets can include, but would not be limited to, high yield debt, emerging market debt, global investment grade credit and bank loans, as well as fixed income strategies.
•Currency hedging decisions are the discretion of the investment manager.
Treasury STRIPS
•The STRIPS are synthetic zero-coupon bonds that are created by separating each coupon and principal payment
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
of a treasury bond into a separate security. STRIPS takeReturn-Seeking Assets
The pension plan investments may include the form of a zero-coupon bond which is sold at a discount to face value and mature at par. They are backed by U.S. Treasury securities.following return-seeking assets:
•Implementation of the portfolio is either through Treasury Futures or purchase of Treasury STRIPS through an investment manager.
•The benchmark would be Bloomberg Barclays 15+ Year Treasury STRIPS.
Fixed Income Portfolios - Long Credit and Intermediate Government Credit
•Permitted securities include all U.S. dollar denominated investment grade corporate debt, including sovereign, super-nationals, and Yankee bonds, U.S. government obligations and agency debt, all U.S. dollar denominated investment grade mortgage-backed securities, all U.S. dollar investment grade private placements or securities issued as 144A with or without registration rights.Public equity,
•The portfolio can invest in surplus notes, trust preferred, E-Caps,Multi-asset credit, and Hybrids. These types of securities do have risk of coupon deferral.
•The portfolio can invest in both senior and subordinated debt and money market securities: Treasury Bills, Commercial or Asset-backed paper rated A1/P1 or higher.Open-ended real assets.
•
The duration of the portfolio must be within +/- 1 year of benchmark.
•Sub-asset classes included but not limited to: cash, government, government related securities investment, grade credit, mortgage-backed securities asset-backed, securities, private placements, commercial mortgage-backed securities taxable municipal bonds
•High yield up to 5% from downgrades with no securities to be held below B- (rated by major rating agencies). Not allowed to purchase high yield securities. (120 day cure period for downgrades below B- - -)
•Securities must have a maximum position size of 5% for A rated securities and 3% for BBB rated securities.
•Treasury STRIPS managers will have the discretion to utilize U.S. treasury futures and STRIPS as needed to adjust the portfolio duration.
Real Estate Portfolios
•Real estate funds should be invested primarily in direct equity positions, with debt and other investments representing less than 25% of the fund.
•Leverage should be no more than 70% of the gross market value of the fund.
•Investments should be focused on existing income-producing properties, with land and development properties representing less than 40% of the fund.
The use of futures and options positions whichthat leverage portfolio positions through borrowing, short sales, or other encumbrances of the Plan’spension plan’s assets is prohibited. The Long Duration fixed incomeCertain liability-hedging managers Intermediate Government Credit and Treasury STRIPS manger(s) are exempt from the prohibition on derivatives use due to the nature of long duration fixed income management.
The investment manager shall not purchase any securities of its organization or affiliated entities.
The following chart shows the dynamic asset allocation based on the funded ratio at December 31, 2022:
| | | | | | | | | | | | | | | | | |
| | PERCENT OF TOTAL PLAN ASSETS |
| | | AT DEC. 31, 2022 |
| | MINIMUM | | TARGET | | MAXIMUM |
| Return-seeking | | | | | |
| Domestic equity | | | 19 | % | | |
| International equity | | | 20 | % | | |
| Multi-asset credit | | | 6 | % | | |
| Real estate | | | 5 | % | | |
| Total return-seeking | 45 | % | | 50 | % | | 55 | % |
| Liability hedging* | 45 | % | | 50 | % | | 55 | % |
| *Liability hedging has no target subcategories. |
The assumed health care cost trend rates used to measure the expected cost of Other Benefits is 5.0% for 20232024 and remains at 5.0% thereafter. The rate used for 20222023 was also 5.0%. Assumed health care cost trend rates have a limited effect on the amount reported for Cleco’s health care plans.
The projected benefit payments for the employee pension plan and Other Benefits plan for each year through 20272028 and the next five years thereafter are listed in the following table:
| | (THOUSANDS) | (THOUSANDS) | PENSION BENEFITS | | OTHER
BENEFITS,
GROSS | (THOUSANDS) | PENSION BENEFITS | | OTHER
BENEFITS,
GROSS |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 30,509 | | | $ | 5,163 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | $ | 31,117 | | | $ | 4,937 | |
| 2025 | 2025 | $ | 32,015 | | | $ | 4,741 | |
| 2026 | 2026 | $ | 32,596 | | | $ | 4,619 | |
| 2027 | 2027 | $ | 33,101 | | | $ | 4,526 | |
| 2028 | |
| Five years thereafter | Five years thereafter | $ | 172,598 | | | $ | 20,325 | |
SERP
Certain Cleco officers are covered by SERP. In 2014, SERP was closed to new participants; however, with regard to current SERP participants, including former employees or their beneficiaries, all terms of SERP will continue, other than as described below. SERP is a non-qualified, non-contributory, defined benefit pension plan. Generally, benefits under the plan reflect an employee’s years of service, age at retirement, and the sum of (a) the highest base salary paid out over the last five calendar years and (b) the average of the five highest cash bonuses paid during the 60 months prior to retirement. SERP benefits are reduced by retirement benefits received from any other defined benefit pension plan, supplemental executive retirement plan, or Cleco contributions under the enhanced 401(k) Plan to the extent such contributions exceed the amount the employee would have received under the terms of the original 401(k) Plan. Management reviews current market trends as it evaluates Cleco’s future compensation strategy.
Cleco does not fund the SERP liability, but instead pays for current benefits out of the cash available of the respective company of the employed officer. Because the SERP is a non-qualified plan, Cleco has purchased life insurance policies on certain SERP participants as a mechanism to provide a source of funding. These polices are held in a rabbi trust formed by Cleco Power. The rabbi trust is the named beneficiary of the
life insurance policies and, therefore, receives the proceeds upon death of the insured participants. The life insurance policies may be used to reimburse Cleco for benefits paid from
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
general funds, pay the SERP participants’ death benefits, or pay future SERP payments. Market conditions could have a significant impact on the cash surrender value of the life insurance policies. Because SERP is a non-qualified plan, the assets of the trust could be used to satisfy general creditors of Cleco Power in the event of insolvency. Cleco Power is the plan sponsor and Support Group is the plan administrator.
SERP’s funded status at December 31, 2022,2023, and 20212022 is presented in the following table:
| | | | | | SERP BENEFITS | | | | SERP BENEFITS |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Change in benefit obligation | Change in benefit obligation | |
| Benefit obligation at beginning of period | |
| Benefit obligation at beginning of period | |
| Benefit obligation at beginning of period | Benefit obligation at beginning of period | $ | 93,179 | | | $ | 97,225 | |
| Service cost | Service cost | 227 | | | 232 | |
| Interest cost | Interest cost | 2,679 | | | 2,538 | |
| Actuarial gain | Actuarial gain | (22,097) | | | (1,932) | |
| Benefits paid | Benefits paid | (5,561) | | | (4,884) | |
| | Benefit obligation at end of period | Benefit obligation at end of period | $ | 68,427 | | | $ | 93,179 | |
| | Benefit obligation at end of period | |
| | Benefit obligation at end of period | |
SERP’s accumulated benefit obligation at December 31, 2022,2023, and 20212022 is presented in the following table:
| | | | SERP BENEFITS | | SERP BENEFITS |
| AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Accumulated benefit obligation | Accumulated benefit obligation | $ | 68,427 | | | $ | 93,179 | |
The following table presents net actuarial gains/losses and prior service credits included in other comprehensive income
or regulatory assets related to current year gains and losses as a result of being amortized as a component of net periodic benefit costs for SERP for December 31, 2022,2023, and 2021:2022:
| | | | | | SERP BENEFITS | | | | SERP BENEFITS |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Net actuarial gain occurring during year | Net actuarial gain occurring during year | $ | (22,097) | | | $ | (1,932) | |
| Net actuarial loss amortized during year | Net actuarial loss amortized during year | $ | 1,049 | | | $ | 1,228 | |
| Prior service credit amortized during year | Prior service credit amortized during year | $ | (215) | | | $ | (215) | |
The SERP net actuarial gain was $22.1$0.3 million for the year ended December 31, 2022,2023, primarily due to an increasenew census data partially offset by a decrease in the discount rate. The following table presents net actuarial losses and prior service credit in accumulated other comprehensive income and regulatory assets that have not been recognized as components of net periodic benefit costs for SERP at December 31, 2022,2023, and 2021:2022:
| | | | SERP BENEFITS | | SERP BENEFITS |
| AT DEC. 31 |
| AT DEC. 31 | | | AT DEC. 31 |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Net actuarial loss | Net actuarial loss | $ | 8,241 | | | $ | 31,526 | |
| Prior service credit | Prior service credit | $ | (1,299) | | | $ | (1,514) | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The non-service components of net periodic benefit cost related to SERP are included in Other income (expense), net within Cleco’s and Cleco Power’s Consolidated Statements of
Income. The components of the net SERP costs for 2023, 2022, 2021, and 20202021 are as follows:
| | | | | | SERP BENEFITS | | | | SERP BENEFITS |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Components of periodic benefit costs | Components of periodic benefit costs | |
| Service cost | Service cost | $ | 227 | | | $ | 232 | | | $ | 399 | |
| Service cost | |
| Service cost | |
| Interest cost | Interest cost | 2,679 | | | 2,538 | | | 2,932 | |
| Amortizations | Amortizations | |
| Prior service credit | |
| Prior service credit | |
| Prior service credit | Prior service credit | (215) | | | (215) | | | (215) | |
| Net loss | Net loss | 1,049 | | | 1,228 | | | 3,186 | |
| Net periodic benefit cost | Net periodic benefit cost | $ | 3,740 | | | $ | 3,783 | | | $ | 6,302 | |
|
The measurement date used to determine the SERP benefits is December 31. The assumptions used to determine the benefit obligation and the periodic costs are as follows:
| | | | SERP BENEFITS | | SERP BENEFITS |
| AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| Weighted-average assumptions used to determine the benefit obligation | Weighted-average assumptions used to determine the benefit obligation | | | | Weighted-average assumptions used to determine the benefit obligation | | | |
| Discount rate | Discount rate | 5.46 | % | | 2.95 | % | Discount rate | 5.13 | % | | 5.46 | % |
| Rate of compensation increase | Rate of compensation increase | N/A | | N/A | Rate of compensation increase | N/A | | N/A |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | SERP BENEFITS | | | | | | SERP BENEFITS |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | | | FOR THE YEAR ENDED DEC. 31, |
| | | 2022 | | 2021 | | 2020 | | 2023 | | 2022 | | 2021 |
| Weighted-average assumptions used to determine the net benefit cost | Weighted-average assumptions used to determine the net benefit cost | |
| Discount rate | Discount rate | 2.95 | % | | 2.64 | % | | 3.37 | % |
| Discount rate | |
| Discount rate | | 5.46 | % | | 2.95 | % | | 2.64 | % |
| Rate of compensation increase | Rate of compensation increase | N/A | | N/A | | N/A | Rate of compensation increase | N/A | | N/A |
The expense related to SERP reflected on Cleco Power’s Consolidated Statements of Income for the years ended December 31, 2023, 2022, and 2021 and 2020 was $0.6$0.5 million, $0.6 million, and $1.0$0.6 million, respectively.
Liabilities relating to SERP are reported on the individual subsidiaries’ financial statements. The current and non-current portions of the SERP liability for Cleco and Cleco Power at December 31, 2022,2023, and 20212022 are as follows:
| | Cleco | Cleco | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | $ | 4,713 | | | $ | 4,654 | |
| Non-current | Non-current | $ | 63,714 | | | $ | 88,523 | |
| | Cleco Power | Cleco Power | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current | Current | $ | 672 | | | $ | 679 | |
| Non-current | Non-current | $ | 9,087 | | | $ | 12,909 | |
The projected benefit payments for SERP for each year through 20272028 and the next five years thereafter are shown in the following table:
| | (THOUSANDS) | (THOUSANDS) | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | FIVE
YEARS
THEREAFTER | (THOUSANDS) | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | FIVE
YEARS
THEREAFTER |
| SERP | SERP | $ | 4,840 | | | $ | 4,908 | | | $ | 5,054 | | | $ | 5,175 | | | $ | 5,133 | | | $ | 25,167 | |
401(k)
Cleco’s 401(k) Plan is intended to provide active, eligible employees with voluntary, long-term savings and investment opportunities. The 401(k) Plan is a defined contribution plan and is subject to the applicable provisions of the Employee Retirement Income Security Act of 1974. In accordance with the 401(k) Plan, employer contributions are made in the form of cash. Cash contributions are invested in proportion to the participant’s voluntary contribution investment choices. Participation in the Plan is voluntary and active Cleco employees are eligible to participate. Cleco’s 401(k) Plan expense for the years ended December 31, 2023, 2022, 2021, and 20202021 was as follows:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| 401(k) Plan expense | 401(k) Plan expense | $ | 8,704 | | | $ | 9,366 | | | $ | 9,685 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Cleco Power is the plan sponsor for the 401(k) Plan. The expense of the 401(k) Plan related to Cleco’s other subsidiaries for the years ended December 31, 2023, 2022, 2021, and 20202021 was as follows:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| 401(k) Plan expense | 401(k) Plan expense | $ | 4,079 | | | $ | 4,350 | | | $ | 4,424 | |
Effective September 30, 2021, the 401(k) plan was amended to offer an enhanced 401(k) benefit to certain employees participating in the plan that elected to retire during a certain retirement window. Those certain employees who elected by September 30, 2021, to receive the enhanced 401(k) benefits received a one-time contribution up to 30% of the employee’s 2021 base salary in accordance with IRS contribution limits. This resulted in a one-time benefit cost of $0.2 million that was included as an expense of the 401(k) plan.
Cleco
For the year ended December 31, 2022, and 2021,The following table presents a reconciliation of income tax (benefit) expense was lower than the amount computed by applyingat the statutory federal rate. For the year ended December 31, 2020,rate and income tax (benefit) expense was higher than the amount computed by applying the statutory federal rate. The differences are as follows:on (loss) income from continuing operations reported on Cleco’s Consolidated Statement of Income:
| | FOR THE YEAR ENDED DEC. 31, |
| | | FOR THE YEAR ENDED DEC. 31, | | | | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS, EXCEPT PERCENTAGES) | (THOUSANDS, EXCEPT PERCENTAGES) | 2022 | | 2021 | | 2020 | (THOUSANDS, EXCEPT PERCENTAGES) | 2023 | | 2022 | | 2021 |
| Income before tax | $ | 189,728 | | | $ | 208,077 | | | $ | 158,018 | |
| (Loss) income from continuing operations before income taxes | |
| Statutory rate | Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % | Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Tax expense at federal statutory rate | $ | 39,843 | | | $ | 43,696 | | | $ | 33,184 | |
| Tax (benefit) expense at federal statutory rate | |
| Increase (decrease) | Increase (decrease) | |
| Flowthrough of tax benefits | |
| Flowthrough of tax benefits | |
| Flowthrough of tax benefits | Flowthrough of tax benefits | (12,272) | | | (356) | | | 5,100 | |
| | State income taxes, net of federal benefit | State income taxes, net of federal benefit | 12,177 | | | 9,619 | | | 7,190 | |
| State income taxes, net of federal benefit | |
| State income taxes, net of federal benefit | |
| | | Return to accrual adjustment | |
| | Return to accrual adjustment | |
| | Return to accrual adjustment | Return to accrual adjustment | 128 | | | (3,862) | | | 7,218 | |
| Permanent adjustments | Permanent adjustments | (6,578) | | | (91) | | | (33) | |
| | Amortization of excess ADIT | Amortization of excess ADIT | (32,639) | | | (37,254) | | | (16,667) | |
| Amortization of excess ADIT | |
| Amortization of excess ADIT | |
| Other, net | Other, net | 258 | | | 1,359 | | | (274) | |
| Total tax expense | $ | 917 | | | $ | 13,111 | | | $ | 35,718 | |
| Total tax (benefit) expense | |
| Effective rate | Effective rate | 0.5 | % | | 6.3 | % | | 22.6 | % | Effective rate | 68.5 | % | | 7.9 | % | | 0.8 | % |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Information about current and deferred income tax expense from continuing operations is as follows:
| | | | | | | | | | | | | | | | | |
| | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Current federal income tax expense (benefit) | $ | 1,351 | | | $ | (2) | | | $ | (2,634) | |
| Deferred federal income tax expense (benefit) | 2,546 | | | (9,581) | | | 21,865 | |
| Amortization of accumulated deferred investment tax credits | (134) | | | (142) | | | (159) | |
| Total federal income tax (benefit) expense | $ | 3,763 | | | $ | (9,725) | | | $ | 19,072 | |
| Current state income tax expense (benefit) | 7,611 | | | (699) | | | 2,636 | |
| Deferred state income tax (benefit) expense | (10,457) | | | 23,535 | | | 14,010 | |
| Total state income tax expense | $ | (2,846) | | | $ | 22,836 | | | $ | 16,646 | |
| Total federal and state income tax expense | $ | 917 | | | $ | 13,111 | | | $ | 35,718 | |
| Items charged or credited directly to member’s equity | | | | | |
| Federal deferred | 6,297 | | | 514 | | | (2,202) | |
| State deferred | 2,431 | | | (120) | | | (720) | |
| Total tax expense (benefit) from items charged directly to member’s equity | $ | 8,728 | | | $ | 394 | | | $ | (2,922) | |
| Total federal and state income tax expense | $ | 9,645 | | | $ | 13,505 | | | $ | 32,796 | |
| | | | | | | | | | | | | | | | | |
| | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Current federal income tax (benefit) expense | $ | (45,429) | | | $ | 25,478 | | | $ | 26,173 | |
| Deferred federal income tax benefit | (7,137) | | | (9,835) | | | (44,464) | |
| Amortization of accumulated deferred investment tax credits | (127) | | | (134) | | | (141) | |
| Total federal income tax (benefit) expense | $ | (52,693) | | | $ | 15,509 | | | $ | (18,432) | |
| Current state income tax (benefit) expense | (9,787) | | | 10,326 | | | 4,158 | |
| Deferred state income tax (benefit) expense | (2,593) | | | (5,800) | | | 15,607 | |
| Total state income tax (benefit) expense | $ | (12,380) | | | $ | 4,526 | | | $ | 19,765 | |
| Total federal and state income tax (benefit) expense | $ | (65,073) | | | $ | 20,035 | | | $ | 1,333 | |
| Items charged or credited directly to member’s equity | | | | | |
| Federal deferred income tax | (1,374) | | | 6,297 | | | 514 | |
| State deferred income tax | (531) | | | 2,431 | | | (120) | |
| Total tax (benefit) expense from items charged directly to member’s equity | $ | (1,905) | | | $ | 8,728 | | | $ | 394 | |
| Total federal and state income tax (benefit) expense | $ | (66,978) | | | $ | 28,763 | | | $ | 1,727 | |
The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2022,2023, and 20212022 was comprised of the following:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Depreciation and property basis differences | Depreciation and property basis differences | $ | (869,796) | | | $ | (885,747) | |
| Net operating loss carryforward | Net operating loss carryforward | 135,914 | | | 195,488 | |
| NMTC | NMTC | 88,245 | | | 92,364 | |
| Fuel costs | Fuel costs | (41,233) | | | (38,070) | |
| Other comprehensive income | Other comprehensive income | 4,022 | | | 12,750 | |
| Regulated operations regulatory liability, net | Regulated operations regulatory liability, net | (114,711) | | | (93,990) | |
| Postretirement benefits | Postretirement benefits | 38,418 | | | 34,683 | |
| Merger fair value adjustments | Merger fair value adjustments | (47,929) | | | (49,806) | |
| Other | Other | (13,230) | | | (23,436) | |
| Accumulated deferred federal and state income taxes, net | Accumulated deferred federal and state income taxes, net | $ | (820,300) | | | $ | (755,764) | |
Cleco Power
For the year ended December 31, 2022, and 2021,The following table presents a reconciliation of income tax (benefit) expense was lower than the amount computed by applyingat the statutory rate. For the year ended 2020,rate and income tax (benefit) expense was higher than the amount computed by applying the statutory rate. The differences are as follows:on (loss) income reported on Cleco’s Consolidated Statement of Income:
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS, EXCEPT PERCENTAGES) | 2022 | | 2021 | | 2020 |
| Income before tax | $ | 172,560 | | | $ | 124,735 | | | $ | 123,454 | |
| Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Tax expense at federal statutory rate | $ | 36,238 | | | $ | 26,194 | | | $ | 25,925 | |
| Increase (decrease) | | | | | |
| Flowthrough of tax benefits | (12,272) | | | (356) | | | 5,100 | |
| | | | | |
| State income taxes, net of federal benefit | 12,109 | | | 6,343 | | | 6,303 | |
| | | | | |
| Return to accrual adjustment | 14 | | | (3,831) | | | 7,082 | |
| | | | | |
| Amortization of excess ADIT | (32,639) | | | (37,254) | | | (16,667) | |
| Other, net | (947) | | | (449) | | | (944) | |
| Total taxes | $ | 2,503 | | | $ | (9,353) | | | $ | 26,799 | |
| Effective rate | 1.5 | % | | (7.5) | % | | 21.7 | % |
100
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS, EXCEPT PERCENTAGES) | 2023 | | 2022 | | 2021 |
| Income before tax | $ | 132,715 | | | $ | 172,560 | | | $ | 124,735 | |
| Statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Tax expense at federal statutory rate | $ | 27,870 | | | $ | 36,238 | | | $ | 26,194 | |
| Increase (decrease) | | | | | |
| Flowthrough of tax benefits | (7,847) | | | (12,272) | | | (356) | |
| | | | | |
| State income taxes, net of federal benefit | 12,296 | | | 12,109 | | | 6,343 | |
| | | | | |
| Return to accrual adjustment | (204) | | | 14 | | | (3,831) | |
| | | | | |
| Amortization of excess ADIT | (33,518) | | | (32,639) | | | (37,254) | |
| Other, net | (3,031) | | | (947) | | | (449) | |
| Total tax (benefit) expense | $ | (4,434) | | | $ | 2,503 | | | $ | (9,353) | |
| Effective rate | (3.3) | % | | 1.5 | % | | (7.5) | % |
Information about current and deferred income tax expense is as follows:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Current federal income tax expense | Current federal income tax expense | $ | 4,921 | | | $ | — | | | $ | 15,724 | |
| Deferred federal income tax benefit | Deferred federal income tax benefit | (1,926) | | | (23,071) | | | (5,033) | |
| Amortization of accumulated deferred investment tax credits | Amortization of accumulated deferred investment tax credits | (134) | | | (142) | | | (159) | |
| Total federal income tax expense (benefit) | Total federal income tax expense (benefit) | $ | 2,861 | | | $ | (23,213) | | | $ | 10,532 | |
| Current state income tax expense | Current state income tax expense | 2,406 | | | — | | | 5,069 | |
| Deferred state income tax (benefit) expense | Deferred state income tax (benefit) expense | (2,764) | | | 13,860 | | | 11,198 | |
| Total state income tax expense | $ | (358) | | | $ | 13,860 | | | $ | 16,267 | |
| Total state income tax expense (benefit) | |
| Total federal and state income tax expense (benefit) | Total federal and state income tax expense (benefit) | $ | 2,503 | | | $ | (9,353) | | | $ | 26,799 | |
| Items charged or credited directly to members’ equity | Items charged or credited directly to members’ equity | | | | | Items charged or credited directly to members’ equity | | | | | |
| Federal deferred | 2,610 | | | 1,714 | | | (576) | |
| State deferred | 1,008 | | | 338 | | | (189) | |
| Total tax expense (benefit) from items charged directly to member’s equity | $ | 3,618 | | | $ | 2,052 | | | $ | (765) | |
| Federal deferred income tax | |
| State deferred income tax | |
| Total tax expense from items charged directly to member’s equity | |
| Total federal and state income tax expense (benefit) | Total federal and state income tax expense (benefit) | $ | 6,121 | | | $ | (7,301) | | | $ | 26,034 | |
The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 2022,2023, and 20212022 was comprised of the following:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Depreciation and property basis differences | Depreciation and property basis differences | $ | (754,200) | | | $ | (744,594) | |
| Net operating loss carryforward | Net operating loss carryforward | 94,555 | | | 125,392 | |
| Fuel costs | Fuel costs | (13,594) | | | (14,552) | |
| Other comprehensive income | Other comprehensive income | 2,604 | | | 6,222 | |
| Regulated operations regulatory liability, net | Regulated operations regulatory liability, net | (114,711) | | | (93,990) | |
| Postretirement benefits | Postretirement benefits | 24,946 | | | 20,649 | |
| Other | Other | (9,727) | | | (6,606) | |
| Accumulated deferred federal and state income taxes, net | Accumulated deferred federal and state income taxes, net | $ | (770,127) | | | $ | (707,479) | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Valuation Allowance
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not
be realized. At December 31, 2022,2023, and 2021,2022, Cleco had a deferred tax asset resulting from a NMTC carryforward of $88.2$79.0 million and $92.4$88.2 million, respectively. If the NMTC carryforward is not utilized, it will begin to expire in 2030. Management considers it more likely than not that the deferred tax asset related to the NMTC carryforward will be realized; therefore, no valuation allowance has been recorded for Cleco and Cleco Power.
Quarterly, management closely monitors and evaluates the realizability of deferred tax assets, and adjustments are recorded as appropriate in future periods. In evaluating the need for a valuation allowance, management considers various factors, including the expected level of future taxable income, available tax planning strategies, and reversals of existing taxable temporary differences. If such estimates and related assumptions change in the future, Cleco and Cleco Power may be required to record a valuation allowance against its deferred tax assets, resulting in additional income tax expense in Cleco’s and Cleco Power’s Consolidated Statements of Income.
Net Operating Losses
For the 20212022 tax year, Cleco created a federal net operating loss of approximately $718.3$538.5 million and a state net operating loss of approximately $423.7$348.2 million. For the 20222023 tax year, Cleco expects to utilize a federal net operating loss of $192.9$318.0 million and a state net operating loss of $82.5$199.6 million.
For the 20212022 tax year, Cleco Power created a federal net operating loss of approximately $422.1$336.1 million and a state operating loss of $423.7$348.2 million. For the 20222023 tax year, Cleco Power expects to utilize a federal net operating loss of $220.8 million and state net operating loss of $93.7 million and $82.5 million, respectively.$199.6 million.
Both the federal and state net operating losses may be carried forward indefinitely. Cleco and Cleco Power consider it more likely than not that these income tax losses will be utilized to reduce future income tax payments, and the entire net operating loss carryforward will be utilized within the statutory deadlines.utilized.
Uncertain Tax Positions
Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At December 31, 2022,2023, and 2021,2022, Cleco and Cleco Power had no interest payable related to uncertain tax positions. For the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco and Cleco Power had no interest expense related to uncertain tax positions. At December 31, 2022,2023, and 2021,2022, Cleco and Cleco Power had no liability for unrecognized tax positions.
Income Tax Audits
Cleco participates in the IRS’s Compliance Assurance Process in which tax positions are examined and agreed upon prior to filing the federal tax return. While the statute of limitations remains open for tax years 2019, 2020, 2021, and 2021,2022, the IRS has completed its review of years 2019 and 2020, and these tax returns were filed consistent with the IRS’s review. The IRS has placed Cleco in the Bridge phase of the Compliance Assurance Process for the 2020 and 2021 tax year.years. In this phase, the IRS will not accept any disclosures, conduct any reviews, or provide any assurances. These tax returns were filed consistent with the IRS’s review. The IRS has accepted Cleco’s application for the Compliance Assurance Process for the 2022 tax year and the Compliance Assurance Maintenance phase for the 2023 tax year. In this maintenance phase, the IRS typically will, at its discretion, reduce the level of its review of the tax year relative to the regular Compliance Assurance Process phase.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The state income tax years 2019, 2020, 2021, and 20212022 remain subject to examination by the Louisiana Department of Revenue.
Cleco classifies income tax penalties as a component of other expenses. For the years ended December 31, 2023, 2022, 2021, and 2020,2021, no penalties were recognized.
TCJA
On December 22, 2017, the TCJA was enacted into law. The TCJA includes significant changes to the IRC, as amended, including amendments which significantly change the taxation of business entities and includes specific provisions related to rate regulated activities, including Cleco Power. The most significant change that impacts Cleco is the reduction of the corporate federal income tax rate from 35% to 21%.
At December 31, 2022, and 2021, Cleco and Cleco Power had $257.4 million and $302.0 million, respectively, accrued for the excess ADIT. For more information on the regulatory treatment of the TCJA regulatory liability, see Note 5 — “Regulatory Assets and Liabilities — Deferred Taxes, Net” and Note 13 — “Regulation and Rates — Regulatory Refunds — TCJA.”
CARES Act
In March 2020, the CARES Act was signed into law. The CARES Act includes tax relief provisions such as an alternative minimum tax credit refund, a five-year net operating loss carryback from years 2018 through 2020, and deferred payments of employer payroll taxes.
During December 2022, Cleco and Cleco Power paid the remaining $3.0 million and $1.8 million, respectively, deferred in employer payroll tax payments for the period of March 27, 2020, through December 31, 2020.
| | | | | | | | | | | | | | |
Note 1213 — Segment Disclosures about Segments |
Cleco
Cleco’s reportable segmentsSegment disclosures are based on itsCleco’s method of internal reporting, which disaggregates business units by first-tier subsidiary. The financial information for historical periods provided in this Annual Report on Form 10-K has been recast to reflect the presentation of the Cleco Cajun Sale Group as discontinued operations within the Other column. Cleco’s segment structure and its first-tier subsidiaries. Cleco’s reportable segments areallocation of corporate expenses were updated to reflect how management measures performance and allocates resources. Cleco Power and Cleco Cajun.has recast data from prior periods to reflect this change to conform to the current year presentation. For more information, see Note 3 — “Discontinued Operations.”
Each reportable segment engages in business activities from which it earns revenue and incurs expenses. Segment managers report periodically to Cleco’s CEO, who is Cleco’s chief operating decision maker, with discrete
financial information and, at least quarterly, present discrete financial information to Cleco Holdings’ and, in the case of Cleco Power, Cleco Power’s Boards of Managers. The reportable segment prepares budgets that are presented to and approved by Cleco Holdings’ and, in the case of Cleco Power, Cleco Power’s Boards of Managers. The column shown as Other in the following tables includes the holding company, a shared services subsidiary, and an investment subsidiary. There are no changes to Cleco’s existing reportable segments.subsidiary, natural gas derivatives at Cleco Cajun, and discontinued operations.
The financial results in the following tables are presented on an accrual basis. EBITDA is a key non-GAAP financial measure used by the CEO to assess the operating performance of Cleco’s segments.segment. Management evaluates the performance of Cleco’s segmentssegment and allocates resources to themit based on segment profit and the requirements to implement strategic initiatives and projects to meet current business objectives. EBITDA is defined as net income adjusted for interest, income taxes, depreciation, and amortization. Depreciation and amortization in the following tables includes amortization of intangible assets and liabilities recorded for the fair value adjustment of wholesale power supply agreements as a result of the 2016 Merger and the Cleco Cajun Transaction, as well as amortization of deferred lease revenue resulting from the Cleco Cajun Transaction.Merger. Material intercompany transactions occur on a regular basis
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
andbasis. These intercompany transactions relate primarily to joint and common administrative support services as well as transmission services provided by Cleco Power to Cleco Cajun.services.
| | | | | | | | | | | | | | | | | | | | | |
| SEGMENT INFORMATION | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2022 |
| (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | | | | | TOTAL SEGMENTS |
| Revenue | | | | | | | | | |
| Electric operations | $ | 1,523,066 | | | $ | 496,042 | | | | | | | $ | 2,019,108 | |
| Other operations | 98,759 | | | 148,823 | | | | | | | 247,582 | |
| Affiliate revenue | 6,377 | | | — | | | | | | | 6,377 | |
| Electric customer credits | (7,674) | | | — | | | | | | | (7,674) | |
| Operating revenue, net | $ | 1,620,528 | | | $ | 644,865 | | | | | | | $ | 2,265,393 | |
| Net income | $ | 170,057 | | | $ | 73,830 | | | | | | | $ | 243,887 | |
| Add: Depreciation and amortization | 178,231 | | | 75,157 | | | | | | (1) | 253,388 | |
| Less: Interest income | 5,082 | | | 1,122 | | | | | | | 6,204 | |
| Add: Interest charges | 88,218 | | | 523 | | | | | | | 88,741 | |
| Add: Federal and state income tax expense | 2,503 | | | 24,565 | | | | | | | 27,068 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| EBITDA | $ | 433,927 | | | $ | 172,953 | | | | | | | $ | 606,880 | |
| Additions to property, plant, and equipment | $ | 228,940 | | | $ | 6,867 | | | | | | | $ | 235,807 | |
| Equity investment in investee | $ | 2,072 | | | $ | — | | | | | | | $ | 2,072 | |
| Goodwill | $ | 1,490,797 | | | $ | — | | | | | | | $ | 1,490,797 | |
| Total segment assets | $ | 6,834,970 | | | $ | 1,019,241 | | | | | | | $ | 7,854,211 | |
(1) Includes $14.4 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. |
| | | | | | | | | |
| SEGMENT INFORMATION | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2023 (THOUSANDS) | CLECO POWER | | | | |
| Revenue | | | | | |
| Electric operations | $ | 1,197,369 | | | | | |
| Other operations | 111,561 | | | | | |
| Affiliate revenue | 8,904 | | | | | |
| Electric customer credits | (60,689) | | | | | |
| Operating revenue, net | $ | 1,257,145 | | | | | |
| Net income | $ | 137,149 | | | | | |
| Add: Depreciation and amortization | 191,745 | | | | | |
| Less: Interest income | 5,011 | | | | | |
| Add: Interest charges | 98,879 | | | | | |
| Add: Federal and state income tax benefit | (4,434) | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| EBITDA | $ | 418,328 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | FOR THE YEAR ENDED DEC. 31, 2022 |
| (THOUSANDS) | | TOTAL SEGMENTS | | OTHER | | ELIMINATIONS | | TOTAL |
| FOR THE YEAR ENDED DEC. 31, 2023 (THOUSANDS) | | FOR THE YEAR ENDED DEC. 31, 2023 (THOUSANDS) | CLECO POWER | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue | Revenue | | | | | | | | Revenue | | | |
| Electric operations | Electric operations | | $ | 2,019,108 | | | $ | (9,680) | | | $ | (1) | | | $ | 2,009,427 | |
| Other operations | Other operations | | 247,582 | | | 9 | | | (10,212) | | | 237,379 | |
| Affiliate revenue | Affiliate revenue | | 6,377 | | | 109,015 | | | (115,392) | | | — | |
| Electric customer credits | Electric customer credits | | (7,674) | | | — | | | — | | | (7,674) | |
| Operating revenue, net | Operating revenue, net | | $ | 2,265,393 | | | $ | 99,344 | | | $ | (125,605) | | | $ | 2,239,132 | |
| Depreciation and amortization | Depreciation and amortization | | $ | 253,388 | | | $ | 17,588 | | (1) | $ | — | | | $ | 270,976 | |
| Interest income | Interest income | | $ | 6,204 | | | $ | 265 | | | $ | (97) | | | $ | 6,372 | |
| Interest charges | Interest charges | | $ | 88,741 | | | $ | 62,513 | | | $ | (96) | | | $ | 151,158 | |
| Federal and state income tax expense (benefit) | | $ | 27,068 | | | $ | (26,151) | | | $ | — | | | $ | 917 | |
| Federal and state income tax benefit | |
| Income (loss) from continuing operations, net of income taxes | |
| Income from discontinued operations, net of income taxes | |
| Net income (loss) | Net income (loss) | | $ | 243,887 | | | $ | (55,076) | | | $ | — | | | $ | 188,811 | |
| Additions to property, plant, and equipment | Additions to property, plant, and equipment | | $ | 235,807 | | | $ | 960 | | | $ | — | | | $ | 236,767 | |
| Equity investment in investee | Equity investment in investee | | $ | 2,072 | | | $ | (320,348) | | | $ | 320,348 | | | $ | 2,072 | |
| Goodwill | Goodwill | | $ | 1,490,797 | | | $ | — | | | $ | — | | | $ | 1,490,797 | |
| Total segment assets | Total segment assets | | $ | 7,854,211 | | | $ | 217,855 | | | $ | 181,683 | | | $ | 8,253,749 | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | (1) Includes $9.5 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | | (1) Includes $9.5 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2022 (THOUSANDS) | CLECO POWER | | | | |
| Revenue | | | | | |
| Electric operations | $ | 1,523,066 | | | | | |
| Other operations | 98,759 | | | | | |
| Affiliate revenue | 6,377 | | | | | |
| Electric customer credits | (7,674) | | | | | |
| Operating revenue, net | $ | 1,620,528 | | | | | |
| Net income | $ | 170,057 | | | | | |
| Add: Depreciation and amortization | 178,231 | | | | | |
| Less: Interest income | 5,082 | | | | | |
| Add: Interest charges | 88,218 | | | | | |
| Add: Federal and state income tax expense | 2,503 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| EBITDA | $ | 433,927 | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2022 (THOUSANDS) | | | | CLECO POWER | | OTHER | | ELIMINATIONS | | TOTAL |
| Revenue | | | | | | | | | | |
| Electric operations | | | | $ | 1,523,066 | | | $ | (9,680) | | | $ | — | | | $ | 1,513,386 | |
| Other operations | | | | 98,759 | | | 9 | | | — | | | 98,768 | |
| Affiliate revenue | | | | 6,377 | | | 109,015 | | | (115,392) | | | — | |
| Electric customer credits | | | | (7,674) | | | — | | | — | | | (7,674) | |
| Operating revenue, net | | | | $ | 1,620,528 | | | $ | 99,344 | | | $ | (115,392) | | | $ | 1,604,480 | |
| Depreciation and amortization | | | | $ | 178,231 | | | $ | 17,588 | | (1) | $ | — | | | $ | 195,819 | |
| Interest income | | | | $ | 5,082 | | | $ | 265 | | | $ | (97) | | | $ | 5,250 | |
| Interest charges | | | | $ | 88,218 | | | $ | 55,834 | | | $ | (96) | | | $ | 143,956 | |
| Federal and state income tax expense | | | | $ | 2,503 | | | $ | 17,532 | | | $ | — | | | $ | 20,035 | |
| Income (loss) from continuing operations, net of income taxes | | | | $ | 170,057 | | | $ | 63,093 | | | $ | (2) | | | $ | 233,148 | |
| Loss from discontinued operations, net of income taxes | | | | $ | — | | | $ | (44,337) | | | $ | — | | | $ | (44,337) | |
| Net income (loss) | | | | $ | 170,057 | | | $ | 18,756 | | | $ | (2) | | | $ | 188,811 | |
| Additions to property, plant, and equipment | | | | $ | 228,940 | | | $ | 7,827 | | | $ | — | | | $ | 236,767 | |
| Equity investment in investee | | | | $ | 2,072 | | | $ | (320,348) | | | $ | 320,348 | | | $ | 2,072 | |
| Goodwill | | | | $ | 1,490,797 | | | $ | — | | | $ | — | | | $ | 1,490,797 | |
| Total segment assets | | | | $ | 6,834,970 | | | $ | 1,237,096 | | | $ | 181,683 | | | $ | 8,253,749 | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. |
| | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, 2021 (THOUSANDS) | | CLECO POWER | | | |
| Revenue | | | | | |
| Electric operations | | $ | 1,202,249 | | | | |
| Other operations | | 74,625 | | | | |
| Affiliate revenue | | 5,641 | | | | |
| Electric customer credits | | (40,878) | | | | |
| Operating revenue, net | | $ | 1,241,637 | | | | |
| Net income | | $ | 134,088 | | | | |
| Add: Depreciation and amortization | | 173,498 | | | | |
| Less: Interest income | | 3,294 | | | | |
| Add: Interest charges | | 73,090 | | | | |
| Add: Federal and state income tax (benefit) | | (9,353) | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| EBITDA | | $ | 368,029 | | | | |
| | | | | |
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| | | | | |
| | | | | |
| |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | FOR THE YEAR ENDED DEC. 31, 2021 |
| (THOUSANDS) | CLECO POWER | | CLECO CAJUN | | | TOTAL SEGMENTS |
| FOR THE YEAR ENDED DEC. 31, 2021 (THOUSANDS) | |
| FOR THE YEAR ENDED DEC. 31, 2021 (THOUSANDS) | |
| FOR THE YEAR ENDED DEC. 31, 2021 (THOUSANDS) | |
| Revenue | |
| Revenue | |
| Revenue | Revenue | | | | | |
| Electric operations | Electric operations | $ | 1,202,249 | | | $ | 398,226 | | | | $ | 1,600,475 | |
| Electric operations | |
| Electric operations | |
| Other operations | |
| Other operations | |
| Other operations | Other operations | 74,625 | | | 128,749 | | | | 203,374 | |
| Affiliate revenue | Affiliate revenue | 5,641 | | | — | | | | 5,641 | |
| Affiliate revenue | |
| Affiliate revenue | |
| Electric customer credits | |
| Electric customer credits | |
| Electric customer credits | Electric customer credits | (40,878) | | | 244 | | | | (40,634) | |
| Operating revenue, net | Operating revenue, net | $ | 1,241,637 | | | $ | 527,219 | | | | $ | 1,768,856 | |
| Operating revenue, net | |
| Operating revenue, net | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Depreciation and amortization | |
| Interest income | |
| Interest income | |
| Interest income | |
| Interest charges | |
| Interest charges | |
| Interest charges | |
| Federal and state income tax expense (benefit) | |
| Federal and state income tax expense (benefit) | |
| Federal and state income tax expense (benefit) | |
| Income from continuing operations, net of income taxes | |
| Income from continuing operations, net of income taxes | |
| Income from continuing operations, net of income taxes | |
| Income from discontinued operations, net of income taxes | |
| Income from discontinued operations, net of income taxes | |
| Income from discontinued operations, net of income taxes | |
| Net income | Net income | $ | 134,088 | | | $ | 115,632 | | | | $ | 249,720 | |
| Add: Depreciation and amortization | 173,498 | | | 56,438 | | | (1) | 229,936 | |
| Less: Interest income | 3,294 | | | 15 | | | | 3,309 | |
| Add: Interest charges | 73,090 | | | 803 | | | | 73,893 | |
| Add: Federal and state income tax (benefit) expense | (9,353) | | | 42,283 | | | | 32,930 | |
| Net income | |
| Net income | |
| | EBITDA | $ | 368,029 | | | $ | 215,141 | | | | $ | 583,170 | |
| Additions to property, plant, and equipment | |
| | Additions to property, plant, and equipment | |
| | Additions to property, plant, and equipment | Additions to property, plant, and equipment | $ | 300,957 | | | $ | 9,081 | | | | $ | 310,038 | |
| Equity investment in investee | Equity investment in investee | $ | 2,072 | | | $ | — | | | | $ | 2,072 | |
| Equity investment in investee | |
| Equity investment in investee | |
| Goodwill | |
| Goodwill | |
| Goodwill | Goodwill | $ | 1,490,797 | | | $ | — | | | | $ | 1,490,797 | |
| Total segment assets | Total segment assets | $ | 6,620,298 | | | $ | 1,104,090 | | | | $ | 7,724,388 | |
(1) Includes $13.5 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. | | Total segment assets | |
| Total segment assets | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | FOR THE YEAR ENDED DEC. 31, 2021 |
| (THOUSANDS) | | | | TOTAL SEGMENTS | | OTHER | | ELIMINATIONS | | TOTAL SEGMENTS |
| Revenue | | | | | | | | | | |
| Electric operations | | | | $ | 1,600,475 | | | $ | (9,680) | | | $ | 1 | | | $ | 1,590,796 | |
| Other operations | | | | 203,374 | | | 8 | | | (7,615) | | | 195,767 | |
| Affiliate revenue | | | | 5,641 | | | 113,623 | | | (119,264) | | | — | |
| Electric customer credits | | | | (40,634) | | | — | | | — | | | (40,634) | |
| Operating revenue, net | | | | $ | 1,768,856 | | | $ | 103,951 | | | $ | (126,878) | | | $ | 1,745,929 | |
| Depreciation and amortization | | | | $ | 229,936 | | | $ | 21,495 | | (1) | $ | — | | | $ | 251,431 | |
| Interest income | | | | $ | 3,309 | | | $ | 125 | | | $ | (122) | | | $ | 3,312 | |
| Interest charges | | | | $ | 73,893 | | | $ | 60,564 | | | $ | (121) | | | $ | 134,336 | |
| Federal and state income tax expense (benefit) | | | | $ | 32,930 | | | $ | (19,819) | | | $ | — | | | $ | 13,111 | |
| Net income (loss) | | | | $ | 249,720 | | | $ | (54,754) | | | $ | — | | | $ | 194,966 | |
| Additions to property, plant, and equipment | | | | $ | 310,038 | | | $ | 1,103 | | | $ | — | | | $ | 311,141 | |
| Equity investment in investee | | | | $ | 2,072 | | | $ | (46,901) | | | $ | 46,901 | | | $ | 2,072 | |
| Goodwill | | | | $ | 1,490,797 | | | $ | — | | | $ | — | | | $ | 1,490,797 | |
| Total segment assets | | | | $ | 7,724,388 | | | $ | 619,101 | | | $ | (218,471) | | | $ | 8,125,018 | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, 2020 |
| (THOUSANDS) | | CLECO POWER | | CLECO CAJUN | | TOTAL SEGMENTS | | | | | | |
| Revenue | | | | | | | | | | | | |
| Electric operations | | $ | 1,015,018 | | | $ | 365,555 | | | $ | 1,380,573 | | | | | | | |
| Other operations | | 65,237 | | | 121,747 | | | 186,984 | | | | | | | |
| Affiliate revenue | | 5,156 | | | 204 | | | 5,360 | | | | | | | |
| Electric customer credits | | (53,119) | | | (153) | | | (53,272) | | | | | | | |
| Operating revenue, net | | $ | 1,032,292 | | | $ | 487,353 | | | $ | 1,519,645 | | | | | | | |
| Net income | | $ | 96,655 | | | $ | 89,492 | | | $ | 186,147 | | | | | | | |
| Add: Depreciation and amortization | | 166,987 | | | 47,183 | | (1) | 214,170 | | | | | | | |
| Less: Interest income | | 3,362 | | | 273 | | | 3,635 | | | | | | | |
| Add: Interest charges | | 73,985 | | | (750) | | | 73,235 | | | | | | | |
| Add: Federal and state income tax expense | | 26,799 | | | 29,080 | | | 55,879 | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| EBITDA | | $ | 361,064 | | | $ | 164,732 | | | $ | 525,796 | | | | | | | |
| Additions to property, plant, and equipment | | $ | 377,044 | | | $ | 8,920 | | | $ | 385,964 | | | | | | | |
| Equity investment in investee | | $ | 9,072 | | | $ | — | | | $ | 9,072 | | | | | | | |
| Goodwill | | $ | 1,490,797 | | | $ | — | | | $ | 1,490,797 | | | | | | | |
| Total segment assets | | $ | 6,256,944 | | | $ | 1,029,812 | | | $ | 7,286,756 | | | | | | | |
(1) Includes $12.4 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(9.2) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | FOR THE YEAR ENDED DEC. 31, 2020 | |
| (THOUSANDS) | | | | | TOTAL SEGMENTS | | OTHER | | ELIMINATIONS | | TOTAL | |
| Revenue | | | | | | | | | | | | |
| Electric operations | | | | | $ | 1,380,573 | | | $ | (9,680) | | | $ | — | | | $ | 1,370,893 | | |
| Other operations | | | | | 186,984 | | | 3 | | | (6,463) | | | 180,524 | | |
| Affiliate revenue | | | | | 5,360 | | | 129,126 | | | (134,486) | | | — | | |
| Electric customer credits | | | | | (53,272) | | | — | | | 1 | | | (53,271) | | |
| Operating revenue, net | | | | | $ | 1,519,645 | | | $ | 119,449 | | | $ | (140,948) | | | $ | 1,498,146 | | |
| Depreciation and amortization | | | | | $ | 214,170 | | | $ | 18,059 | | (1) | $ | — | | | $ | 232,229 | | |
| Interest income | | | | | $ | 3,635 | | | $ | 412 | | | $ | (99) | | | $ | 3,948 | | |
| Interest charges | | | | | $ | 73,235 | | | $ | 64,728 | | | $ | (99) | | | $ | 137,864 | | |
| Federal and state income tax expense (benefit) | | | | | $ | 55,879 | | | $ | (20,160) | | | $ | (1) | | | $ | 35,718 | | |
| Net income (loss) | | | | | $ | 186,147 | | | $ | (63,848) | | | $ | 1 | | | $ | 122,300 | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Additions to property, plant, and equipment | | | | | $ | 385,964 | | | $ | 3,051 | | | $ | — | | | $ | 389,015 | | |
| Equity investment in investee | | | | | $ | 9,072 | | | $ | — | | | $ | — | | | $ | 9,072 | | |
| Goodwill | | | | | $ | 1,490,797 | | | $ | — | | | $ | — | | | $ | 1,490,797 | | |
| Total segment assets | | | | | $ | 7,286,756 | | | $ | 595,217 | | | $ | (156,404) | | | $ | 7,725,569 | | |
(1) Includes $9.7 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger. | | |
| | FOR THE YEARS ENDED DEC. 31, |
| FOR THE YEARS ENDED DEC. 31, | |
| FOR THE YEARS ENDED DEC. 31, | |
| FOR THE YEARS ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | | 2020 | (THOUSANDS) | 2023 | | 2022 | | | | | | 2021 |
| Net income | Net income | $ | 188,811 | | | $ | 194,966 | | | | $ | 122,300 | |
| Less: income (loss) from discontinued operations, net of income taxes | |
| Income from continuing operations, net of income taxes | |
| Add: Depreciation and amortization | Add: Depreciation and amortization | 270,976 | | | 251,431 | | |
| 232,229 | |
| Less: Interest income | Less: Interest income | 6,372 | | | 3,312 | | | | 3,948 | |
| Add: Interest charges | Add: Interest charges | 151,158 | | | 134,336 | | | | 137,864 | |
| Add: Federal and state income tax expense | 917 | | | 13,111 | | | | 35,718 | |
Add (less): Other corporate costs and noncash items (1) | 1,390 | | | (7,362) | | | | 1,633 | |
| Add: Federal and state income tax (benefit) expense | |
Add (less): Other corporate costs and noncash items (1) (2) | |
| | Total segment EBITDA | Total segment EBITDA | $ | 606,880 | | | $ | 583,170 | | | | $ | 525,796 | |
(1) Adjustments made for Other and Elimination totals not allocated to total segment EBITDA. | | | |
| | Total segment EBITDA | |
| | Total segment EBITDA | |
(1) Adjustments made for Other and Eliminations totals not allocated to Total segment EBITDA. (2) Includes (loss) gain on Cleco Cajun’s natural gas derivatives of $(116.8) million, $180.5 million, and $134.1 million, respectively, for the years ended December 31, 2023, 2022, and 2021. | | (1) Adjustments made for Other and Eliminations totals not allocated to Total segment EBITDA. (2) Includes (loss) gain on Cleco Cajun’s natural gas derivatives of $(116.8) million, $180.5 million, and $134.1 million, respectively, for the years ended December 31, 2023, 2022, and 2021. |
Cleco Power
Cleco Power is a vertically integrated, regulated electric utility operating within Louisiana, and Mississippi and is viewed as one unit by management. Discrete financial reports are prepared only at the company level.
| | | | | | | | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | |
Note 1314 — Regulation and Rates |
Regulatory RefundsDeferred Operations and Maintenance Costs
Provision for rate refundCleco Power defers operations and maintenance costs that it believes are prudently incurred and probable of recovery from its retail customers. These costs are recorded in Other deferred charges on Cleco’s and Cleco Power’s Consolidated Balance Sheets consisted primarilySheets. As part of the following:filed application for Cleco Power’s current rate case, Cleco Power is seeking approval from the LPSC to recover these costs through its new rates, which are anticipated to be effective on July 1, 2024. At December 31, 2023, and 2022, Cleco Power had $9.9 million and $5.3 million, respectively, recorded for these costs.
| | | | | | | | |
| | AT DEC. 31, |
| (THOUSANDS) | 2022 | 2021 |
| Cleco Katrina/Rita storm recovery charges | $ | — | | $ | 1,611 | |
| FRP | $ | — | | $ | 1,229 | |
| Site-specific industrial customer | $ | 903 | | $ | 833 | |
| | |
| TCJA | $ | 2,057 | | $ | 2,057 | |
| | |
| | |
Cleco Katrina/Rita Storm Recovery Charges
Prior to the repayment of the Cleco Katrina/Rita storm recovery bonds in March 2020, Cleco Katrina/Rita had the right to billEffective July 1, 2021, and collect storm restoration costs from Cleco Power’s customers to pay administrative fees, interest, and principal on the Cleco Katrina/Rita storm recovery bonds. In April 2021, after payments for all final administrative and winding up activities of Cleco Katrina/Rita were made, Cleco Katrina/Rita transferred its remaining restricted cash to Cleco Power. In September 2022, $1.6 million was refunded to retail customers in the form of bill credits as approved by the LPSC, on July 27, 2022.
FRP
Prior to July 1, 2021, Cleco Power’s annual retail earnings were subject to an FRP established by the LPSC in June 2014. The 2014 FRP allowed Cleco Power to earn a target ROE of 10.0%, while providing the opportunity to earn up to 10.9%. Additionally, 60% of retail earnings between 10.9% and 11.75%, and all retail earnings over 11.75% were required to be refunded to customers. On June 16, 2021, the LPSC approved Cleco Power’s new FRP. Effective July 1, 2021, under the terms of the newcurrent FRP, Cleco Power is allowed to earn a target ROE of 9.5%, while providing the opportunity to earn up to 10.0%. Additionally, 60.0% of retail earnings between 10.0% and 10.5% and all retail earnings over 10.5%, are required to
be refunded to customers. The amount of credits due to customers, if any, is determined by Cleco Power and the LPSC annually. On June 30, 2023, Cleco Power’s next base rate case is required to bePower filed an application with the LPSC through the rate case process for a new FRP, with anticipated new rates being effective July 1, 2024. Cleco Power has responded to multiple sets of LPSC data requests. On February 5, 2024, and February 9, 2024, the intervenors and LPSC Staff filed direct testimony, respectively. Cleco Power anticipates filing rebuttal testimony on or before March 31, 2023.April 3, 2024, in accordance with the revised procedural schedule.
On October 31, 2022, aIn September 2023, the LPSC approved Cleco Power’s monitoring report was filed for the 12 months ending June 30, 2022, indicating no refund was due. The LPSC staff is currently reviewing the report andIn October 2023, Cleco Power has responded to data requests.filed its monitoring report for the 12 months ending June 30, 2023, with the LPSC, indicating no refund was due. On January 31, 2024, Cleco Power anticipatesreceived the LPSC Staff’s draft report indicating no refund and no material findings. Due to the nature of the regulatory process, management is not able to determine the timing of the approval of this report in the third quarter of 2023.report.
Cleco Power continued to accrue the annual cost of service savings resulting from the 2016 Merger Commitments through June 30, 2021. Beginning July 1, 2021, the annual cost of service savings are included in Cleco Power’s current retail rate plan. Cleco Power had $1.2 million accrued for the period of July 1, 2019, through June 30, 2020, which was refunded to customers in September 2022.
Regulatory Disallowance
St. Mary Clean Energy Center
In August 2019, the St. Mary Clean Energy Center was placed in service. The planning and construction costs for this facility
are currently being recovered through Cleco Power’s base rates and were subject to a prudency review by the LPSC. On September 21, 2022, the LPSC approved a settlement disallowing recovery of $15.0 million of thosethe planning and construction costs whichassociated with the St. Mary Clean Energy Center. This disallowance resulted in a $13.8 million
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
impairment charge and a reduction of the associated property, plant, and equipment net book value. The approvedimpairment charge was recorded in Regulatory disallowance on Cleco’s and Cleco Power’s Consolidated Statements of Income. The settlement also included refunding $10.4 millionresulted in a refund to Cleco Power’s retail customers totaling $10.4 million, which was given back to customers as bill credits in October 2022. The $10.4 million refund consisted of $6.6 million for costs recovered in periods prior to September 30, 2022, and $3.8 million for costs recovered from October 1, 2022, until Cleco Power’s base rates reset, which is expected to be on July 1, 2024, in its next FRP. The refund of costs recovered prior to September 30, 2022, was recorded in Electric customer credits, with the remainder recorded as a regulatory asset on Cleco’s and Cleco Power’s Consolidated Balance Sheets. On October 1, 2022, Cleco Power began amortizing the regulatory asset to Electric customer credits on Cleco’s and Cleco Power’s Consolidated Statements of Income.
Dolet Hills Prudency Review
Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. On February 2, 2024, the Administrative Law Judge released a final recommendation indicating a partial disallowance of the recovery of fuel costs and a refund of related costs previously recovered from customers. Cleco Power believes and continues to assert that the related costs were prudently incurred and should be recoverable. However, management has estimated that a loss resulting from a potential disallowance is probable. The estimated range of potential loss is between $58.7 million and $228.0 million. As a result, Cleco Power accrued an estimated contingent loss of $58.7 million at December 31, 2023. This amount was recorded in Provision for rate refund on Cleco’s and Cleco Power’s Balance Sheets and Electric customer credits on Cleco’s and Cleco Power’s Statements of Income. Cleco Power is seeking a settlement to resolve this matter and move forward with the securitization process. Due to the nature of the regulatory process, the outcome and timing of the resolution of this matter is uncertain. For more information about the settlement and disallowance,Dolet Hills prudency review, seeNote 1516 — “Litigation,“Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits and Reviews — Dolet Hills Prudency Reviews — St. Mary Clean Energy Center.Review.”
TCJA
The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. In July 2019, the LPSC approved Cleco Power’s rate refund of $79.2 million, plus interest, for the reduction in the statutory federal tax rate for the period from January 2018 to June 2020. The refund was credited to customers over 12 months beginning August 1, 2019.
In 2020, the LPSC approved Cleco Power’s extension of the TCJA bill credits at the same rate as determined in the initial TCJA refund of approximately $7.0 million per month. The extension was for the period of August 2020 through June 30, 2021. The $7.0 million monthly refund consisted of approximately $4.4 million, which was to be funded by the unprotected excess ADIT, and approximately $2.6 million, which is the change in the federal statutory corporate income tax rate from 35% to 21%. At December 31, 2022, Cleco Power had $2.1 million accrued for the estimated federal tax-related benefits from the TCJA.
On June 16, 2021, the LPSC approved Cleco Power’s current retail rate plan which includes the settlement of the TCJA protected and unprotected excess ADIT. Effective July 1, 2021, and as approved by the LPSC, all retail customers will continue receiving bill credits resulting from the TCJA. The target retail portion of the unprotected excess ADIT is approximately $2.5 million monthly and will be credited over a period of three years concluding on June 30, 2024. The retail portion of the protected excess ADIT will be credited until the full amount of the protected excess ADIT has been returned to Cleco Power’s customers through bill credits. At December 31, 2022,2023, Cleco Power had $257.4$211.5 million accrued for the excess ADIT, of which $42.9$21.9 million is reflected in current regulatory liabilities.
Teche Unit 3
On September 7, 2021,In July 2022, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3, barring any violations of
specific applicable reliability standards. In December 2021,On January 31, 2023, Cleco Power filed a notice with the LPSC to retire Teche Unit 3 in May 2023. However, in April 2023, Cleco Power filed notices with MISO and the LPSC and MISO to suspenddelay the retirement of Teche Unit 3. As a result, on March 15, 2022, Cleco Power refunded to MISO $4.3 million for capital expenditures paid by third parties while operating Teche Unit 3 as a system support resource unit.
On July 13, 2022,In May 2023, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3, barring any violations of specific applicable reliability standards. On January 31, 2023,30, 2024, Cleco Power filed a notice with the LPSC to retire Teche Unit 3 on May 31, 2023.in June 2024.
| | | | | | | | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | |
Note 1415 — Variable Interest Entities |
Cleco Securitization I
Cleco Securitization I is a special-purpose, wholly owned subsidiary of Cleco Power that was formed for the purpose of issuing storm recovery bonds to finance the securitization of Storm Recovery Property at Cleco Power. On June 22, 2022, the securitized financing was complete. Cleco Securitization I’s assets cannot be used to settle Cleco Power’s obligations and the holders of the storm recovery bonds have no recourse against Cleco Power. For more information about the securitization financing, see Note 19 — “Securitization.”
Because Cleco Securitization I’s equity at risk is less than 1% of its total assets, it is considered to be a variable interest entity. Through its equity ownership interest and role as servicer, Cleco Power has the power to direct the most significant financial and operating activities of Cleco Securitization I, including billing, collections, and remittance of retail customer cash receipts to enable Cleco Securitization I to pay the principal and interest payments on the storm recovery bonds. Cleco Power also has the obligation to absorb losses up to its equity investment and rights to receive returns from Cleco Securitization I. Therefore, management has determined that Cleco Power is the primary beneficiary of Cleco Securitization I, and as a result, Cleco Securitization I is included in the consolidated financial statements of Cleco Power. No gain or loss was recognized upon initial consolidation.
The following table summarizes the impact of Cleco Securitization I on Cleco’s and Cleco Power’s Consolidated Balance Sheets:
| | | | | |
(THOUSANDS) | AT DEC. 31, 2022 |
Restricted cash - current | $ | 14,139 | |
Accounts receivable - affiliate | 3,348 | |
| |
Intangible asset - securitization | 413,123 | |
Total assets | $ | 430,610 | |
Long-term debt due within one year | $ | 9,574 | |
Accounts payable - affiliate | 165 | |
Interest accrued | 9,953 | |
Long-term debt, net | 408,741 | |
Member’s equity | 2,177 | |
Total liabilities and member’s equity | $ | 430,610 | |
| | | | | | | | | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Restricted cash - current | $ | 15,818 | | | $ | 14,139 | |
| Accounts receivable - affiliate | 3,492 | | | 3,348 | |
| | | |
| Intangible asset - securitization | 398,658 | | | 413,123 | |
| Total assets | $ | 417,968 | | | $ | 430,610 | |
| Long-term debt due within one year | 14,499 | | | 9,574 | |
| Accounts payable - affiliate | 176 | | | 165 | |
| Interest accrued | 6,191 | | | 9,953 | |
| Long-term debt, net | 394,944 | | | 408,741 | |
| Total liabilities | 415,810 | | | 428,433 | |
| Member’s equity | 2,158 | | | 2,177 | |
| Total liabilities and member’s equity | $ | 417,968 | | | $ | 430,610 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The following table summarizes the impact of Cleco Securitization I on Cleco’s and Cleco Power’s Consolidated Statements of Income:
| | | | | |
(THOUSANDS) | FOR THE
YEAR ENDED
DEC. 31, 2022 |
Operating revenue | $ | 13,181 | |
Operating expenses | (2,992) | |
Interest income | 63 | |
Interest charges, net | (10,200) | |
Income before taxes | $ | 52 | |
| | | | | | | | | | | |
| FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| Operating revenue | $ | 33,913 | | | $ | 13,181 | |
| Operating expenses | (14,884) | | | (2,992) | |
| Interest income | 537 | | | 63 | |
| Interest charges, net | (19,467) | | | (10,200) | |
| Income before taxes | $ | 99 | | | $ | 52 | |
Oxbow
Cleco and Cleco Power apply the equity method of accounting to report the investment in Oxbow in the consolidated financial statements. Under the equity method, the assets and liabilities of this entity are reported as Equity investment in investee on
Cleco’s and Cleco Power’s Consolidated Balance Sheets. The revenue and expenses (excluding income taxes) of this entity are netted and reported as equity income or loss from investees on Cleco’s and Cleco Power’s Consolidated Statements of Income.
Oxbow is owned 50% by Cleco Power and 50% by SWEPCO. Cleco Power is not the primary beneficiary because it shares the power to control Oxbow’s significant activities with SWEPCO. Cleco Power’s current assessment of its maximum exposure to loss related to Oxbow at December 31, 2022,2023, consisted of its equity investment of $2.1approximately $2.0 million.
The following table presents the components of Cleco Power’s equity investment in Oxbow:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| INCEPTION TO DATE (THOUSANDS) | INCEPTION TO DATE (THOUSANDS) | 2022 | | 2021 | INCEPTION TO DATE (THOUSANDS) | 2023 | | 2022 |
| Purchase price | Purchase price | $ | 12,873 | | | $ | 12,873 | |
| Cash contributions | Cash contributions | 6,399 | | | 6,399 | |
| Distributions | Distributions | (17,200) | | | (17,200) | |
| Total equity investment in investee | Total equity investment in investee | $ | 2,072 | | | $ | 2,072 | |
The following table compares the carrying amount of Oxbow’s assets and liabilities with Cleco Power’s maximum exposure to loss related to its investment in Oxbow:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Oxbow’s net assets/liabilities | Oxbow’s net assets/liabilities | $ | 4,145 | | | $ | 4,145 | |
Cleco Power’s 50% equity | Cleco Power’s 50% equity | $ | 2,072 | | | $ | 2,072 | |
| Cleco Power’s maximum exposure to loss | Cleco Power’s maximum exposure to loss | $ | 2,072 | | | $ | 2,072 | |
The following tables contain summarized financial information for Oxbow:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Current assets | Current assets | $ | 6,187 | | | $ | 6,979 | |
| Property, plant, and equipment, net | Property, plant, and equipment, net | 3,798 | | | 3,798 | |
| | Total assets | Total assets | $ | 9,985 | | | $ | 10,777 | |
| Total assets | |
| Total assets | |
| Current liabilities | Current liabilities | $ | 395 | | | $ | 393 | |
| Other liabilities | Other liabilities | 5,445 | | | 6,239 | |
| Partners’ capital | Partners’ capital | 4,145 | | | 4,145 | |
| Total liabilities and partners’ capital | Total liabilities and partners’ capital | $ | 9,985 | | | $ | 10,777 | |
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Operating revenue | $ | 332 | | | $ | 5,155 | | | $ | 34,827 | |
| Operating expenses | (332) | | | (5,155) | | | (34,827) | |
| Income before taxes | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating revenue | $ | 327 | | | $ | 332 | | | $ | 5,155 | |
| Operating expenses | (424) | | | (332) | | | (5,155) | |
| Interest income | 97 | | | — | | | — | |
| | | | | |
| Income before taxes | $ | — | | | $ | — | | | $ | — | |
Prior to June 30, 2020, DHLC mined lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves were intended to be used to provide fuel to the Dolet Hills Power Station. Under the Amended Lignite Mining Agreement, DHLC billed Cleco Power its proportionate share of incurred lignite extraction and associated mining-related costs. Oxbow billed Cleco Power its proportionate share of incurred costs related to mineral rights and land leases. On October 6, 2020, Cleco Power and SWEPCO made a joint filing with the LPSC seeking authorization to close the Oxbow mine. At December 31, 2021, the Dolet Hills Power Station was
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retired, and all Cleco Power’s proportionate share of lignite-related costs had been billed by DHLC and Oxbow. For more information on DHLC and the Oxbow mine, see Note 15 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”
Oxbow has no third-party agreements, guarantees, or other third-party commitments that contain obligations affecting Cleco Power’s investment in Oxbow.
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Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees |
Litigation
2016 Merger
In connection with the 2016 Merger, four actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and three actions were filed in the Civil District Court for Orleans Parish, Louisiana. The petitions in each action generally alleged, among other things, that the members of Cleco Corporation’s Board of Directors breached their fiduciary duties by, among other things, conducting an allegedly inadequate sale process, agreeing to the 2016 Merger at a price that allegedly undervalued Cleco, and failing to disclose material information about the 2016 Merger. The petitions also alleged that Como 1, Cleco Corporation, Merger Sub, and, in some cases, certain of the investors in Como 1 either aided and abetted or entered into a civil conspiracy to advance those supposed breaches of duty. The petitions sought various remedies, including monetary damages, which includes attorneys’ fees and expenses.
The four actions filed in the Ninth Judicial District Court for Rapides Parish are captioned as follows:
•Braunstein v. Cleco Corporation, No. 251,383B (filed October 27, 2014),
•Moore v. Macquarie Infrastructure and Real Assets, No. 251,417C (filed October 30, 2014),
•Trahan v. Williamson, No. 251,456C (filed November 5, 2014), and
•L’Herisson v. Macquarie Infrastructure and Real Assets, No. 251,515F (filed November 14, 2014).
In November 2014, the plaintiff in the Braunstein action moved for a dismissal of the action without prejudice, and that motion was granted in November 2014. In December 2014, the court consolidated the remaining three actions and appointed interim co-lead counsel, and dismissed the investors in Cleco Partners as defendants, per agreement of the parties. Also in December 2014, the plaintiffs in the consolidated action filed a Consolidated Amended Verified Derivative and Class Action Petition for Damages and Preliminary and Permanent Injunction.
The three actions filed in the Civil District Court for Orleans Parish were captioned as follows:
•Butler v. Cleco Corporation, No. 2014-10776 (filed November 7, 2014),
•Creative Life Services, Inc. v. Cleco Corporation, No. 2014-11098 (filed November 19, 2014), and
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•Cashen v. Cleco Corporation, No. 2014-11236 (filed November 21, 2014).
In December 2014, the directors and Cleco filed declinatory exceptions in each action on the basis that each action was improperly brought in Orleans Parish and should either be transferred to the Ninth Judicial District Court for Rapides Parish or dismissed. Also, in December 2014, the plaintiffs in each action jointly filed a motion to consolidate the three actions pending in Orleans Parish and to appoint interim co-lead plaintiffs and co-lead counsel. In January 2015, the Court in the Creative Life Services case sustained the defendants’ declinatory exceptions and dismissed the case so that it could be transferred to the Ninth Judicial District Court for Rapides Parish. In February 2015, the plaintiffs in Butler and Cashen also consented to the dismissal of their cases from Orleans Parish so they could be transferred to the Ninth Judicial District Court for Rapides Parish. By operation of the December 2014 order of the Ninth Judicial District Court for Rapides Parish, the Butler, Cashen, and Creative Life Services actions were consolidated into the actions pending in Rapides Parish.
In February 2015, the Ninth Judicial District Court for Rapides Parish held a hearing on a motion for preliminary injunction filed by plaintiffs in the consolidated action seeking to enjoin the shareholder vote for approval of the Merger Agreement. The District Court heard and denied the plaintiffs’ motion. In June 2015, the plaintiffs filed their Second Consolidated Amended Verified Derivative and Class Action Petition. Cleco filed exceptions seeking dismissal of the second amended petition in July 2015. The LPSC voted to approve the 2016 Merger before the court could consider the plaintiffs’ peremptory exceptions.
In March 2016 and May 2016, the plaintiffs filed their Third Consolidated Amended Verified Derivative Petition for Damages and Preliminary and Permanent Injunction and their Fourth Verified Consolidated Amended Class Action Petition, respectively. The fourth amended petition, which remains the operative petition and was filed after the 2016 Merger closed, eliminated the request for preliminary and permanent injunction and also named an additional executive officer as a defendant. The defendants filed exceptions seeking dismissal of the fourth amended Petition. In September 2016, the District Court granted the exceptions of no cause of action and no right of action and dismissed all claims asserted by the former shareholders. The plaintiffs appealed the District Court’s ruling to the Louisiana Third Circuit Court of Appeal. In December 2017, the Third Circuit Court of Appeal issued an order reversing and remanding the case to the District Court for further proceedings. In January 2018, Cleco filed a writ with the Louisiana Supreme Court seeking review of the Third Circuit Court of Appeal’s decision. The writ was denied in March 2018 and the parties are engaged in discovery in the District Court. In November 2018, Cleco filed renewed exceptions of no cause of action and res judicata, seeking to dismiss all claims. On December 21, 2018, the court dismissed Cleco Partners and Cleco Holdings as defendants per the agreement of the parties, leaving as the only remaining defendants certain former executive officers and independent directors. The District Court denied the defendants’ exceptions on January 14, 2019. A hearing on the plaintiffs’ motion for certification of a class was scheduled for August 26, 2019; however, prior to the hearing, the parties reached an agreement to certify a limited class. On September 7, 2019,
the District Court certified a class limited to shareholders who voted against, abstained from voting, or did not vote on the 2016 Merger. On October 18, 2021, the District Court issued
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an order consistent with a joint motion by the parties to dismiss all claims against the former independent directors leaving two former executives as the only remaining defendants. Cleco believes thatThe two former executives filed motions for summary judgment in June 2023, which the allegationsDistrict Court denied in September 2023. In October 2023, the remaining defendants, which were the two former executives, and plaintiffs entered into a memorandum of understanding for a class action settlement under which all disputes and claims asserted against all original defendants, including the two former executives, would be dismissed with prejudice. On February 2, 2024, the District Court granted the plaintiffs’ motion for final approval of the petitions in eachclass action are without meritsettlement and that it has substantial meritorious defenses toall claims against the claims set forth in each of the petitions.two former executives and all original defendants were dismissed with prejudice.
Gulf Coast Spinning
In September 2015, a potential customer sued Cleco for failure to fully perform an alleged verbal agreement to lend or otherwise fund its startup costs to the extent of $6.5 million. Gulf Coast Spinning Company, LLC (Gulf Coast), the primary plaintiff, alleges that Cleco promised to assist it in raising approximately $60.0 million, which Gulf Coast needed to construct a cotton spinning facility near Bunkie, Louisiana (the Bunkie project). According to the petition filed by Gulf Coast in the 12th Judicial District Court for Avoyelles Parish, Louisiana, Cleco made such promises of funding assistance in order to cultivate a new industrial electric customer which would increase its revenues under a power supply agreement that it executed with Gulf Coast. Gulf Coast seeks unspecified damages arising from its inability to raise sufficient funds to complete the project, including lost profits.
Cleco filed an Exception of No Cause of Action arguing that the case should be dismissed. The 12th Judicial District Court denied Cleco’s exception in December 2015, after considering briefs and arguments. In January 2016, Cleco appealed the 12th Judicial District Court’s denial of its exception by filing with the Third Circuit Court of Appeal. In June 2016, the Third Circuit Court of Appeal denied the request to have the case dismissed. In July 2016, Cleco filed a writ to the Louisiana Supreme Court seeking a review of the 12th Judicial District Court’s denial of Cleco’s exception. In November 2016, the Louisiana Supreme Court denied Cleco’s writ application.
In February 2016, the parties agreed to a stay of all proceedings pending discussions concerning settlement. In May 2016, the 12th Judicial District Court lifted the stay at the request of Gulf Coast. The parties are currently participating in discovery.
Diversified Lands loaned $2.0 million to Gulf Coast for the Bunkie project. The loan was secured by a mortgage on the Bunkie project site. Diversified Lands foreclosed on the Bunkie property in February 2020 and has also asserted claims personally against the former owner of Gulf Coast. These claims are based on contracts and credit documents executed by Gulf Coast, the obligations and performance of which were personally guaranteed by the former owner of Gulf Coast. Diversified Lands is seeking recovery of the indebtedness still owed by Gulf Coast to Diversified Lands following the February 2020 foreclosure, which action has been consolidated with the litigation filed by Gulf Coast in the 12th Judicial District Court for
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Avoyelles Parish, Louisiana. Discovery is ongoing and nothe trial date has been set.set for October 2024.
Cleco believes theall allegations of the petitionmade by Gulf Coast are contradicted by the written documents executed by Gulf Coast, are otherwise without merit, and that it has substantial meritorious defenses to the claims alleged by Gulf Coast.
Dispute with Saulsbury Industries
In October 2018, Cleco Power sued Saulsbury Industries, Inc., the former general contractor for the St. Mary Clean Energy Center project, seeking damages for Saulsbury Industries, Inc.’s failure to complete the St. Mary Clean Energy Center project on time and for costs incurred by Cleco Power in hiring
a replacement general contractor. The action was filed in the Ninth Judicial District Court for Rapides Parish, Saulsbury Industries, Inc. removed the case to the U.S. District Court for the Western District of Louisiana, on March 1, 2019. On September 14, 2020, Cabot Corporation was allowed to join the case pending in the Ninth Judicial District Court for Rapides Parish.
In January 2019, Cleco Power was served with a summons in Saulsbury Industries, Inc. v. Cabot Corporation and Cleco Power LLC, in the U.S. District Court for the Western District of Louisiana. Saulsbury Industries, Inc. alleged that Cleco Power and Cabot Corporation caused delays in the St. Mary Clean Energy Center project, resulting in alleged impacts to Saulsbury Industries, Inc.’s direct and indirect costs. On June 5, 2019, Cleco Power and Cabot Corporation each filed separate motions to dismiss. On October 24, 2019, the District Court denied Cleco’sCleco Power’s motion as premature and ruled that Saulsbury Industries, Inc. had six weeks to conduct discovery on specified jurisdictional issues. The Magistrate Judge presiding over the Western District of Louisiana consolidated cases issued a report and recommendation to the District Judge that the case instituted by Saulsbury Industries, Inc. be dismissed without prejudice and the case initiated by Cleco Power be remanded to the Ninth Judicial District Court for Rapides Parish. Saulsbury Industries Inc. did not oppose the Magistrate Judge’s report and recommendation, and the District Judge issued a ruling that adopted the Magistrate Judge’s report and recommendation, which included reasoning consistent with Cleco Power’s arguments. Thus, the federal consolidated cases are now closed.
On October 10, 2019, Cleco Power was served with a summons in Saulsbury Industries, Inc. v. Cabot Corporation and Cleco Power LLC in the 16th Judicial District Court for St. Mary Parish. Saulsbury Industries, Inc. asserted the same claim as the Western District Litigationlitigation and further asserts claims for payment on an open account. On December 9, 2019, Cleco Power moved to stay the case, arguing that the Rapides Parish suit should proceed. On February 14, 2020, the court granted Cleco’sCleco Power’s motion. The 16th Judicial District Court for the St. Mary Parish case held a hearing on October 16, 2020, and the judge granted Cleco’sCleco Power’s declinatory exceptions of lis pendens. Thus, the St. Mary’s Parish case has been dismissed. Saulsbury appealed this decision.
On May 17, 2022, the Court of Appeal, First Circuit, ruled in favor of Cleco Power and affirmed the decision of the 16th Judicial District Court for St. Mary Parish with respect to Cleco.Cleco Power. However, the First Circuit Court reversed the 16th Judicial District Court for St. Mary Parish’s decision dismissing Cabot Corporation from the St. Mary Parish case. All parties
filed applications for rehearing, which were denied on June 29, 2022.
Cabot Corporation applied for review by the Louisiana Supreme Court of the portion of the First Circuit Court's ruling that denied Cabot Corporation’s exception seeking dismissal from the St. Mary Parish litigation. On November 1, 2022, the Louisiana Supreme Court rendered a decision in favor of Cabot Corporation. The Louisiana Supreme Court’s decision reversed the First Circuit Court’s decision and reinstated the decision of the 16th Judicial District Court granting Cabot Corporation’s declinatory exceptions of lis pendens. The St. Mary Parish case has been dismissed in full.
The stay was lifted in the Rapides Parish case and the Rapides Parish case is proceeding. The parties are currently participating in discovery.
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LPSC Audits and Reviews
Fuel Audits
Generally, Cleco Power’s cost of fuel used for electric generation and the cost of purchased power are recovered through the LPSC-established FAC that enables Cleco Power to pass on to its customers substantially all such charges.expenses. Recovery of FAC costs is subject to periodic fuel audits by the LPSC, which are performed at least every other year.
In March 2020,January 2023, Cleco Power received a notice of audit from the LPSC for the period of January 20182020 to December 2019.2022. The total amount of fuel expense included in the audit was $565.8 million. On February 16, 2023, theis $1.10 billion. Cleco Power has responded to multiple sets of LPSC approved the audit report indicating no material findings.data requests. Cleco Power has FAC filings for January 20202023 and thereafter that remain subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of fuel cost is ordered resulting in a refund, any such refund could have a material adverse effect on the results of operations, financial condition or cash flows of the Registrants.
OnIn March 29, 2021, Cleco Power received approval from the LPSC to recover $50.0 million of incremental fuel and purchased power costs incurred as a result of Winter Storms Uri and Viola over a period of 12 months beginning with the May 2021 bills. OnIn May 11, 2021, Cleco Power received notice of an audit from the LPSC for the fuel costs incurred during the time period required to restore services to Cleco Power’s customers during Winter Storms Uri and Viola. Cleco Power has responded to several data requests. Management is unable to determineOn November 20, 2023, the outcome or timing ofLPSC approved the audit.audit report, which indicated no material findings.
Environmental Audit
In 2009, the LPSC approved Cleco Power to recover from its customers certain costs of environmental compliance through an EAC. The costs eligible for recovery are those for prudently incurred air emissions credits associated with complying with federal, state, and local air emission regulations that apply to the generation of electricity reduced by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. In April 2023, Cleco Power received a notice of audit from the LPSC for the period of January 2020 to December 2022. The total amount of environmental fuel expense included in the audit was $38.3 million. On January 24, 2024, the LPSC approved the
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audit report, which indicated no material findings. Cleco Power has EAC filings for January 20202023 and thereafter that remain subject to audit. Management is unable to predict or give a reasonable estimate of the possible range of the disallowance, if any, related to these filings. Historically, the disallowances have not been material. If a disallowance of environmental cost is ordered resulting in a refund to Cleco Power’s customers, any such refund could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.
Cleco Power incurs environmental compliance expenses for reagents associated with the compliance standards of MATS. These expenses are also eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC. In May 2020, the EPA finalized a rule that concluded that it is not appropriate and necessary to regulate hazardous air pollutants from coal- and oil-fired electric generating units. However, the EPA concluded that coal- and oil-fired electric generating units would not be removed from the list of regulated sources of hazardous air pollutants and would remain subject to MATS. The EPA also determined that the
results of its risk and technology review did not require any revisions to the emissions standards. Several petitions for review of the rule’s findings were filed between May and July 2020 in the D.C. Circuit Court of Appeals. On January 20, 2021, the Presidential Administration issued an executive order, which directs federal agency heads to review regulations and other actions over the past four years to determine if they are inconsistent with the policies announced in the executive order. The order specifically directed the EPA to consider issuing a proposed rule to suspend, revise, or rescind the rule. The EPA determined the most environmentally protective course is to implement the rules in the executive order. On February 9, 2022,March 6, 2023, the EPA published in the Federal Register a proposedfinal rule to revokethat reinstates the agency’s May 2020April 25, 2016, finding with respect to whetherthat it is appropriate and necessary to regulate hazardous air pollutants from coal and oil-fired electric generating units under MATS, butthrough MATS. On April 24, 2023, the EPA has not yet acted on apublished in the Federal Register proposed amendments to MATS that are the result of the EPA’s review of the May 2020 residual risk and technology determination from the May 2020 rule.review of MATS. Management is unable to determine whether the outcome of the D.C. Circuit Court of Appeals’ review or the EPA’s review of the rule as a result of the executive order will result in changes to the MATS standards.
Energy Efficiency Audit
In 2013, the LPSC issued a General Order adopting rules promoting energy efficiency programs. Cleco Power began participating in energy efficiency programs in November 2014. Through an approved rate tariff, Cleco Power recovered $8.5 million and $6.8 million for the 2022 and 2021 program years, respectively.
On June 9, 2021,In September 2023, Cleco Power received a notice of audit from the LPSC initiated an audit onfor the program years 20192021 and 2020 to consider all program costs.2022. On September 14, 2022,February 20, 2024, Cleco Power received the draft audit report from the LPSC approved the audit report indicatingStaff, which indicated no material findings. Program years 2021 and thereafter are subject to audit. Management is unable to predict or give a reasonable estimateCleco Power anticipates LPSC approval of the outcomereport in the second quarter of this or any future audits.2024.
Generally utility companies areOn January 24, 2024, the LPSC voted to shift control of energy efficiency programs from utilities to an independent, third-party administrator selected by and accountable to the LPSC. This action will remove the provision whereby utilities were allowed to recover from customers the accumulated decrease inany lost revenues associated with the energy efficiency programs. On October 21, 2019,
unsold electricity. Cleco Power received notice of approval fromis subject to audits for program years 2023 and thereafter until the LPSC allowing recovery oftime these programs are shifted to the accumulated LCFC revenues when base rates reset,third-party administrator, which took place on July 1, 2021.is expected in January 2026.
Dolet Hills Prudency Reviews
Deferred Lignite and Mine Closure CostsReview
Cleco Power is seeking recovery for stranded and decommissioning costs associated with the retirement of the Dolet Hills Power Station as well as deferred fuel and other mine-related closure costs. Recovery of these costs is subject to a prudency review by the LPSC, which is currently in progress. Cleco Power believes these costs are prudentwere prudently incurred and should be recoverable. However, initialInitial testimony by the LPSC Staff advisorsand intervenors filed in August 2022 indicatesindicated disagreement with the prudencyrecoverability of these incurred costs.costs, quantifying up to $228.0 million of related costs as potentially unrecoverable. Cleco Power filed rebuttal testimony onin September 23, 2022 rebutting the LPSC Staff’s accusationstestimony, and subsequently, a hearing was held in May 2023. On November 28, 2023, the Administrative Law Judge (ALJ) for the hearing released a proposal recommending a partial disallowance of the lignite mining agreement not being approved byrecovery of fuel costs. On December 27, 2023, Cleco, the LPSC Staff, and intervenors filed exception testimony to the prudencyALJ’s proposed recommendation. The LPSC Staff’s and intervenors’ exception testimony continued to indicate their initial recommendation should be followed. On February 2, 2024, the ALJ released a final recommendation indicating a partial disallowance of the recovery of fuel costs incurred, and the recoverabilitya refund of such costs. A hearing date is scheduled in May 2023 and management expects the prudency review to be completed in the third quarter of 2023. Due to the nature and timing of the regulatory process,related costs previously recovered from customers. Cleco Power is currently unable to determine if any portion of the incurred costs will be disallowed for recovery but continues to assert that recoverythe related costs were prudently incurred. However, management has estimated that a loss resulting from a potential disallowance is probable. The estimated range of those costspotential loss is probable.
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St. Mary Clean Energy Center
In August 2019, the St. Mary Clean Energy Center was placed in service. The St. Mary Clean Energy Center isbetween $58.7 million and $228.0 million. As a partnership with Cabot Corporation, wherebyresult, Cleco Power generates power through waste heat recovered from Cabot Corporation’s carbon black manufacturing process. The planning and construction costs incurred for this facility are currently being recovered through Cleco Power’s base rates and were subject to a prudency review by the LPSC. On September 21, 2022, the LPSC approved a settlement disallowing recoveryaccrued an estimated contingent loss of $15.0$58.7 million which resulted in a $13.8 million impairment charge and a reduction of the associated property, plant, and equipment net book value. The impairment charge isat December 31, 2023. This amount was recorded in Regulatory disallowanceProvision for rate refund on Cleco’s and Cleco Power’s Consolidated Statements of Income. The settlement also resulted in a refund to Cleco Power’s retail customers totaling $10.4 million, which was given back to customers as bill credits in October 2022. The $10.4 million refund consisted of $6.6 million for costs recovered in periods prior to September 30, 2022,Balance Sheets and $3.8 million for costs to be recovered from October 1, 2022, until Cleco Power’s base rates reset in its next rate case, which is expected to be on July 1, 2024. The refund of costs recovered prior to September 30, 2022, was recorded in Electric customer credits, with the remainder recorded as a regulatory asset on Cleco’s and Cleco Power’s Consolidated Balance Sheets. On October 1, 2022, Cleco Power began amortizing the regulatory asset to Electric customer credits on Cleco’s and Cleco Power’s Consolidated Statements of Income. Cleco Power is seeking a settlement to resolve this matter and move forward with the securitization process. Due to the nature of the regulatory process, the outcome and timing of resolution of this matter is uncertain.
South Central Generating
Prior to the Cleco Cajun Transaction,Acquisition, South Central Generating was involved in various litigation matters, including environmental and contract proceedings, before various courts regarding matters arising out of the ordinary course of business. As of December 31, 2022, management estimatesManagement is unable to estimate any potential losses to be $1.5 million with respect to oneregarding matters arising out of these matters.the ordinary course of business. Management is unable to estimate any potential losses Cleco Cajun may be ultimately responsible for with respect to any of the remaining matters. As part of the Cleco Cajun Transaction,Acquisition, NRG Energy indemnified Cleco for losses as of the closing date associated with some matters that existed as of the closing date, including pending litigation.
Other
Cleco is involved in various litigation matters, including regulatory, environmental, and administrative proceedings before various courts, regulatory commissions, arbitrators, and governmental agencies regarding matters arising in the ordinary course of business. The liability Cleco may ultimately incur with respect to any one of these matters may be in
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excess of amounts currently accrued. Management regularly analyzes current information and, as of December 31, 2022,2023, believes the probable and reasonably estimable liabilities based on the eventual disposition of these matters are $6.9$6.7 million and has accrued this amount.
Off-Balance Sheet Commitments and Guarantees
Cleco Holdings and Cleco Power have entered into various off-balance sheet commitments in the form of guarantees and standby letters of credit, in order to facilitate their activities and the activities of Cleco Holdings’ subsidiaries and equity investees (affiliates). Cleco Holdings and Cleco Power have also agreed to contractual terms that require the Registrants to
pay third parties if certain triggering events occur. These contractual terms generally are defined as guarantees.
Cleco Holdings entered into these off-balance sheet commitments in order to entice desired counterparties to contract with its affiliates by providing some measure of credit assurance to the counterparty in the event Cleco’s affiliates do not fulfill certain contractual obligations. If Cleco Holdings had not provided the off-balance sheet commitments, the desired counterparties may not have contracted with Cleco’s affiliates or may have contracted with them at terms less favorable to its affiliates.
The off-balance sheet commitments are not recognized on Cleco’s and Cleco Power’s Consolidated Balance Sheets because management has determined that Cleco’s and Cleco Power’s affiliates are able to perform the obligations under their contracts and that it is not probable that payments by Cleco or Cleco Power will be required.
Cleco Holdings provided guarantees and indemnities to Entergy Louisiana and Entergy Gulf States as a result of the sale of the Perryville generation facility in 2005. The remaining indemnificationsindemnities relate to environmental matters that may have been present prior to closing. These remaining indemnificationsindemnities have no time limitations. The maximum amount of the potential payment to Entergy Louisiana and Entergy Gulf States is $42.4 million. Management does not expect to be required to pay Entergy Louisiana and Entergy Gulf States under these guarantees.
On behalf of Acadia, Cleco Holdings provided guarantees and indemnificationsindemnities as a result of the sales of Acadia Unit 1 to Cleco Power and Acadia Unit 2 to Entergy Louisiana in 2010 and 2011, respectively. The remaining indemnificationsindemnities relate to the fundamental organizational structure of Acadia. These remaining indemnificationsindemnities have no time limitations or maximum potential future payments. Management does not expect to be required to pay Cleco Power or Entergy Louisiana under these guarantees.
Cleco Holdings provided indemnificationsindemnities to Cleco Power as a result of the transfer of Coughlin to Cleco Power in March 2014. Cleco Power also provided indemnificationsindemnities to Cleco Holdings as a result of the transfer of Coughlin to Cleco Power. The maximum amount of the potential payment to Cleco Power and Cleco Holdings for their respective indemnificationsindemnities is $40.0 million, except for indemnificationsindemnities relating to the fundamental organizational structure of each respective entity, of which the maximum amount is $400.0 million. Management does not expect to be required to make any payments under these indemnifications.indemnities.
As part of the Amended Lignite Mining Agreement, Cleco Power and SWEPCO, joint owners of the Dolet Hills Power Station, have agreed to pay the loan and lease principal obligations of the lignite miner, DHLC, when due if DHLC does
not have sufficient funds or credit to pay. Any amounts projected to be paid would be based on the forecasted loan and lease obligations to be incurred by DHLC, primarily for reclamation obligations. As of December 31, 2022,2023, Cleco Power does not expect any payments to be made under this guarantee. Cleco Power has the right to dispute the incurrence of such loan and lease obligations through the review of the mining reclamation plan before the incurrence of such obligations. The Amended Lignite Mining Agreement does not affect the amount the Registrants can borrow under their credit facilities.
In April 2020, Cleco Power and SWEPCO mutually agreed not to develop additional mining areas for future lignite extraction and subsequently provided notice to the LPSC of
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the intent to cease mining at the Dolet Hills and Oxbow mines by June 2020. The mine closures are subject to LPSC review and approval. As of June 30, 2020, all lignite reserves intended to be extracted from the mines had been extracted. On October 6, 2020, Cleco Power and SWEPCO made a joint filing with the LPSC seeking authorization to close the Oxbow mine and to include and defer certain accelerated mine closing costs in fuel and related ratemaking treatment. For more information on the joint filing, see “— Risks and Uncertainties.” For more information on the LPSC prudency review associated with the mine closure costs, see “— LPSC Audits and Reviews — Dolet Hills Prudency Reviews — Deferred Lignite and Mine Closure Costs.Review.”
Cleco has letters of credit to MISO pursuant to energy market requirements. The letters of credit automatically renew each year and have no impact on Cleco Holdings’ or Cleco Power’s revolving credit facility.
Generally, neither Cleco Holdings nor Cleco Power has recourse that would enable them to recover amounts paid under their guarantee or indemnification obligations. There are no assets held as collateral for third parties that either Cleco Holdings or Cleco Power could obtain and liquidate to recover amounts paid pursuant to the guarantees or indemnification obligations.
Long-Term Purchase Obligations
Cleco Holdings had no unconditional long-term purchase obligations at December 31, 2022.2023. Cleco Power and Cleco Cajun havehas several unconditional long-term purchase obligations primarily related to the purchase of fuel, energy delivery facilities, information technology outsourcing, natural gas storage, network monitoring, and software maintenance. The aggregate amount of payments required under such obligations at December 31, 2022,2023, is as follows:
| | (THOUSANDS) | (THOUSANDS) | CLECO POWER | | CLECO | (THOUSANDS) | CLECO POWER | | CLECO |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 75,692 | | | $ | 83,067 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | 56,627 | | | 61,960 | |
| 2025 | 2025 | 23,317 | | | 25,074 | |
| 2026 | 2026 | 5,430 | | | 6,095 | |
| 2027 | 2027 | 5,365 | | | 5,816 | |
| 2028 | |
| Thereafter | Thereafter | 1,200 | | | 1,872 | |
| Total long-term purchase obligations | Total long-term purchase obligations | $ | 167,631 | | | $ | 183,884 | |
Cleco’s payments under these agreements for the years ended December 31, 2023, 2022, and 2021 and 2020 were $83.8$79.2 million, $59.9$52.9 million, and $92.5$52.0 million, respectively. Cleco Power’s payments under these agreements for the years ended December 31, 2023, 2022, and 2021 and 2020 were $70.5 million, $49.0 million, and $43.3 million, and $24.8 million, respectively.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Other Commitments
Cleco has accrued for liabilities related to third parties, employee medical benefits, and AROs.
In April 2015, the EPA published a final rule in the Federal Register for regulating the disposal and management of CCRs from coal-fired power plants (CCR Rule). The CCR Rule established extensive requirements for existing and new CCR landfills and surface impoundments and all lateral expansions consisting of location restrictions, design and operating criteria, groundwater monitoring and corrective action, closure requirements and post closure care, and recordkeeping,
notification, and internet posting requirements. In August 2018, the D.C. Court of Appeals vacated several requirements in the CCR regulation, which included eliminating the previous acceptability of compacted clay material as a liner for impoundments. As a result, in August 2020, the EPA published a final rule in the Federal Register that would set deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impoundments. In November 2020, Clecodemonstrations were submitted demonstrations to the EPA specifying its intended course of action for the ash disposal facilities at Big Cajun II, Rodemacher Unit 2, and the Dolet Hills Power Station and Big Cajun II in order to comply with the final CCR Rule. During 2021, additional information was submitted to the LDEQ to revise and update Cleco Power’s compliance strategy. During the third quarter of 2021, management received additional information in connection with Cleco Power’s and Cleco Cajun’s compliance strategies resulting in a revision to the estimated cash flows expected to be required to settle the respective AROs. Therefore, Cleco Power and Cleco Cajun recorded an increase of $11.3 million and $35.4 million, respectively, in their ARO balances. On January 11, 2022, Cleco Power and Cleco Cajun received communication from the EPA that the demonstrations had been deemed complete. However,Cleco Power withdrew the Dolet Hills demonstration due to the cessation of receiving waste. The two remaining demonstrations are still subject to EPA approval based on pending technical reviews.review.
At December 31, 2022, Cleco Power andIn March 2023, Cleco Cajun recorded adjustments to their respective AROsa decrease of $19.5 million in its ARO balance due to revised cost estimates. Therefore,Cleco Cajun’s ARO is recorded in Liabilities held for sale on Cleco’s Consolidated Balance Sheet. In December 2023, Cleco Power recorded an increase of $1.5 million and Cleco Cajun recorded an increase of $10.6$4.7 million in their respectiveits ARO balances.
The following table summarizes the net changes in the ARO for Cleco and Cleco Power:
| | | | | | | | | | | |
| (THOUSANDS) | CLECO CAJUN | CLECO POWER | CLECO |
| Balance, Dec. 31, 2020 | $ | 16,658 | | $ | 11,364 | | $ | 28,022 | |
| Liabilities settled | (1,433) | | — | | (1,433) | |
| Accretion | 723 | | 354 | | 1,077 | |
| Revisions and adjustments | 35,402 | | 11,271 | | 46,673 | |
| Balance, Dec. 31, 2021 | $ | 51,350 | | $ | 22,989 | | $ | 74,339 | |
| Liabilities settled | (135) | | (4,728) | | (4,863) | |
| Accretion | 1,992 | | 613 | | 2,605 | |
| Revisions and adjustments | 10,646 | | 1,526 | | 12,172 | |
| Balance, Dec. 31, 2022 | $ | 63,853 | | $ | 20,400 | | $ | 84,253 | |
As part of the Cleco Cajun Transaction,Acquisition, NRG Energy agreed to indemnify Cleco for certain environmental costs up to $25.0 million associated with the CCR Rule.Rule, for both ARO and non-ARO related expenses. At December 31, 2022,2023, Cleco Cajun had an indemnification asset totaling $22.8 million. The current portion of the indemnification$18.3 million, which was substantially related to AROs associated with ash pond remediation. This asset of $5.5 million is reflectedrecorded in Other current assets and the non-current portion of $17.3 million is reflected in Other deferred chargesAssets held for sale on Cleco’s Consolidated Balance Sheet. As additional periodic expenses related to covered costs are incurred, the associated indemnification asset will be recognized. The indemnification asset is expected to be collected as closureindemnified costs, either recognized in the ARO or as periodic expenses, are incurred.
Risks and Uncertainties
Cleco could be subject to possible adverse consequences if Cleco’s counterparties fail to perform their obligations or if Cleco or its affiliates are not in compliance with loan agreements or bond indentures.
Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows.
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Changes in the regulatory environment or market forces could cause Cleco to determine its assets have suffered an other-than-temporary decline in value, whereby an impairment would be required and Cleco’s financial condition could be materially adversely affected.
At December 31, 2022, Cleco Power had $147.1 million deferred as a regulatory asset for stranded costs related to the Dolet Hills Power Station retirement and $133.6 million deferred as a regulatory asset for accelerated fuel and mine-related closure costs. On January 31, 2022, Cleco Power filed an application with the LPSC requesting recovery of these costs as well as decommissioning costs associated with the Dolet Hills Power Station retirement. These costs are under a prudency review by the LPSC, which is expected to be complete in the third quarter of 2023. Pending the outcome of the prudency review, Cleco Power intends to include the final costs in its filing for securitization. For more information on this prudency review, see “— Litigation — LPSC Audits and Reviews — Prudency Reviews — Deferred Lignite and Mine Closure Costs.”
| | | | | | | | | | | | | | |
Note 1617 — Affiliate Transactions |
Cleco
Cleco has entered into service agreements with affiliates to receive and to provide goods and professional services. Goods and services received by Cleco primarily involve
services provided by Support Group. Support Group provides joint and common administrative support services in the areas of information technology; finance, cash management, accounting, tax, and auditing; human resources; public relations; project consulting; risk management; strategic and corporate development; legal, ethics, and regulatory compliance; facilities management; supply chain and inventory management; and other administrative services.
Cleco Power’s affiliates are charged the higher of management’s estimated fair market value or fully loaded costs for goods and services provided by Cleco Power. Cleco, with the exception of Support Group, charges Cleco Power the lower of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements. Support Group bills fully loaded costs to affiliates, which includes payroll and non-payroll costs.
All charges and revenues from consolidated affiliates were eliminated in Cleco’s Consolidated Statements of Income for the years ending December 31, 2023, 2022, 2021, and 2020.2021.
At December 31, 2023, and 2022, Cleco Holdings had an affiliate receivable of $24.2 million and $14.6 million, respectively, from Cleco Group primarily for estimated income taxes paid on behalf of Cleco Group. At December 31, 2021, Cleco Holdings had an affiliate receivable of $3.0 million from Cleco Group primarily for franchise taxes paid on behalf of Cleco Group. At December 31,2023, and 2022, and 2021, Cleco Holdings had an affiliate payable of $13.1$10.7 million and $51.3$13.1 million, respectively to Cleco Group primarily for settlement of taxes payable.
For the yearyears ended December 31, 2023, and 2022, Cleco Holdings made $53.5 million and $219.6 million, respectively, of distribution payments to Cleco Group. During 2021, and 2020, Cleco Holdings made no distribution payments to Cleco Group. For the years ended December 31, 2023, 2022, and 2021, Cleco Holdings received no equity contributions from Cleco Group.
Cleco Power
Cleco Power has entered into service agreements with affiliates to receive and to provide goods and professional
services. Charges from affiliates included in Cleco Power’s Consolidated Statements of Income primarily involve services provided by Support Group in accordance with service agreements. Support Group provides joint and common administrative support services in the areas of information technology; finance, cash management, accounting, tax, and auditing; human resources; public relations; project consulting; risk management; strategic and corporate development; legal, ethics, and regulatory compliance; facilities management; supply chain and inventory management; and other administrative services.
With the exception of Support Group, affiliates charge Cleco Power the lower of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements. Support Group charges only fully loaded costs.costs, which are based on management’s estimated fair market value. The following table is a summary of charges from each affiliate included in Cleco Power’s Consolidated Statements of Income:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Support Group | Support Group | | | | | | Support Group | | | |
| Other operations and maintenance | Other operations and maintenance | $ | 87,830 | | | $ | 91,915 | | | $ | 94,798 | |
| Taxes other than income taxes | Taxes other than income taxes | $ | (41) | | | $ | 40 | | | $ | — | |
| Other expense | Other expense | $ | 60 | | | $ | 35 | | | $ | 43 | |
|
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
The majority of the services provided by Cleco Power relates to the lease of office space to Support Group and transmission services to Cleco Cajun. Cleco Power charges affiliates the higher of management’s estimated fair market value or fully loaded costs for goods and services provided in accordance with service agreements.
The following table is a summary of revenue received from affiliates included in Cleco Power’s Consolidated Statements of Income:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Other operations revenue | Other operations revenue | |
| Cleco Cajun | Cleco Cajun | $ | 10,213 | | | $ | 7,616 | | | $ | 6,463 | |
| Cleco Cajun | |
| Cleco Cajun | |
| Affiliate revenue | Affiliate revenue | |
| Support Group | Support Group | 5,475 | | | 4,783 | | | 4,715 | |
| Support Group | |
| Support Group | |
| Cleco Cajun | Cleco Cajun | 902 | | | 858 | | | 441 | |
| Other income | |
| | | Total | Total | $ | 16,590 | | | $ | 13,257 | | | $ | 11,619 | |
| | Total | |
| | Total | |
Cleco Power had the following affiliate receivable and payable balances associated with the service agreements:
| | AT DEC. 31, |
| AT DEC. 31, | | | AT DEC. 31, |
| | | 2022 | | 2021 | | 2023 | | 2022 |
| (THOUSANDS) | (THOUSANDS) | ACCOUNTS RECEIVABLE | | ACCOUNTS PAYABLE | | ACCOUNTS RECEIVABLE | | ACCOUNTS PAYABLE | (THOUSANDS) | ACCOUNTS RECEIVABLE | | ACCOUNTS PAYABLE | | ACCOUNTS RECEIVABLE | | ACCOUNTS PAYABLE |
| Cleco Holdings | Cleco Holdings | $ | 5 | | | $ | 1,138 | | | $ | 10,347 | | | $ | 59,627 | |
| Support Group | Support Group | 2,299 | | | 11,305 | | | 2,473 | | | 10,038 | |
| Cleco Cajun | Cleco Cajun | 1,467 | | | 5 | | | 792 | | | 64 | |
| | Total | Total | $ | 3,771 | | | $ | 12,448 | | | $ | 13,612 | | | $ | 69,729 | |
| Total | |
| Total | |
Oxbow billed Cleco Power its proportionate share of incurred costs related to mineral rightsDuring 2023 and land leases. These costs are included in fuel inventory and are recoverable from
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Cleco Power customers through the LPSC-established FAC or related wholesale contract provisions. For the year ended December 31, 2022, Cleco Power did not have any incurred costs. For the year ended December 31, 2021, Cleco Power recorded $2.7 million, of its proportionate share of incurred costs.
During 2022, Cleco Power made $94.8 million and $105.5 million, respectively, of distribution payments to Cleco Holdings. During 2021, and 2020, Cleco Power made no distribution payments to Cleco Holdings. Cleco Power received no equity contributionscontribution from Cleco Holdings in 2023, 2022 2021, and 2020.2021.
| | | | | | | | | | | | | | |
Note 1718 — Intangible Assets Intangible Liabilities, and Goodwill |
Securitized Intangible
Cleco Securitization
On June 22, 2022, Cleco Securitization I acquired the Storm Recovery Property from Cleco Power for a purchase price of $415.9 million. The Storm Recovery Property is classified as a securitized intangible asset on Cleco’s and Cleco Power’s Consolidated Balance Sheets. This securitized intangible asset is being amortized overratably each period consistent with actual collections of the estimated periods neededasset's portion of revenue requirement billed to collect the required amounts from Cleco Power’s customers to service Cleco Securitization I’s storm recovery bonds, currently estimated through September 2044.customers. Amortization is included in Depreciation and amortization on Cleco’s and Cleco Power’s Consolidated Statements of Income. During the yearyears ended December 31, 2023, and 2022, amortization expense of $14.5 million and $2.8 million, respectively, was recognized. Cleco expects to recognize an estimated $75.4 million of amortization expense over the five years ending December 31, 2028. At the end of its life, this securitized intangible asset will have no residual value.
The following table summarizes the balance of the securitized intangible asset subject to amortization included on Cleco’s and Cleco Power’s Consolidated Balance Sheets:
| | | | | | | |
(THOUSANDS) | AT DEC. 31, 2022 | | |
Storm Recovery Property intangible asset | $ | 415,946 | | | |
Accumulated amortization | (2,823) | | | |
Net intangible asset subject to amortization | $ | 413,123 | | | |
| | | | | | | | | | | | | |
| | | AT DEC. 31, | | |
| (THOUSANDS) | 2023 | | 2022 | | |
| Storm Recovery Property intangible asset | $ | 415,946 | | | $ | 415,946 | | | |
| Accumulated amortization | (17,288) | | | (2,823) | | | |
| Net intangible asset subject to amortization | $ | 398,658 | | | $ | 413,123 | | | |
For additional information on Cleco Power’s storm costs and the securitization financing, see Note 5 — “Regulatory Assets and Liabilities,” Note 9 — “Debt,” and Note 19 — “Securitization.”
Cleco Katrina/Rita
During 2008, Cleco Katrina/Rita acquired a $177.5 million intangible asset which included $176.0 million for the right to bill and collect storm recovery charges from customers of Cleco Power and $1.5 million of financing costs. This intangible asset was fully amortized in March 2020 and had no residual value at the end of its life. In 2020, amortization expense of $0.5 million was recognized in Cleco’s and Cleco Power’s Consolidated Statements of Income.
Other Intangibles
As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the valuation of finite intangible assets relating to long-term wholesale power supply agreements. At the end of their lives, these power supply agreement intangible assets will have no residual value. The intangible assets related to the power
supply agreements are amortized over the estimated life of each applicable contract ranging between 78 and 19 years, and the amortization is included in Electric operations on Cleco’s Consolidated Statements of Income.
As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the valuation of a finite intangible asset relating to the Cleco Power trade name. In August 2021, a wholesale customer that is currently under contract with Cleco Power through March 31, 2024, informed Cleco Power that it was not selected through its request for proposal process as a provider of load after the first quarter of 2024. Cleco considered this to be a triggering event and determined that the carrying value of the trade name intangible asset may not be recoverable. Therefore, a valuation of the Cleco Power trade name was conducted to test for impairment. A discounted cash flow model utilizing an estimated weighted average cost of capital of 8% was used to determine the fair value of the Cleco Power trade name. As a result, Cleco determined that the fair value of the Cleco Power trade name was less than its carrying value and an impairment of $3.8 million was recognized reducing the carrying value to zero at September 30, 2021.
As a result of the Cleco Cajun Transaction, fair value adjustments were recorded on Cleco’s Consolidated Balance Sheet for the difference between the contract and market price of acquired long-term wholesale power agreements. At the end of their lives, these intangible assets and liabilities will have no residual value. These intangibles are amortized over the estimated life of each applicable contract ranging between 6 and 8 years. The amortization is included in Electric operations on Cleco’s Consolidated Statements of Income.
As part of the Cleco Cajun Transaction, Cleco assumed an LTSA for maintenance services related to the Cottonwood Plant. This intangible liability is being amortized using the straight-line method over the estimated life of the LTSA of seven years, and is expected to be fully amortized in 2025. The amortization is included as a reduction to the LTSA prepayments on Cleco’s Consolidated Balance Sheet.
The following table presents amortization of other intangible assets and liabilities in Cleco’s Consolidated Statements of Income:
| | Cleco | Cleco | | |
| | |
| | |
| | | FOR THE YEAR ENDED DEC. 31, | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Intangible assets | Intangible assets | |
| | Trade name | Trade name | $ | — | | | $ | 3,897 | | | $ | 255 | |
| | Trade name | |
| | Trade name | |
| Power supply agreements | Power supply agreements | $ | 25,600 | | | $ | 25,600 | | | $ | 25,600 | |
| Intangible liabilities | |
| LTSA | $ | 3,484 | | | $ | 3,484 | | | $ | 3,484 | |
| Power supply agreements | $ | 1,557 | | | $ | 2,378 | | | $ | 3,528 | |
An impairment on the Trade name intangible asset was recognized in 2021. No other impairments for intangibles listed in the table above were recognized in 2022, 2021, or 2020. | | An impairment on the Trade name intangible asset was recognized in 2021. No other impairments for intangibles listed in the table above were recognized in 2023, 2022, or 2021. | | An impairment on the Trade name intangible asset was recognized in 2021. No other impairments for intangibles listed in the table above were recognized in 2023, 2022, or 2021. |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
The following table summarizes the balance of other intangible assets and liabilities subject to amortization included in Cleco’s Consolidated Balance Sheets:
| | | | | | | | | | | |
| Cleco | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 |
| Intangible assets | | | |
| | | |
| Power supply agreements | $ | 184,004 | | | $ | 184,004 | |
| Total intangible assets carrying amount | $ | 184,004 | | | $ | 184,004 | |
| Intangible liabilities | | | |
| LTSA | 24,100 | | | 24,100 | |
| Power supply agreements | 14,200 | | | 14,200 | |
| Total intangible liabilities carrying amount | 38,300 | | | 38,300 | |
| Net intangible assets carrying amount | 145,704 | | | 145,704 | |
| Accumulated amortization | (105,848) | | | (82,466) | |
| Net intangible assets subject to amortization | $ | 39,856 | | | $ | 63,238 | |
| | | | | | | | | | | |
| Cleco | | | |
| AT DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 |
| | | |
| Power supply agreements intangible assets | $ | 85,104 | | | $ | 85,104 | |
| Accumulated amortization | (74,471) | | | (65,018) | |
| Net intangible assets subject to amortization | $ | 10,633 | | | $ | 20,086 | |
The following table summarizes the amortization expense related to other intangible assets and liabilities expected to be recognized in Cleco’s Consolidated Statements of Income:
| | Cleco | |
| (THOUSANDS) | (THOUSANDS) | INTANGIBLE ASSETS | INTANGIBLE LIABILITIES | (THOUSANDS) | INTANGIBLE ASSETS |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 25,373 | | $ | 5,041 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | $ | 18,801 | | $ | 5,041 | |
| 2025 | 2025 | $ | 5,037 | | $ | 3,873 | |
| 2026 | 2026 | $ | 744 | | $ | — | |
| 2027 | 2027 | $ | 744 | | $ | — | |
| 2028 | |
| Thereafter | Thereafter | $ | 3,112 | | $ | — | |
Goodwill
On April 13, 2016, in connection with the completion of the 2016 Merger, Cleco recognized goodwill of $1.49 billion. Management assigned the recognized goodwill to the Cleco Power reporting unit. Goodwill is required to be tested for impairment at the reporting unit level on an annual basis or whenever events or circumstances indicate that the value of goodwill may be impaired.
In performing the impairment test, Cleco compares the fair value of the reporting unit to its carrying value including goodwill. If the carrying value including goodwill were to exceed the fair value of a reporting unit, an impairment loss
would be recognized. A goodwill impairment loss is measured as the amount by which a reporting unit's carrying value exceeds fair value, not to exceed the carrying amount of goodwill.
Cleco estimates the reporting unit's fair value using a weighted combination of the income approach, which estimates fair value based on discounted cash flows, and the market approach, which estimates fair value based on market comparables within the utility and energy industries. The income approach cash flow valuations involve a number of estimates that require broad assumptions and significant judgment by management regarding future performance, including estimation of future cash flows related to capital expenditures, the weighted average cost of capital or discount rate and the assumed long-term growth rate approach, which incorporates management's assumptions regarding sustainable long-term growth. The market approach includes significant assumptions around the implied market multiples for certain peer companies. Management selects comparable peers based on each peer’s primary business mix, operations, and market capitalization compared to the applicable reporting unit and calculates implied market multiples based on available projected earnings guidance and peer company market values as of the test date.
Cleco performs an annual impairment test each August. In between annual tests, Cleco monitors its estimates and assumptions regarding estimated future cash flows, including the impact of movements in market indicators in future quarters, and will update the impairment analyses if a triggering event occurs. While Cleco believes the assumptions are reasonable, actual results may differ from projections. To the extent projected results or cash flows, are revised downward,long-term growth rates, U.S. Treasury rates, or other factors outside of Cleco’s control may impact Cleco’s projected results, Cleco may be required to reduce all or a portion of the carrying value of goodwill, which could adversely impact earnings.goodwill.
Cleco conducted its 20222023 annual impairment test using an August 1, 2022,2023, measurement date and determined that the estimated fair value of the reporting unit exceeded its carrying value, and no impairment existed.
| | | | | | | | | | | | | | |
Note 1819 — Accumulated Other Comprehensive Loss |
The components of accumulated other comprehensive loss are summarized in the following tables for Cleco and Cleco Power. All amounts are reported net of income taxes. Amounts in parentheses indicate debits.
| | | | | | | | |
| CLECO | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | |
| Cleco | | | | | |
| (THOUSANDS) | POSTRETIREMENT BENEFIT NET GAIN (LOSS) | | | | |
Balance, Dec. 31, 20192020 | $ | (17,513)(25,796) | | | | | |
| Other comprehensive income before reclassifications | | | | | |
Postretirement benefit adjustments incurred during the year | (10,026) | | | | | |
Amounts reclassified from accumulated other comprehensive income | | | | | |
Amortization of postretirement benefit net loss | 1,743 | | | | | |
| | | | | |
Balance, Dec. 31, 2020 | $ | (25,796) | | | | | |
Other comprehensive income before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 1,470 | | | | | |
| Amounts reclassified from accumulated other comprehensive income | | | | | |
| Amortization of postretirement benefit net loss | 697 | | | | | |
| | | | | |
| Balance, Dec. 31, 2021 | $ | (23,629) | | | | | |
| Other comprehensive income before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 23,647 | | | | | |
| Amounts reclassified from accumulated other comprehensive income | | | | | |
| Amortization of postretirement benefit net loss | 41 | | | | | |
| | | | | |
| | | | | |
| Balance, Dec. 31, 2022 | $ | 59 | | | | | |
| Other comprehensive income before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | (3,482) | | | | | |
| Amounts reclassified from accumulated other comprehensive income | | | | | |
| Amortization of postretirement benefit net loss | (1,689) | | | | | |
| | | | | |
| | | | | |
| Balance, Dec. 31, 2023 | $ | (5,112) | | | | | |
| | | | | | | | | | | | | | | | | |
| Cleco Power | | | | | |
| (THOUSANDS) | POSTRETIREMENT BENEFIT NET (LOSS) GAIN | | NET (LOSS) GAIN ON CASH FLOW HEDGES | | TOTAL AOCI |
| Balances, Dec. 31, 2019 | $ | (16,717) | | | $ | (5,868) | | | $ | (22,585) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | (4,050) | | | — | | | (4,050) | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 1,628 | | | — | | | 1,628 | |
| Reclassification of net loss to interest charges | — | | | 254 | | | 254 | |
| | | | | |
| Balances, Dec. 31, 2020 | $ | (19,139) | | | $ | (5,614) | | | $ | (24,753) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 4,606 | | | — | | | 4,606 | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 1,648 | | | — | | | 1,648 | |
| Reclassification of net loss to interest charges | — | | | 316 | | | 316 | |
| | | | | |
| Balances, Dec. 31, 2021 | $ | (12,885) | | | $ | (5,298) | | | $ | (18,183) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 8,339 | | | — | | | 8,339 | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 1,228 | | | — | | | 1,228 | |
| Reclassification of net loss to interest charges | — | | | 251 | | | 251 | |
| | | | | |
| | | | | |
| | | | | |
| Balances, Dec. 31, 2022 | $ | (3,318) | | | $ | (5,047) | | | $ | (8,365) | |
In 2020 and 2021, Cleco Power’s distribution and transmission systems sustained damage from four separate hurricanes, Hurricanes Laura, Delta, Zeta, and Ida, and two severe winter storms, Winter Storms Uri and Viola. Cleco Power’s total storm restoration costs related to the hurricanes and winter storms totaled approximately $342.7 million. The damage to equipment from the storms required replacement as well as repair of existing assets. As a result, approximately $211.1 million of the total restoration costs were capitalized on Cleco Power’s balance sheet. Cleco Power had regulatory assets totaling $124.3 million for non-capital expenses related to these storms, as allowed by the LPSC. There was also $7.3 million for storm restoration costs related to wholesale operations and maintenance that was expensed on Cleco’s
and Cleco Power’s Consolidated Income Statements in the period the costs were incurred.
On April 1, 2022, the LPSC issued the financing order authorizing Cleco Power to issue storm recovery bonds in the aggregate principal amount of up to $425.0 million for the securitization of Storm Recovery Property. This included:
•the balance of storm costs of $220.1 million, after adjustments and collections through rates for interim storm recovery, for Hurricanes Laura, Delta, and Zeta and Winter Storms Uri and Viola;
•$95.0 million for a reserve to fund Hurricane Ida storm restoration costs;
•$100.9 million for a reserve to fund future storm restoration costs; and
•$9.0 million for estimated upfront securitization costs and ongoing costs.
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| CLECO POWER | | 20222023 FORM 10-K |
On June 22, 2022, Cleco Power completed a securitized financing of the Storm Recovery Property through Cleco Securitization I. Cleco Securitization I used the net proceeds from its issuance of $425.0 million aggregate principal amount of its senior secured storm recovery bonds to purchase the Storm Recovery Property from Cleco Power, pay for debt issuance costs, and reimburse Cleco Power for upfront securitization costs paid by Cleco Power on behalf of Cleco Securitization I. Cleco Power utilized the proceeds received from Cleco Securitization I to fund reserves for storm restoration costs and redeem its $325.0 million floating rate notes issued in September 2021. For more information about the storm recovery bonds, see Note 9 — “Debt.” For more information about the storm reserves and regulatory assets associated with the storms, see Note 5 — “Regulatory Assets
and Liabilities.” For more information about the cash restricted for the storm reserves, see Note 2 — “Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”
On June 1, 2021, Cleco Power began collecting $16.0 million annually through rates for interim storm recovery costs associated with Hurricanes Laura, Delta, and Zeta. The interim storm rate recovery continued until the new storm recovery surcharge became effective on September 1, 2022.
Cleco Power, in line with other impacted utilities, has sought available funds from the U.S. government for customer relief of costs incurred from the storms. Cleco Power cannot predict the likelihood that any funding from the U.S. government ultimately will be approved.
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| Cleco Power | | | | | |
| (THOUSANDS) | POSTRETIREMENT BENEFIT NET (LOSS) GAIN | | NET (LOSS) GAIN ON CASH FLOW HEDGES | | TOTAL AOCI |
| Balances, Dec. 31, 2020 | $ | (19,139) | | | $ | (5,614) | | | $ | (24,753) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 4,606 | | | — | | | 4,606 | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 1,648 | | | — | | | 1,648 | |
| Reclassification of net loss to interest charges | — | | | 316 | | | 316 | |
| | | | | |
| Balances, Dec. 31, 2021 | $ | (12,885) | | | $ | (5,298) | | | $ | (18,183) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | 8,339 | | | — | | | 8,339 | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 1,228 | | | — | | | 1,228 | |
| Reclassification of net loss to interest charges | — | | | 251 | | | 251 | |
| | | | | |
| Balances, Dec. 31, 2022 | $ | (3,318) | | | $ | (5,047) | | | $ | (8,365) | |
| Other comprehensive loss before reclassifications | | | | | |
| Postretirement benefit adjustments incurred during the year | (2,623) | | | — | | | (2,623) | |
| Amounts reclassified from accumulated other comprehensive loss | | | | | |
| Amortization of postretirement benefit net loss | 386 | | | — | | | 386 | |
| Reclassification of net loss to interest charges | — | | | 251 | | | 251 | |
| | | | | |
| | | | | |
| | | | | |
| Balances, Dec. 31, 2023 | $ | (5,555) | | | $ | (4,796) | | | $ | (10,351) | |
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
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ITEM 9A. CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of Cleco Holdings and Cleco Power (individually, “Registrant” and collectively, the “Registrants”) management, including the CEO and CFO, the Registrants have evaluated the effectiveness of their disclosure controls and procedures as of December 31, 2022.2023. Based on the evaluations, the CEO and CFO have concluded that the Registrants’ disclosure controls and procedures are effective to ensure that information required to be disclosed by each Registrant in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms; and that the Registrants’ disclosure controls and procedures are also effective in ensuring that such information is accumulated and communicated to the Registrants’ management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
Managements’ Reports on Internal Control Over Financial Reporting
The management of the Registrants are responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. The Registrants’ internal control over financial reporting is a process designed by, or under the supervision of, the Registrants’ principal executive and financial officers and effected by the Registrants’ board of managers, management,
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As a result of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness in future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
The management of the Registrants, under the supervision of each of the Registrants’ principal executive officer and principal financial officer, conducted an assessment of the effectiveness of the Registrants’ respective internal control over financial reporting as of December 31, 2022.2023. In making this assessment, management used the criteria in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this assessment, the management of the Registrants concluded that, as of December 31, 2022,2023, the Registrants’ internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
There have been no changes in the Registrants’ internal control over financial reporting that occurred during the quarter ended December 31, 2022,2023, that have materially affected, or are reasonably likely to materially affect, the Registrants’ internal control over financial reporting.
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| CLECO POWER | | 2023 FORM 10-K |
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ITEM 9B. OTHER INFORMATION |
None.During the three months ended December 31, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of Cleco Holdings or Cleco Power adopted or terminated
a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
Not applicable.
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| CLECO POWER | | 20222023 FORM 10-K |
Cleco Power
The information called for by Items 10, 11, 12 and 13 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).
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE OF THE REGISTRANTS |
Boards of Managers of Cleco
As of March 8, 2024, 2023, the Board of Managers of Cleco Holdings is comprised of 13 managers, as set forth below. Cleco Power’s Board of Managers is comprised of 14 managers, including the same 13 managers that comprise the Board of Managers of Cleco Holdings, plus one additional manager, Melissa Stark. The Board of Managers of Cleco Holdings and the Board of Managers of Cleco Power are collectively referred to below as “the Boards.” The managers’ ages, dates of appointment, employment history, and committee assignments as of March 8, 2023,2024, are also set forth below. Each of Ms. Scott and Messrs. Gallot, Gilchrist, and Wainer serve pursuant to one-year agreements which are considered for renewal annually by the Boards. Mr. Fontenot serves by virtue of his position as the CEO, and the other managers are designated for membership by BCI, John Hancock, or MAM.
Dylan Arnouldis a Director at John Hancock/Manulife’s Infrastructure Investment Group where he is responsible for origination, execution, and asset management of investments in various infrastructure sections. He is 35 years old and became a member of the Boards of Managers for Cleco Group and Cleco Corporate Holdings in February 2024. Mr. Arnould is a member of the Audit Committee.
Mr. Arnould joined John Hancock/Manulife in 2018. Prior to joining John Hancock/Manulife, he worked on the development and acquisition of power projects with InterGen, as well as with origination, execution and management of climate technology venture capital investments with the Massachusetts Clean Energy Center.
Mr. Arnould holds a Bachelor of Arts degree from Duke University and a Master of Arts degree in International Economics and International Affairs from the Johns Hopkins University, School of Advanced International Studies.
Andrew Chapman joined Macquarie in 2006 and retired on September 30, 2021. Through his consulting company WesWave LLC, Mr. Chapman is a consultant to MAM and serves on the Boards of Cleco and on the board of the entity that holds Lordstown Energy Center, a gas-fired power plant in eastern Ohio. During his 15 years with Macquarie, Mr. Chapman has served as a director of utility companies owned in part by MAM’s funds, including Puget Sound Energy, Duquesne Light Company, Aquarion Water Company, Cleco, and entities related to those holdings. Mr. Chapman is 6768 years old and became a member of the Boards in 2016. He is the Chair of the Business Planning and Budget Review Committee, Chair of the Leadership Development and Compensation Committee, and a member of the Asset Management Committee, the Governance and Public Affairs Committee and the Audit Committee.
Mr. Chapman held executive positions with Elizabethtown Water Company, E-town Corporation, American Water Works and the State of New Jersey prior to joining Macquarie in 2006.
Mr. Chapman earned his Master of Business Administration from the Yale School of Management.
William “Bill” Fontenot has served as the President and CEO of Cleco Holdings r since January 2018 and CEO of Cleco Power and Cleco Cajun since February 2019. Mr. Fontenot is 6061 years old and was appointed to the Boards in 2018. He is a member of the Asset Management Committee, the Business Planning and Budget Review Committee, and the Governance and Public Affairs Committee. Mr. Fontenot has previously served as Interim CEO of Cleco Power from February 2017 to December 2017, Chief Operating Officer of Cleco Power from April 2016 to February 2017, and Senior Vice President of Utility Operations from March 2012 to April 2016.
Mr. Fontenot serves on the boards of the Council for a Better Louisiana, the Association of Edison Illuminating
Companies, the Southeastern Electric Exchange,Louisiana Central , and the Louisiana State University at Alexandria Foundation.
Mr. Fontenot holds a Bachelor of Science degree in electrical engineering from Louisiana State University.
Paraskevas “Paris” Fronimos is a Director on the Infrastructure and Renewable Resource Investments team of BCI. He is 4849 years old and became a member of the Boards in 2019. Mr. Fronimos is the Chair of the Asset Management Committee and a member of the Business Planning and Budget Review Committee.
Mr. Fronimos joined BCI in 2017 and works with the management teams of portfolio companies primarily in the energy, midstream, and utility sectors in the Americas.BCI’s global portfolio. Mr. Fronimos currentlytypically serves as a Non-Executive Director on the boards of NTS, a BrazilianBCI’s portfolio companies, including natural gas pipeline,pipelines in Brazil and in Germany and a Director of Isagen, a Colombian power producer, and Director of Brookfield Brazil Motorways Holdings SRL, a toll road holdingdistrict energy company in Barbados. Mr. Fronimos served as a Director of Tribus Services Inc, a U.S. utility services company, from 2018the United Arab Emirates. Prior to 2020. Prior tojoining BCI, Mr. Fronimos was employed by Nova Scotia Power, a Canadian power utility, as a fuels portfolio manager. He has more than 15 years of experience in the energy and utilities space, having worked on environmental and energy policy, developing greenfield energy projects, advising on transactions, and driving fleet and fuel supply optimization activities, including commodity pricing and hedging.
Mr. Fronimos holds a bachelor’s degree in Mineral Resources Engineering from the Technical University of Crete and a Master’s in Business Administration (specializing in Natural Resources and Energy) from the University of Alberta. He is an Energy Risk Professional (ERP®) certified by the Global Association of Risk Professionals.
Richard “Rick” Gallot, Jr. is the President of Grambling State University.the University of Louisiana System. He is 5657 years old and became a member of the Boards in 2016. Mr. Gallot is a member of the
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| CLECO POWER | | 2023 FORM 10-K |
Leadership Development and Compensation Committee and the Governance and Public Affairs Committee.
Mr. Gallot served as the President of Grambling State University from 2016 to 2023. He serves on the board of Origin Bancorp, Inc. (Nasdaq: OBNK) and was recently appointed to the Louisiana Cybersecurity Commission by former Louisiana Governor John Bel Edwards. He recentlypreviously served as a Louisiana state senator for District 29, where he held the position of vice chairman of the Commerce Committee and was a member of the Agriculture, Forestry, Aquaculture, and Rural Development Committee and the Revenue and Fiscal Affairs Committee. He previously served as a member of the Louisiana House of Representatives for District 11, where he served as Chair of the House and Governmental Affairs Committee and was a member of the Executive Committee.
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Mr. Gallot obtained his Juris Doctorate from Southern University School of Law and has been a licensed Louisiana attorney since 1990.
David Randall “Randy” Gilchrist is the President and CEO of Gilchrist Construction Company (GCC), a central Louisiana-based infrastructure contractor specializing in road and bridge construction. He is 6364 years old and became a member of the Boards in 2016. Mr. Gilchrist is a member of the Asset Management Committee and the Audit Committee.
Under Mr. Gilchrist’s leadership, GCC has grown since 1985 from a small site work contractor to one of Louisiana’s leading highway contractors. Mr. Gilchrist has served as President of Associated General Contractors, Chair of Driving Louisiana Forward, Chair of the Central Louisiana Chamber of Commerce, and vice chairman of Central Louisiana Economic Development Alliance. He has also served on the boards of the Rapides Foundation and Rapides Healthcare System.
Gerald “Jerry” Hanrahan is a Senior Industry Advisor to the Power and Infrastructure Team at John Hancock. The Power and Infrastructure Team is responsible for transactions in public utility, independent power project and infrastructure financing areas for John Hancock and manages a portfolio of over $21.00 billion in assets spanning over 300 individual investments. Mr. Hanrahan is 62 years old and became a member of the Boards in 2018. He is a member of the Asset Management Committee.
Mr. Hanrahan joined John Hancock as a director in 2001, served as managing director from 2003 to 2011, and served as Team Leader - Vice President from 2011 until 2016. He has worked in the financing area of the power industry since 1990. Before joining John Hancock, Mr. Hanrahan worked for four years in the Boston and London offices of InterGen, where he coordinated all financing activities on $2.70 billion in power projects in Turkey, Colombia and Egypt. Before that, he spent nine years in the structured finance and financial advisory divisions of Bank of Tokyo Capital Corporation in Boston.
Mr. Hanrahan holds a Master of Business Administration from Babson College and a Bachelor of Science degree from Northeastern University.
Domingo Solís-Hernández is a Managing Director at MAM where he oversees origination of new assets and works with management teams of portfolio companies in the infrastructure sector. He is 4445 years old and became a member of the Boards in February 2022. Mr. Solís-Hernández is a member of the Asset Management Committee and the Business Planning and Budget Review Committee.
Mr. Solís-Hernández has over 18 years of experience in the infrastructure sector. Since 2012, he has worked for the Macquarie Group in Europe and the U.S. Prior to Macquarie, he worked as a merger & acquisition investment banker and started his career working as a consultant engineer.
Mr. Solís-Hernández previously served as a director of Italian companies Hydro Dolomiti Energia, a hydro operator, and Societa Gasdotti Italia, a natural gas transmission operator. He also served as a director of Renvico, a renewables operator in France and Italy.
Mr. Solís-Hernández holds a Bachelor’s degree and a Master’s degree in Industrial Engineering from the University of Malaga and a Master of Business Administration from the University of Kentucky.
Christopher Leslie is Executive Chairman of Macquarie InfrastructureAsset Management Real Assets Americas. Prior to taking that role in July 2016, Mr. Leslie was the CEO of Macquarie Infrastructure Partners, I, II, and III, which collectively managesmanaged more than $7.00$7 billion in U.S. and Canadian infrastructure investments. Mr. Leslie is 5859 years old and became a member of the Boards in 2016. He is a member of the Leadership Development and Compensation Committee. Mr. Leslie has been or is a director of a number of MAM
portfolio companies in the energy, transportation, and communications sectors.
Mr. Leslie joined Macquarie in 1992 in Australia. He has been instrumental in expanding Macquarie’s infrastructure business globally, having launched Macquarie offices in Southeast Asia, India, and North America.
Mr. Leslie holds a Bachelor of Commerce degree from the University of Melbourne.
Jon Perry is a Director within the Infrastructure & Renewable Resources Department at BCI, where he is responsible for sourcing, executing and managing infrastructure investments. He is 4647 years old and became a member of the Boards in 2018. Mr. Perry is the Chair of the Audit Committee.
Mr. Perry has over 15 years of experience in the utility and energy sectors. Prior to working with BCI, he held positions as Manager, Mergers and Acquisitions at TransAlta, a leading Canadian independent power producer and Manager, Regulatory and Financial Reporting at FortisAlberta, a regulated distribution utility. Before then, Mr. Perry held financial and investor relations positions in Canadian junior and mid-cap oil and gas companies.
Mr. Perry holds a Bachelor of Medical Laboratory Sciences from the University of British Columbia. He is also a Chartered Accountant in the Province of Alberta and is a Chartered Financial Analyst charter holder.
Aaron Rubin is a Managing Director at MAM, where he is responsible for MAM’s North American power and utilities investment team. He is 4546 years old and became a member of the Boards in 2018. Mr. Rubin is a member of the Business Planning and Budget Review Committee.
Since joining Macquarie in 2008, Mr. Rubin has had extensive responsibility for investment origination and execution as well as for management of portfolio investments. He has also served as the CEO of the Moscow-based Macquarie Russia & CIS Infrastructure Fund, and has been or is a director of a number of Macquarie portfolio companies in the energy, transportation, and communications sectors. Mr. Rubin is currently a director of the holding companies of Lordstown Energy Center, a 940-MW gas-fired power plant in Ohio, Puget Energy, an electric and natural gas utility in Washington State, and Cyrq Energy, a leading U.S. geothermal power company. Prior to joining Macquarie, Mr. Rubin was a Vice President on JPMorgan’s North American mergers and acquisitions team.
Mr. Rubin holds a Bachelor of Commerce and a Bachelor of Laws degree from the University of Queensland.
Peggy Scott currently serves as the Chair of the Boards. In addition, she serves on Cleco’s Audit Committee and Governance and Public Affairs Committee. She served as Chairperson and Interim CEO of Cleco Holdings from February 9, 2017, through December 31, 2017. She is 7172 years old and became a member of the Boards in 2016.
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Ms. Scott serves on the boards of The Eastern Company (Nasdaq: EML), Martin Sustainable Resources LLC, and the Blue Cross Foundation of Louisiana. She previously served on the boards of Benefytt Technologies, Inc. (BFYT) until its 2020 acquisition, and Gresham Smith Partners until June 2022, as well as on the boards of various corporate and community organizations.
Presently, Ms. Scott is an adviser to growing companies in diverse industries. Previously, she served as the Executive
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| CLECO POWER | | 2023 FORM 10-K |
Vice President, Chief Operating Officer, and CFO of Blue Cross Blue Shield of Louisiana (BCBS) and as Chief Strategy Officer. Prior to BCBS, Ms. Scott was an office Managing Partner with Deloitte and held senior executive positions in U.S. and International companies in seven countries where she led transformational growth and change.
Ms. Scott was named one of the ten Outstanding Young Women of America, featured in the Wall Street Journal as National Financial Executive of the year, and inducted into the American Institute of CPAs’ Hall of Fame. She is in the Louisiana State University’s Alumni Hall of Distinction, named a Tulane Outstanding Alumnus, and holds a Presidential citation.
Ms. Scott holds a Master of Business Administration from Tulane University and a Bachelor of Science degree in accounting from Louisiana State University. She is a CPA and certified in Valuations and Forensics and as a Professional Corporate Director.
Melissa Stark currently serves as the managing principal and owner of Co Issuer Corporate Staffing, LLC, which she established in 2003 to provide independent directors and officers for special purpose entities. She is 6061 years old and was appointed in 2016 as a special independent manager of Cleco Power, whosewith the sole purpose is to vote on any bankruptcy-related matters, as specified in Cleco Power’s Second Amended and Restated Operating Agreement.
Ms. Stark serves as a director of a number of companies in the financial sector. From 2001 to 2017, Ms. Stark concurrently served as a principal and co-founder of Water Tower Capital, LLC, a Chicago based investment advisory firm. From 1994 to 1996 she was Vice President - Fixed Income Research at Duff & Phelps (now known as Fitch) where she covered high yield bonds in the retail industry. She served as Vice President - Special Investments at PPM America, Inc. from 1991 to 1994.
Ms. Stark holds a Master of Business Administration in Finance from New York University Stern School of Business.
Steven Turner is a Managing Director within the Infrastructure & Renewable Resources Department at BCI, where he is
responsible for sourcing, executing, and managing infrastructure investments. He is 5051 years old and became a member of the Boards in 2016. Mr. Turner is the Chair of the Governance and Public Affairs Committee and a member of the Business Planning and Budget Review Committee and the Leadership Development and Compensation Committee.
Mr. Turner serves on the board of Corix Infrastructure Inc., a privately held waste/wastewater and utility holding company based in Vancouver, British Columbia. He is also a past director of Macquarie Utilities Inc. and Aquarion Water Company (Aquarion), the parent companies to a suite of New England-based water utilities.
Mr. Turner has over 15 years of experience in institutional investing. Prior to joining BCI, he held positions as an Associate with Ventures West Management, a leading Canadian venture capital firm and as an Associate Equity Analyst with Raymond James Ltd., a full-service brokerage firm.
Mr. Turner has a Bachelor of Science degree in Environmental Engineering from Montana Tech of the University of Montana and holds a Master of Business Administration from the University of Victoria. He is also a registered Professional Engineer in the Province of British Columbia, a Chartered Financial Analyst charter holder and holds the ICD.D designation.
Bruce Wainer is the CEO of Wainer Enterprises, a family-owned commercial development company on Louisiana’s Northshore and in New Orleans. He is 6364 years old and became a member of the Boards in 2016. Mr. Wainer is a member of the Business Planning and Budget Review Committee and the Governance and Public Affairs Committee. He
Mr. Wainer is the developer of some of the most successful commercial developments in the New Orleans area and a past chairman of the Northshore Business Council. His business affiliations include partner at Wainer Brothers, All State Financial Company and Circle West Trailer Park Company; president of Quality Properties, Inc., Regent Lands, Inc., Flowers, Inc., Upside Down Cajun Brands, Inc., Louisiana Properties, Inc., Tamco, Inc., Riverhill, Inc., Metro Credit Services, Inc. and Pan American Investors, Inc., and manager of Advance Mortgage Company, LLC.
Executive Officers of Cleco
The names of the executive officers of Cleco and certain subsidiaries, their positions held, five-year employment history, and ages as of March 8, 2023,2024, are as follows. Executive officers are appointed annually to serve for the ensuing year or until their successors have been appointed.
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| NAME OF EXECUTIVE | POSITION AND FIVE-YEAR EMPLOYMENT HISTORY |
William G. Fontenot Cleco Holdings
Cleco Power
Cleco Cajun
|
President and CEO since January 2018.
CEO since February 2019; President and CEO from January 2018 to February 2019.
CEO since February 2019.
(Age 60) 61) |
Kristin L. Guillory Cleco Holdings Cleco Power
Cleco Cajun
|
|
CFO since July 2021; Treasurer from February 2018 to September 2019; General Manager Finance and Assistant Treasurer from May 2016 to February 2018.
2019.
CFO since July 2021; President from September 2019 to July 2021.
(Age 40) |
41)
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NAME OF EXECUTIVE | POSITION AND FIVE-YEAR EMPLOYMENT HISTORY |
Robert R. LaBorde, Jr.
Cleco Holdings
|
Chief Operations & Sustainability Officer since January 2022; Chief Operations Officer from February 2019 to January 2022; Vice President Generation Operations & Environmental Services from April 2016 to February 2019.
(Age 55) |
Justin S. Hilton Cleco Power
Cleco Holdings Cleco Power |
Chief Commercial Officer since January 2024; President sincefrom February 2019.
2019 to January 2024.
Vice President MISO Operations from April 2016 to February 2019.
(Age 53)54) |
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William B. Conway, Jr.CLECO
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| CLECO POWER | | 2023 FORM 10-K |
Cleco Holdings
Cleco Power
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| NAME OF EXECUTIVE |
Chief Development Officer, Chief Compliance Officer and General Counsel since June 2022; Chief Compliance Officer and General Counsel since July 2020; Retired from May 2017 to June 2020.
(Age 65)POSITION AND FIVE-YEAR EMPLOYMENT HISTORY |
Mark A. Madsen Cleco Holdings
|
Chief Information & Supply Chain Officer since August 2020; Chief Digital & Information Officer from May 2019 to August 2020; Chief Information Officer, Vice President of IT - Waste Management Inc. from March 2010 to January 2019.
(Age 53) |
Normanique G. PrestonD. Kleehammer
Cleco Holdings
|
Chief Human ResourcesRegulatory Officer & DiversityGeneral Counsel since July 2023; Vice President, Commercial and Industrial Journey and Products at Entergy Corporation from February 2023 to June 2023; Vice President, Regulatory and Public Affairs at Entergy Louisiana from October 2015 to February 2023, (Age 55) |
Robert A. BreedloveCleco Holdings |
Chief Operations Officer since September 2019;January 2024; Vice President, Human ResourcesGeneration Operations from AugustNovember 2021 to January 2024; Director, Fleet Maintenance Entergy Corporation from October 2018 to September 2019;November 2021. (Age 50) |
Paul A. Guillory II Cleco Power
Support Group |
Chief Customer Officer since January 2024; Vice President - Human Resources, Dynegy, Inc.& Chief Customer Officer from November 2015June 2021 to January 2024; Director, Meter, Bill & Revenue Collection from February 2020 to June 2018.2021.
Manager, Business Consulting from December 2016 to February 2020 (Age 56)41) |
Sybil S. Montegut Cleco Holdings
Support Group |
Chief Administrative & Sustainability Officer since January 2024; Vice President Enterprise Analytics & Innovation from May 2020 to January 2024;
Director, Innovation & Transformation from March 2019 to May 2020; General Manager, Transformation Office from March 2018 to March 2019. (Age 46) |
| |
Audit Committee
Cleco has a separately-designated standing Audit Committee. The members of Cleco’s Audit Committee are Dylan Arnould, Andrew Chapman, Randy Gilchrist, Jon Perry (who serves as Chair of the committee) and Peggy Scott. The Boards have determined that Andrew Chapman is the Audit Committee financial expert.
Code of Business Conduct & Ethics and Related Party Transactions
Cleco has adopted a Code of Conduct that applies to its principal executive officer, principal financial officer, principal accounting officer, and treasurer. Cleco also has adopted an Ethics Guide applicable to all employees and the Boards. In addition, the Boards have adopted Conflicts of Interest and Related Policies to prohibit certain conduct and to reflect the expectation of the Boards that their members engage in and promote honest and ethical conduct in carrying out their duties and responsibilities, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships and corporate opportunities. Under the Conflicts of Interest and Related Policies, Cleco considers transactions that are reportable under the SEC’s rules for transactions with related parties to be conflicts of interest and prohibits them. Any request, waiver, interpretation or other administration of the policy shall be referred to the Governance and Public Affairs Committee. Any recommendations by the Governance and Public Affairs Committee to implement a waiver shall be referred to the full Boards for a final determination. The Code of Conduct for Financial Managers, Ethics Guide, and Conflicts of Interest and Related Policies are posted on Cleco’s website at https://cleco.com/about/leadership-governance/codes-of-conduct. Each of these
documents is also available free of charge by request sent to: Public Relations, Cleco, P.O. Box 5000, Pineville, LA 71361-5000.
Communications with the Boards
The Corporate Governance Guidelines provide for communications with the Boards by interested persons. In order for employees and other interested persons to make their concerns known to the Boards, Cleco has established a procedure for communications with the Boards through the Boards’ Chair. The procedure is intended to provide a method
for confidential communication, while at the same time protecting the privacy of the members of the Boards. Any interested person wishing to communicate with the Boards, or the non-management members of the Boards, may do so by addressing such communication as follows:
Chair of the Boards of Managers
c/o Corporate Secretary
Cleco Holdings
P.O. Box 5000
Pineville, LA 71361-5000
Upon receipt, Cleco’s Corporate Secretary will forward the communication, unopened, directly to the Chair of the Boards. The Chair will, upon review of the communication, make a determination as to whether it should be brought to the attention of the other non-management members and/or the management member of the Boards and whether any response should be made to the person sending the communication, unless the communication was made anonymously.
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ITEM 11. EXECUTIVE COMPENSATION |
Compensation Discussion and Analysis (CD&A)
This section provides information about the compensation program in place for the Company’s named executive officers who are included in the Summary Compensation Table. It includes a discussion and analysis of the overall objectives of its compensation program and each element of compensation the Company provides.
Executive Summary
Compensation Philosophy
The compensation principles and philosophy of the Committee are:
•Executives should be rewarded on performance, and incentives should align interests between management and the Company while considering prudent risk taking;
•Total remuneration (the sum of base salary, annual incentives, long-term incentives, and retirement benefits) is determined so the combination of all pay elements will deliver a total compensation opportunity comparable to that of the Company’s Peer Group.
◦Newly hired and/or promoted executives should be transitioned to median over time as they become more proficient in their roles;
•The mix of fixed compensation (base salary and retirement benefits) and variable/at-risk compensation (annual incentive and long-term incentive) should align with market by emphasizing variable/at-risk compensation; and
•The competitive market for an executive’s compensation will be based on comparable utilities and will not be adjusted for Cleco’s privately held status or location.
Compensation Program Elements
The Committee targets total compensation (made up of the elements described below) to be competitive with the median of the Comparator Group, but individual positioning may vary above or below the median depending on each executive’s experience, performance, and contribution to the Company. For 2022,2023, Cleco believes that it accomplished its philosophy through the following compensation and benefit components:
| | | | | |
20222023 PAY ELEMENT | DESCRIPTION |
| Base Salary | • Fixed pay element
• Delivered in cash |
| Annual Cash Incentive (STIP) | • Performance-based annual incentive plan that pays out in cash
• Adjusted EBITDA is the primary metric for the named executive officers
• Additional metrics include safety, system reliability, customer service, generation fleet availability, and milestone measures |
| Long-Term Incentives | • Performance-based incentive paid in cash currently with a three-year cycle • Payout is contingent on Average ROIC and Total Shareholder Return (TSR), each weighted at 50% |
| Benefits | • Broad-based benefits such as group medical, dental, vision, and prescription drug coverage; basic life insurance; supplemental life insurance; dependent life insurance; accidental death and dismemberment insurance; a defined benefit pension plan (for those employees hired prior to August 1, 2007); and a 401(k) Plan with a Company match for those employees hired before August 1, 2007, as well as a 401(k) Plan with an enhanced benefit for those employees hired on or after August 1, 2007 |
| Executive Benefits | • SERP (closed to new participants in 2014)
• Nonqualified Deferred Compensation Plan |
| Perquisites | • Limited to executive physicals, spousal/companion travel, and relocation assistance |
Roles and Responsibilities
Leadership Development and Compensation Committee
The Committee, which consists of one independent Board Manager and three investor Board Managers, is responsible for developing and overseeing the Company’s executive compensation program. The Committee met seventen times during 20222023 with primarily virtual attendance. The Chief Human Resources and Diversity Officer attended the Committee meetings on behalf of management but did not participate in all of the Committee’s executive sessions.
The Committee’s responsibilities, which are more fully described in its charter, include:
•establishing and overseeing the Company’s executive compensation philosophy and goals and the programs which align with those;
•engaging and evaluating an independent compensation consultant;
•determining if the Company’s executive compensation and benefit programs are achieving their intended purposes,
being properly administered and creating proper incentives in light of the Company’s risk factors;
•analyzing the executive compensation and benefits practices of peer companies and annually reporting to the Board or recommending for approval by the Board the overall design of the Company’s executive compensation and benefit programs;
•annually evaluating the performance of the CEO and the CFO and recommending to the Board adjustments in the CEO's and CFO’s compensation and benefits;
•overseeing the administrative committees and periodically reviewing the Company’s benefit plans, including retirement plans;
•annually reviewing the Committee’s charter and revising as necessary;
•annually ensuring there is a process for talent and succession management for executives; and
•reviewing and making recommendations on efforts to promote diversity and inclusion.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
The Compensation Consultant
The Committee engaged Pay Governance to consult on matters concerning executive officers’ compensation and benefits. All executive compensation adjustments and award calculations for 20222023 were reviewed by Pay Governance on behalf of the Committee. Pay Governance acted at the direction of the Committee and was independent of management. Pay Governance was responsible for:
•recommending a group of peer companies to use for its market comparisons;
•reviewing the Company’s executive compensation program, including compensation levels in relation to Company performance, pay opportunities relative to those at comparable companies, short- and long-term incentive targets and metrics, executive retirement benefits, and other executive benefits;
•reviewing the Company’s Board of Manager compensation program;
•reporting on emerging trends and best practices in the area of executive and Board of Manager compensation; and
•attending the Committee meetings.
The Committee reviewed the firm’s qualifications as well as its independence and the potential for conflicts of interest. The Committee concluded that Pay Governance is independent, and its services to the Committee do not create any conflicts of interest. The Committee has the sole authority to approve Pay Governance’s compensation and determine the nature and scope of its services. Pay Governance does not perform any other services for or receive any other fees from the Company.
CEO
The CEO discusses with the Committee base salary adjustments, cash incentives, and long-term incentive awards
for executives other than himself. The CEO participates in meetings of the Committee to discuss executive compensation, including measures and performance targets but is subsequently excused to allow the Committee to meet in executive session without management present.
Evaluation and Design of the Compensation and Benefit Programs
The Committee believes that compensation and benefits for executive officers who successfully enhance investors’ value should be competitive with the compensation and benefits offered by similar companies in the industry to attract and retain the high quality executive talent required by the Company. The Committee examines executive officers’ compensation against comparable positions using publicly available proxy data for a group of 12 industry peers (Peer Group) and utility industry survey data to help design and benchmark executive officer compensation. This evaluation includes base salary, annual and long-term incentive plan targets, other potential awards, retirement benefits, and target total compensation. The Peer Group is used to track comparable performance of the long-term incentive plan. The combination of the Peer Group and the utility industry survey data is referred to as the “Comparator Group.”
The Peer Group did not change in 2022.2023. The Committee will continue to evaluate the Peer Group annually as companies are often acquired, taken private, or grow at a rate that renders them inappropriate for comparison purposes. The Committee evaluates the Peer Group to ensure that peer companies are of similar scope in relation to revenues, assets, and employee count and have a good operational fit.
| | | | | | | | |
20222023 PEER GROUP COMPANIES |
| ALLETE, Inc. | Hawaiian Electric Industries, Inc. | Otter Tail Corporation |
| Alliant Energy Corporation | IDACORP, Inc. | Pinnacle West Capital Corporation |
| Avista Corporation | NorthWestern Corporation | PNM Resources, Inc. |
| Black Hills Corporation | OGE Energy Corp. | Portland General Electric Company |
In setting executive compensation levels in 2022,2023, the Committee also used utility industry survey data from the most recent Willis Towers Watson Energy Services Executive Compensation Database. Survey data provides a broader energy industry perspective. This survey data is used in conjunction with the Peer Group data as a competitive market reference point for the Committee to consider in determining pay levels.
Decisions Made in 20222023 with Regard to Each Compensation and Benefit Component
Base Salary
The base salary levels for the executive officers as a group, including the named executive officers are set so that, in combination with other pay elements, it will deliver a total compensation opportunity comparable to that of the Company’s Peer Group. The Committee sets the base salary level for the CEO and CFO.
Base salaries for the named executive officers in 20222023 are shown in the table below:
| | NAME | NAME | 2022 BASE SALARY | 2022 % CHANGE (1) | NAME | 2023 BASE SALARY | 2023 % CHANGE (1) |
| Mr. Fontenot | Mr. Fontenot | $ | 721,000 | | 0.0 | % | Mr. Fontenot | $ | 750,000 | | 4.0 | 4.0 | % |
| Ms. Guillory | Ms. Guillory | $ | 390,000 | | 2.6 | % | Ms. Guillory | $ | 445,000 | | 14.1 | 14.1 | % |
| Mr. Kleehammer | | Mr. Kleehammer | $ | 425,000 | | N/A |
| Mr. LaBorde | Mr. LaBorde | $ | 350,000 | | 12.9 | % | Mr. LaBorde | $ | 375,000 | | 7.1 | 7.1 | % |
Mr. Hilton (2) | Mr. Hilton (2) | $ | 295,000 | | 3.5 | % | Mr. Hilton (2) | $ | 295,000 | | 0.0 | 0.0 | % |
| Mr. Conway | $ | 385,000 | | 5.5 | % |
(1) Base salary increases were adjusted to a level approximating +/-10% of the Comparator Group market
median for total remuneration.
(2) Cleco Power employee.
Annual Cash Incentive
The Company maintains the STIP, an annual, performance-based cash incentive plan. The STIP applies to all regular, full-time employees, and it includes weighting for corporate and individual performance goals. The STIP award opportunities for executive officers are set so that, in combination with other pay elements, it will deliver a total compensation opportunity
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
comparable to that of the Company’s Peer Group. The
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Committee sets the annual cash incentive level for the CEO and CFO. Payouts are capped at 200% of target.
The table below presents the target STIP opportunities for the named executive officers in 2022:2023:
| | | | | |
| NAME | TARGET AS %
OF BASE SALARY |
Mr. Fontenot(1) | 115%125% |
| Ms. Guillory | 65% |
| Mr. Kleehammer | 60% |
| Mr. LaBorde | 50% |
Mr. Hilton (2)(1) | 50% |
Mr. Conway | 60% |
(1) Mr. Fontenot has a target STIP of 115% with 100% determined on the same basis as the other officers and the remaining 15% based on the realization of the Milestone Measures.
(2)Cleco Power employee.
The 20222023 STIP award for the named executive officers was based on the corporate and individual performance measures described below. This includes measures that apply to non-named executive officers and employees. The 20222023 corporate performance measures consisted of the elements listed below based on the business unit (weighting):
| | CONSOLIDATED | | BUSINESS UNIT | | MILESTONE MEASURES |
| SAFETY | ADJUSTED
EBITDA | | EFORd | PEAK EAF | CUSTOMER SATISFACTION | LPSC SAIDI | ADJUSTED
EBITDA | |
| CONSOLIDATED | | | CONSOLIDATED | | BUSINESS UNIT | | MILESTONE MEASURES |
| SAFETY | |
| Cleco Power | |
| Cleco Power | |
| Cleco Power | Cleco Power | 10% | 20% | | 10% | | 15% | 5% | 20% | | 20% | 10% | | 6% | 4% | | 15% | 5% | 30% | | 20% |
Cleco Support (1) | Cleco Support (1) | 10% | 45% | | 7.5% | 2.5% | | 20% | Cleco Support (1) | 10% | 45% | | 5.5% | 2% | 7.5% | 2.5% | | | 20% |
| Cleco Cajun | Cleco Cajun | 10% | 20% | | 5% | 15% | | 30% | | 20% | Cleco Cajun | 10% | | 5% | | 15% | | | 40% | | 20% |
(1) Cleco Support business unit measures are calculated as an average (50% of the Cleco Power weighting and 50% of the Cleco Cajun weighting).
The Committee included Milestone Measures (Measures) in the 20222023 STIP corporate metrics for EMT and other corporate officers weighted at 20% and a stretch objective weighted at an additional 5%10%. These Measures were associated with progress milestones on key strategic corporate projects related to safety performanceand security improvement, ESG, business plan objectives, Cleco Cajun restructuring resolution, Project Energizer, Solar, Madison Unit 3 carbon captureCarbon Capture and sequestrationSequestration (CCS), business process improvements utilizing technology, and cybersecurity.. For the STIP calculation, the Committee put the greatest emphasis on financial performance using an adjusted EBITDA metric at both the business unit and consolidated levels. Adjusted EBITDA represents net income before interest, income taxes, depreciation, and amortization adjusted for certain pension and SERP expenses, gains and losses on certain life insurance policies, certain 2016 Mergermerger and Cleco Cajun Transactionacquisition related expenses, variable lease revenue, and unrealized gains and losses on FTRsderivatives, and gas-related contract derivatives.other adjustments at the discretion of the Board of Managers. In addition, to continually focus the entire organization on the importance of safety, system reliability, generation fleet availability, sustainability, and to focus Cleco Power and Cleco Support executives and employees on customer satisfaction, the remainder of the STIP opportunity was attributable to these operational measures.
Management recommends the STIP financial performance and other measures to the Committee. Based on the historical performance relative to target and the relative historical performance versus the Peer Group, the Committee reviews, revises as appropriate, and approves the STIP measures for the upcoming year.
Details Related to Corporate Performance Metrics Established to Determine 20222023 STIP Award Levels
Metric # 1: Safety Consolidated — For the 20222023 safety measure, the Company included the frequency of incidents represented by the Total Recordable Incident Rate (TRIR), which represents 4% of the overall STIP award, the severity of incidents represented by the Days Away, Restricted or
Transferred (DART) rate, which represents 4% of the overall STIP award, and Contractor Total Recordable Incident Rate
(TRIR), which represents 2% of the overall STIP award. These three measures total 10% for the safety metric. The targets for TRIR and DART safety measures were based on the average rates of the companies in the Southeastern Electric Exchange, of which Cleco is a member, over the three-year period of 2019, 2020, 2021, and 2021.2022. The target for Contractor TRIR is based on a 10% year-over-year improvement.
| | | | | |
| SAFETY - TRIR MATRIX (4%) | |
| PERFORMANCE LEVEL | % OF TRIR TARGET AWARD PAID |
Above 0.623At or above 0.632 | 0% |
0.5300.535 - 0.6230.631 | 50% |
0.4360.437 - 0.5290.534 | 100% |
0.3430.340 - 0.4350.436 | 150% |
At or below 0.3420.339 | 200% |
20222023 Result (0.845)(0.076) | 0%200% |
| | | | | |
| SAFETY - DART MATRIX (4%) | |
| PERFORMANCE LEVEL | % OF DART TARGET AWARD PAID |
Above 0.342At or above 0.398 | 0% |
0.2910.331 - 0.3420.397 | 50% |
0.2390.265 - 0.2900.330 | 100% |
0.1870.198 - 0.2380.264 | 150% |
At or below 0.1860.197 | 200% |
2022 Results (0.384)2023 Result (0.000) | 0%200% |
| | | | | |
| SAFETY - CONTRACTOR TRIR MATRIX (2%) | |
| PERFORMANCE LEVEL | % OF DART TARGET AWARD PAID |
Above 1.0570.951 | 0% |
At or below 1.0570.951 | 100% |
2022 Results (0.772)2023 Result (0.788) | 100% |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Metric # 2: Adjusted EBITDA Consolidated — The following adjusted EBITDA matrix was developed to determine performance and payout ranges related to consolidated adjusted EBITDA performance in 2022.2023. For Cleco Power and Cleco Cajun, this measure represents 30% of the overall STIP award for the corporate measures for non-executives and 20%10% of the overall STIP award for the corporate measures for executives. For Cleco Support, this measure represents 65% of the overall STIP award for the corporate measures for non-executives and 45% of the overall STIP award for the corporate measures for executives. The final percentage of the financial target award is interpolated based on the performance level.
| | | | | |
| ADJUSTED EBITDA MATRIX - CONSOLIDATED | |
| PERFORMANCE LEVEL | % OF FINANCIAL TARGET AWARD PAID |
Below $547.7$552.8 million | 0%0.0% |
Below $604.5 and at or above $547.7 million | 50% |
$604.5 million | 100% |
Above $604.5 and below $668.0 million | 150% |
At or above $668.0$552.8 million and below $607.5 million | 200%50.0%-99.9% |
2022At or above $607.5 million and below $637.6 million | 100.0%-149.9% |
| At or above $637.6 million and below $667.6 million | 150.0%-199.9% |
| At or above $667.6 million | 200.0% |
2023 Result - $585.4$641.8 million | 83.2%157.0% |
Metric # 3: EFORd — This metric represents the probability a generator will fail either completely or in part when its operation is required. This metric is 10%6% of the overall STIP award for the Cleco Power, 5% of the overall STIP award for the Cleco Cajun measures, 7.5%5.5% of the overall STIP award for the Cleco Support corporate measures (Cleco Support employees weighting is 50% of the Cleco Power weighting and 50% of the Cleco Cajun weighting). The 20222023 target was based on the comparison to historical class average performance over the three-year period of 2019, 2020, and 2021.forced outage rates, as well as MISO system-wide weighted average forced outage rate.
| | | | | |
EFORd MATRIX - CLECO POWER (10%(6%) | |
| PERFORMANCE LEVEL | % OF EFORd TARGET AWARD PAID |
Above 8.70%At or above 8.80% | 0% |
6.49%6.73% - 8.70%8.79% | 50% |
4.28%4.66% - 6.48%6.72% | 100% |
2.06%2.58% - 4.27%4.65% | 150% |
At or below 2.05%2.57% | 200% |
20222023 Result (8.88%(3.63%) | 0%150% |
| | | | | |
| EFORd MATRIX - CLECO CAJUN (5%) | |
| PERFORMANCE LEVEL | % of EFORd TARGET AWARD PAID |
Above 10.92%At or above 10.01% | 0% |
8.19%7.61% - 10.92%10.00% | 50% |
5.45%5.21% - 8.18%7.60% | 100% |
2.72%2.81% - 5.44%5.20% | 150% |
At or below 2.71%2.80% | 200% |
20222023 Result (4.92%(5.69%) | 150%100% |
Metric # 4: Availability - Cleco Power and Cleco Support—This metric is an indicator of generation performance impacts related to unplanned outages and derates. This metric is 4% of the overall STIP award for Cleco Power corporate measures and 2% of the overall STIP award for Cleco Support corporate measures. The 2023 target was based on the average performance over the three-year period of 2020, 2021, and 2022 of Cleco Power’s fleet.
| | | | | |
| AVAILABILITY MATRIX - CLECO POWER (4%) | |
| PERFORMANCE LEVEL | % OF PEAK EAF TARGET AWARD PAID |
| At or below 64.54% | 0% |
| 64.55% - 74.20% | 50% |
| 74.21% - 83.87% | 100% |
| 83.88% - 93.55% | 150% |
| At or above 93.56% | 200% |
| 2023 Result (89.80%) | 150% |
Metric # 5: Peak EAF - Cleco Cajun and Cleco Support — This metric represents the amount of time that the power generation plant is able to produce electricity without any outages or deratings over a peak period (defined as May through September, Monday through Friday, hours ending 0700 through 2200), divided by the amount of time in the peak
period. This metric is 15% of the overall STIP award for the Cleco Cajun corporate measures and 7.5% of the overall STIP award for the Cleco Support corporate measures (Cleco Support employees weighting is 50% of the Cleco Cajun weighting).measures. The 20222023 target was based on the Cajun fleet’s average performance over the three-year period of 2019, 2020, 2021, and 2021.2022 of Cleco Cajun’s fleet.
| | | | | |
| PEAK EAF MATRIX - CLECO CAJUN (15%) | |
| PERFORMANCE LEVEL | % OF PEAK EAF TARGET AWARD PAID |
Below 95.95%At or below 96.42% | 0% |
96.95%96.43% - 95.95%97.03% | 50% |
97.97%97.04% - 96.96%97.67% | 100% |
99.00%97.68% - 97.98%98.30% | 150% |
At or above 99.01%98.31% | 200% |
20222023 Result (97.02%(94.85%) | 100%0% |
Metric # 5:6: Customer Satisfaction - Cleco Power and Cleco Support — The Company included Customer Satisfaction in its performance measures in 20222023 using the JD Power South Midsize segment (JD Power study) for comparison. For the STIP metric, the Company uses a percentile-based target relative to the peer groups. The Company compared its overall performance against its peers in the JD Power study. This metric represents 15% of the overall STIP award for Cleco Power corporate measures and 7.5% of the overall STIP award for the Cleco Support corporate measures (Cleco Support employees weighting is 50% of the Cleco Power weighting).measures.
| | | | | |
| CUSTOMER SATISFACTION MATRIX - CLECO POWER (15%) | |
| PERFORMANCE LEVEL | % OF CUSTOMER SATISFACTION TARGET AWARD PAID |
| Below 25th Percentile | 0% |
| 25th - 49th Percentile | 50% |
| 50th - 74th Percentile | 100% |
| 75th - 89th Percentile | 150% |
| At or above 90th Percentile | 200% |
20222023 Result - Below 25th Percentile | 0% |
Metric # 6:7: LPSC SAIDI - Cleco Power and Cleco Support — SAIDI measures the average amount of time a customer’s service is interrupted during the year measured in hours per customer per year, and excludes major events per the LPSC’s criteria. The 20222023 LPSC SAIDI goal was based on the long-term goal of consistent performance improvement aligned with the LPSC
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
target. This metric represents 5% of the overall STIP award for the Cleco Power corporate measures and 2.5% of the overall STIP award for the Cleco Support corporate measures (Cleco Support employees weighting is 50% of the Cleco Power weighting).measures.
| | | | | |
| LPSC SAIDI MATRIX - CLECO POWER (5%) | |
| PERFORMANCE LEVEL | % OF LPSC SAIDI TARGET AWARD PAID |
| Above 2.87 | 0% |
| At or below 2.87 | 100% |
20222023 Result (2.76)(2.44) | 100% |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Metric # 7:8: Adjusted EBITDA — The following adjusted EBITDA matrix was developed to determine performance and payout ranges related to respective Business Unit adjusted EBITDA performance in 2022. The overall STIP award for the corporate measures for non-executives is 30% for Cleco Power and 40% for Cleco Cajun.2023. The overall STIP award for the corporate measures for executives is 20%30% for Cleco Power and 30%40% for Cleco Cajun. The final percentage of the financial target award is interpolated based on the performance level.
| | | | | |
ADJUSTED EBITDA MATRIX - CLECO POWER (20%(30%) | |
| PERFORMANCE LEVEL | % OF FINANCIAL TARGET AWARD PAID |
Below $426.6$455.5 million | 00.0 | % |
Below $461.2 and atAt or above $426.6$455.5 million and below $492.4 million | 5050.0%-99.9% |
| At or above $492.4 million and below $510.9 million | 100.0%-149.9% |
| At or above $510.9 million and below $529.3 million | 150.0%-199.9% |
| At or above $529.3 million | 200.0 | % |
$461.2 million | 100 | % |
Above $461.2 and below $495.8 million | 150 | % |
At or above $495.8 million | 200 | % |
20222023 Result - $449.4$451.7 million | 82.9%0.0% |
| | | | | |
ADJUSTED EBITDA MATRIX - CLECO CAJUN (30%(40%) | |
| PERFORMANCE LEVEL | % OF FINANCIAL TARGET AWARD PAID |
Below $120.8$97.3 million | 00.0 | % |
Below $143.0At or above $97.3 million and atbelow $115.1 million | 50.0%-99.9% |
At or above $120.8$115.1 million and below $126.7 million | 50100.0%-149.9% |
| At or above $126.7 million and below $138.2 million | 150.0%-199.9% |
| At or above $138.2 million | 200.0 | % |
$143.2 million | 100 | % |
Above $143.2 and below $171.7 million | 150 | % |
At or above $171.7 million | 200 | % |
20222023 Result - $136.3$189.8 million | 84.8%200.0% |
Metric # 8:9: Milestone Measures — Cleco officers had an additional STIP metric for 20222023. This metric represents 20% of the overall STIP award for the corporate measures for executives and measures progress on certain strategic initiatives. These initiatives included safety performanceand security improvement (5%), business application strategy and cybersecurityProject Energizer (5%), business plan objectivesSolar (5%), and Cleco Cajun restructuring resolution (5%). This measure also includes a stretch objective (5%(10%) for ESGMadison Unit 3 Carbon Capture and Madison 3 CCS initiatives.Sequestration (CCS). For 2022,2023, executives were able to earn up to 5%10% in addition to the 20% target based on success of milestone measures. The Committee evaluated the performance of each initiative and determined the 20222023 result for the Milestone Measures as follows.
| | | | | |
MILESTONE MEASURES (20% with up to a 5%10% stretch) | |
| 2022 RESULTS | % OF MILESTONE TARGET AWARD PAID |
| Cleco Power | 22.5%21.5% |
| Support Group | 22.5%21.2% |
| Cleco Cajun | 22.5%24.0% |
Total Payout for EMT Cleco Power: The calculated STIP payout for Cleco Power was 62.7%75.2% of target. An additional discretionary adjustment was made to increase the payout for officers by 10.4% of target. The resulting total STIP corporate payout of 85.6% for 20222023 was calculated as follows:
| | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| % OF TARGET | | | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| Safety Consolidated | Safety Consolidated | 10 | % | | 20.0 | % | | 2.0% | Safety Consolidated | 10 | % | | 180.0 | % | | 18.0% |
| Adjusted EBITDA Consolidated | Adjusted EBITDA Consolidated | 20 | % | | 41.6 | % | | 8.32% | Adjusted EBITDA Consolidated | 10 | % | | 157.0 | % | | 15.7% |
| EFORd | EFORd | 10 | % | | 0.0 | % | | 0% | EFORd | 6 | % | | 150.0 | % | | 9.0% |
| Availability | | Availability | 4 | % | | 150.0 | % | | 6.0% |
| Customer Satisfaction | Customer Satisfaction | 15 | % | | 0.0 | % | | 0% | Customer Satisfaction | 15 | % | | 0.0 | % | | 0.0% |
| LPSC SAIDI | LPSC SAIDI | 5 | % | | 100.0 | % | | 5.0% | LPSC SAIDI | 5 | % | | 100.0 | % | | 5.0% |
| Adjusted EBITDA | Adjusted EBITDA | 20 | % | | 124.4 | % | | 24.87% | Adjusted EBITDA | 30 | % | | 0.0 | % | | 0.0% |
| Milestone Measures (stretch included) | Milestone Measures (stretch included) | 20 | % | | 112.5 | % | | 22.50 | % | Milestone Measures (stretch included) | 20 | % | | 107.5 | % | | 21.5% |
Resulting Total (1) | Resulting Total (1) | 100 | % | | 62.70 | % | Resulting Total (1) | 100 | % | | | | 75.2 | % |
| Additional Discretionary Adjustment | | Additional Discretionary Adjustment | | | | | | 10.4 | % |
Adjusted Resulting Total (1) | | Adjusted Resulting Total (1) | | | | | | 85.6 | % |
(1) The resulting total istotals are rounded to the nearest decimal.
Total Payout for EMT Cleco Support: The calculated STIP payout for Cleco Support was 75.7%122.4% of target. The total STIP corporate payout for 20222023 was calculated as follows:
| | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| % OF TARGET | | | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| Safety Consolidated | Safety Consolidated | 10 | % | | 20.0 | % | | 2.00 | % | Safety Consolidated | 10 | % | | 180.0 | % | | 18.0 | % |
| Adjusted EBITDA Consolidated | Adjusted EBITDA Consolidated | 45 | % | | 83.2 | % | | 37.45 | % | Adjusted EBITDA Consolidated | 45 | % | | 157.0 | % | | 70.7 | % |
| EFORd | EFORd | 7.5 | % | | 50.0 | % | | 3.75 | % | EFORd | 5.5 | % | | 127.3 | % | | 7.0 | % |
| Availability | | Availability | 2.0 | % | | 150.0 | % | | 3.0 | % |
| Peak EAF | Peak EAF | 7.5 | % | | 100.0 | % | | 7.50 | % | Peak EAF | 7.5 | % | | 0.0 | % | | 0.0 | % |
| Customer Satisfaction | Customer Satisfaction | 7.5 | % | | 0.0 | % | | 0.00 | % | Customer Satisfaction | 7.5 | % | | 0.0 | % | | 0.0 | % |
| LPSC SAIDI | LPSC SAIDI | 2.5 | % | | 100.0 | % | | 2.50 | % | LPSC SAIDI | 2.5 | % | | 100.0 | % | | 2.5 | % |
| Milestone Measures (stretch included) | Milestone Measures (stretch included) | 20 | % | | 112.5 | % | | 22.50 | % | Milestone Measures (stretch included) | 20 | % | | 106.0 | % | | 21.2 | % |
Resulting Total (1) | Resulting Total (1) | 100 | % | | | | 75.70 | % | Resulting Total (1) | 100 | % | | | | 122.4 | % |
(1) The resulting total is rounded to the nearest decimal.
Total Payout for EMT Cleco Cajun: The calculated STIP payout for Cleco Cajun was 89.3142.7% of target. An additional discretionary adjustment was made to increase the payout for officers by 4.3% of target. The resulting total STIP corporate payout of 147.0% for 20222023 was calculated as follows:
| | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| % OF TARGET | | | % OF TARGET | x | AWARD LEVEL | = | % OF PAYOUT |
| Safety Consolidated | Safety Consolidated | 10 | % | | 20.0 | % | | 2.00 | % | Safety Consolidated | 10 | % | | 180.0 | % | | 18.0 | % |
| Adjusted EBITDA Consolidated | Adjusted EBITDA Consolidated | 20 | % | | 41.6 | % | | 8.32 | % | Adjusted EBITDA Consolidated | 10 | % | | 157.0 | % | | 15.7 | % |
| EFORd | EFORd | 5 | % | | 150.0 | % | | 7.50 | % | EFORd | 5 | % | | 100.0 | % | | 5.0 | % |
| Peak EAF | Peak EAF | 15 | % | | 100.0 | % | | 15.00 | % | Peak EAF | 15 | % | | 0.0 | % | | 0.0 | % |
| Adjusted EBITDA | Adjusted EBITDA | 30 | % | | 113.1 | % | | 33.94 | % | Adjusted EBITDA | 40 | % | | 200.0 | % | | 80.0 | % |
| Milestone Measures (stretch included) | Milestone Measures (stretch included) | 20 | % | | 112.5 | % | | 22.50 | % | Milestone Measures (stretch included) | 20 | % | | 120.0 | % | | 24.0 | % |
Resulting Total (1) | Resulting Total (1) | 100 | % | | | | 89.30 | % | Resulting Total (1) | 100 | % | | | | | 142.7 | % |
| Additional Discretionary Adjustment | | Additional Discretionary Adjustment | | | | | | 4.3 | % |
Adjusted Resulting Total (1) | | Adjusted Resulting Total (1) | | | | | 147.0 | % |
(1) The resulting total istotals are rounded to the nearest decimal.
The Committee also has the authority to adjust the amount of any individual STIP award upon recommendation by the CEO. Adjustments for the STIP participants, except for the named executive officers and other members of EMT, may be
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made by the CEO at his discretion. Adjustments are based on the annual performance review process.
Long-Term Compensation
In 2022,2023, the Committee continued a cash-based LTIP and issued grants for the three-year cycle for the performance period ending December 31, 2022.2023. The metrics for the LTIP cycle issued in 20222023 are weighted 50% on the three-year average ROIC and 50% on TSR.
Each executive officer’s target LTIP award level is set, so in combination with other pay elements, it will deliver a total compensation opportunity comparable to that of the
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Company’s Peer Group. The chart below details the targeted opportunity for each of the named executives expressed as a percentage of base salary:salary. The Board of Managers approved a supplemental target amount equal to 26% of the target amount in the 2020-2022 LTIP performance cycle to be included in the 2023-2025 LTIP performance cycle. The chart below reflects both the 2023-2025 LTIP cycle and supplemental target amounts.
| | | | | |
NAME | TARGET AS %
OF BASE SALARY(1)
|
Mr. Fontenot | 236 | % |
Ms. Guillory | 120 | % |
Mr. LaBorde | 85 | % |
Mr. Hilton (2)
| 90 | % |
Mr. Conway | 105 | % |
| | | | | | | | |
| NAME | TARGET AS % OF BASE SALARY (1) | SUPPLEMENTAL TARGET AMOUNT |
| Mr. Fontenot | 227 | % | $ | 429,000 | |
| Ms. Guillory | 120 | % | $ | 74,360 | |
Mr. Kleehammer (2) | 110 | % | $ | 0 | |
| Mr. LaBorde | 85 | % | $ | 75,400 | |
Mr. Hilton (3) | 90 | % | $ | 78,650 | |
(1) Long-term incentives were adjusted to a level approximating +/-10% of the Comparator Group market
median for total remuneration based on salary as of the June 13, 2022May 24, 2023, grant date.
(2) Mr. Kleehammer was issued LTIP grants for cycles 2021-2023, 2022-2024, and 2023-2025 at the above mentioned target percentage with a guaranteed minimum target payout.
(3) Cleco Power employee.
2020-20222021-2023 LTIP Award
The Leadership Development & Compensation Committee approved an overall award level of 74%109.5% of target for the LTIP three-year performance cycle that ended on December 31, 2022.2023. This award level represents an average ROIC of 74% and TSR of 74%performance, each weighted at 50%, over the three-year performance period. This award will be paid in cash and is included in column GE of the Summary Compensation Table for 2022.2023.
Retirement Plans - Nonqualified Deferred Compensation Plan
The Company maintains a Deferred Compensation Plan so that members of the Boards, executive officers, and certain key employees may defer receipt and taxation of certain forms of compensation. Members of the Boards may defer up to 100% of their compensation; executive officers and other key employees may defer up to 50% of their base salary and up to 100% of their annual cash incentive. The use of deferred compensation plans is prevalent within the industry and within the companies in the Peer Group. The Company does not match deferrals or contribute to the plan. Actual participation in the plan is voluntary. The notional investment options made available to participants are selected by the CFO. The allocation of deferrals among investment options is made by individual participants. The notional investment options include money market, fixed income, and equity funds. No changes were made to the plan during 2022.2023.
Retirement Plans - SERP
The Company maintains a SERP for the benefit of the executive officers who are designated as participants by the Committee. SERP was designed to attract and retain executive officers who have contributed and will continue to contribute to the Company’s overall success by ensuring that adequate compensation will be provided or replaced during retirement. In July 2014, the Cleco Corporation Board of Directors voted to close SERP to new participants.
Benefits under SERP vest after ten years of service or upon death or disability while a participant is employed by the Company. The Committee may reduce the vesting period, which typically would occur in association with recruiting efforts. Benefits, whether or not vested, are forfeited in the event a participant is terminated for cause.
Generally, benefits are based upon a participant’s attained age at the time of separation from service. The maximum benefit is payable at age 65 and is 65% of final compensation. Payments from the Company’s defined benefit pension plan (Pension Plan), certain employer contributions to the 401(k) Plan and payments paid or payable from prior and subsequent employers’ defined benefit retirement or similar supplemental plans reduce or offset SERP benefits. If a
participant has not attained age 55 at the time of separation and receives SERP benefits before attaining age 65, SERP benefits are actuarially reduced to reflect early payment. The “Pension Benefits” table lists the present value of accumulated SERP benefits for the named executive officers as of December 31, 2022.2023.
In 2011, the Committee amended SERP to eliminate the business transaction benefit previously included in SERP, as well as the requirement that a SERP participant be a party to an employment agreement to receive change in control benefits.
With regard to current SERP participants, two participants have agreed to fix the base compensation portion of their SERP calculation as of December 31, 2022.2023. Additionally, they have agreed to use target rather than actual awards under the annual incentive plan for years 2016 and 2017 for the average incentive award portion of the SERP calculation. A third participant’s SERP benefit will be set at a specified amount based upon the year of separation.
In the event a SERP participant’s employment is involuntarily terminated by the Company without cause, or the participant terminates his or her employment on account of good reason, occurring within the 36-month period following a change in control event for all participants who commenced participation in SERP prior to October 28, 2011, or the 24-month period following a change in control event for all participants who commenced participation in SERP on or after October 28, 2011, such participant’s benefit shall: (i) become fully vested; (ii) be increased by adding three years to an affected participant’s age, subject to a minimum benefit of 50% of final compensation; and (iii) be subject to a modified reduction determined by increasing the executive’s age by three years.
Change in Employment Status and Change in Control Events
During 2022,2023, the Company had no employment agreements with current named executives other than the agreements with Mr. Fontenot as President & CEO and Mr. ConwayKleehammer as General Counsel & Chief Corporate Development & Compliance Officer & General Counsel.Regulatory Officer. The Company may enter into employment agreements with its executives generally in connection with recruiting efforts. The standard
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agreement provides for a non-renewing term, generally two years, and does not contain a change in control tax gross-up provision.
The Cleco Corporation Executive Severance Plan
In recognition of the non-renewal of executive employment contracts, the Cleco Corporation Board of Directors adopted the Cleco Corporation Executive Severance Plan (the Executive Severance Plan) on October 28, 2011. The Executive Severance Plan provides the executive officers and other key employees with cash severance benefits in the event of a termination of employment, including involuntary termination in connection with a change in control.
Perquisites and Other Benefits
The Company may make available the following perquisites to its executive officers:
•Executive officer physicals - as a condition of receiving their STIP award, Cleco requires and pays for an annual physical for the executive officers and their spouses;
•Spousal/companion travel - in connection with the various industry, governmental, civic, and entertainment activities of
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the executive officers, Cleco pays for spousal/companion travel associated with such events;
•Relocation program - in addition to the standard relocation policy available to all employees, Cleco maintains a policy whereby the executive officers and other key employees may request that the Company pay real estate agent and certain other closing fees should the officer or key employee sell his/her primary residence or that the Company purchase the executive officer’s or key employee’s primary residence at the greater of its documented cost (not to exceed 120% of the original purchase price) or average appraised value. Typically, this occurs when an executive officer or key employee relocates at the Company’s request; and
•Purchase program - under the Executive Severance Plan, a covered executive officer may request the Company to purchase his/her primary residence in the event he or she is involuntarily terminated without cause or separates for good reason, either in connection with a change in control and further provided the executive officer relocates more than 100 miles from the residence to be purchased. Limits on the purchase amount are the same as the relocation program described above.
The Committee approves the perquisites based on what it believes is prevailing market practice, as well as specific Company needs. The Company believes the relocation program is an important element in attracting executive talent. Perquisite expenses related to business and spousal companion travel for the executive officers are reviewed by Internal Audit, and any exceptions are reported to the Audit Committee.
See the section titled “All Other Compensation” for details of these perquisites and their value for the named executive officers.
The executive officers, including the named executive officers, participate in the other benefit plans on the same terms as other employees. These plans include paid time off for vacation, sick leave, and bereavement; group medical, dental, vision, and prescription drug coverage (including the annual wellness program); basic life insurance; supplemental life insurance; dependent life insurance; accidental death and
dismemberment insurance; defined benefit pension plan (for those hired prior to August 1, 2007); and the 401(k) Plan with a Company match for those employees hired before August 1, 2007, as well as a 401(k) Plan with an enhanced benefit for those employees hired on or after August 1, 2007.
Board Compensation
The Governance and Public Affairs Committee may engage the Committee’s independent consultant from time to time to conduct market competitive reviews of the Board compensation program. Details of the Boards’ compensation are shown in the “Board of Manager Compensation” table.
Other Tools and Analyses to Support Compensation Decisions
Tally Sheets
At least annually, the Committee reviews tally sheets that set forth the items listed below. This review is conducted as part of the comparison of the compensation and benefit components that are prevalent within the Comparator Group. The comparison facilitates discussion with the Committee’s outside independent consultant as to the use and amount of each
compensation and benefit component versus the applicable Peer Group.
•Annual compensation expense for each named executive officer - this includes the rate of change in total cash compensation from year-to-year; the annual periodic cost of providing retirement benefits; and the annual cost of providing other benefits such as health insurance, as well as the status of any deferred compensation.
•Reportable compensation - to further evaluate total compensation; to evaluate total compensation of the CEO compared to the other executive officers; and to otherwise evaluate internal equity among the named officers.
•Post-employment payments - reviewed pursuant to the potential separation events discussed in “Potential Payments at Termination or Change in Control.”
Trends and Regulatory Updates
As needed, and generally at least annually, the Committee reviews reports related to industry trends, legislative and regulatory developments, and compliance requirements based on management’s analysis and guidance provided by Pay Governance, as applicable. Plan revisions and compensation program design changes are implemented as needed.
Risk Assessment
The Committee also seeks to structure compensation that will provide sufficient incentives for the executive officers to drive results while avoiding unnecessary or excessive risk taking that could harm the long-term value of the Company. The Committee believes that the following actions and/or measures help achieve this goal:
•the Committee reviews the design of the executive compensation program to ensure an appropriate balance between business risk and resulting compensation;
•the Committee allocates pay mix between base salary and performance-based pay to provide a balance of incentives;
•the design of the incentive measures is structured to align management’s actions with the interests of the investors;
•incentive payments are dependent on the Company’s performance measured against pre-established targets and
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goals and/or compared to the performance of companies in the Peer Group;
•the range and sensitivity of potential payouts relative to target performance are reasonable;
•the Committee imposes checks and balances on the payment of compensation discussed herein;
•detailed processes establish the Company’s financial performance measures under its incentive plans; and
•incentive targets are designed to be challenging, yet achievable, to mitigate the potential for excessive risk-taking behaviors.
IRC Section 409A
IRC Section 409A generally was effective as of January 1, 2005. The section substantially modified the rules governing the taxation of nonqualified deferred compensation. The consequences of a violation of IRC Section 409A, unless corrected, are the immediate taxation of amounts deferred, the imposition of an excise tax and the assessment of interest on the amount of the income inclusion, each of which is imposed upon the recipient of the compensation. The plans, agreements and incentives subject to IRC Section 409A have
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been operated pursuant to and are in compliance with IRC Section 409A.
IRC Section 162(m)
IRC Section 162(m) limits to $1,000,000 the amount Cleco may deduct in a tax year for compensation paid to covered employees defined as the principal executive officer, principal financial officer (or anyone serving that role in a tax year), the next three highest compensated officers after the CEO and CFO, as well as any covered employees from prior years.
The Committee took actions considered appropriate to preserve the deductibility of compensation paid to executive officers, but the Committee did not adopt a formal policy that required all compensation to be fully deductible. As a result, the Committee may have paid or awarded compensation that it deemed necessary or appropriate to achieve business goals and to align the interests of executives with those of Cleco’s investors, whether or not the compensation was fully deductible under IRC Section 162(m).
Executive Officers’ Compensation
Summary Compensation Table | | NAME AND PRINCIPAL POSITION | NAME AND PRINCIPAL POSITION | YEAR | SALARY($) | BONUS($) | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION
($) | CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(1) | ALL OTHER
COMPENSATION
($) | TOTAL ($) |
| NAME AND PRINCIPAL POSITION | |
| NAME AND PRINCIPAL POSITION | | YEAR | SALARY($) | BONUS($) | | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION
($) | CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(1) | ALL OTHER
COMPENSATION
($) | TOTAL ($) |
| A | A | B | C | D | | E | F | G | H | A | B | C | D | | | E | F | G | H |
William G. Fontenot, (2) | 2022 | $ | 721,000 | | $ | 0 | | $ | 1,888,467 | | $ | 0 | | $ | 26,709 | | $ | 2,636,176 | |
| William G. Fontenot, | |
| President & CEO | President & CEO | 2021 | $ | 719,385 | | $ | 0 | | $ | 2,200,081 | | $ | 42,503 | | $ | 20,877 | | $ | 2,982,846 | |
| 2021 | |
| | 2020 | $ | 721,154 | | $ | 0 | | $ | 1,806,020 | | $ | 1,320,099 | | $ | 17,520 | | $ | 3,864,793 | |
| Kristin L. Guillory, | |
| Kristin L. Guillory, | |
| Kristin L. Guillory, | |
| CFO | |
| 2021 | |
| Kristin L. Guillory, (3) | 2022 | $ | 389,231 | | $ | 0 | | $ | 403,162 | | $ | 0 | | $ | 14,440 | | $ | 806,833 | |
| CFO | 2021 | $ | 320,000 | | $ | 0 | | $ | 329,917 | | $ | 12,029 | | $ | 12,251 | | $ | 674,197 | |
| Mark D. Kleehammer, (2) | |
Mark D. Kleehammer, (2) | |
Mark D. Kleehammer, (2) | |
| Chief Regulatory Officer & General Counsel | |
| Chief Regulatory Officer & General Counsel | |
| Chief Regulatory Officer & General Counsel | |
Robert R. LaBorde, Jr., | Robert R. LaBorde, Jr., | 2022 | $ | 346,923 | | $ | 0 | | $ | 345,911 | | $ | 0 | | $ | 26,828 | | $ | 719,662 | |
| Chief Operations & Sustainability Officer | Chief Operations & Sustainability Officer | 2021 | $ | 308,462 | | $ | 0 | | $ | 442,313 | | $ | 0 | | $ | 26,673 | | $ | 777,448 | |
| 2020 | $ | 298,269 | | $ | 0 | | $ | 319,608 | | $ | 485,114 | | $ | 13,693 | | $ | 1,116,684 | |
| 2021 | |
| | Justin S. Hilton, | Justin S. Hilton, | 2022 | $ | 294,231 | | $ | 0 | | $ | 316,116 | | $ | 0 | | $ | 13,035 | | $ | 623,382 | |
| Justin S. Hilton, | |
| Justin S. Hilton, | |
| President - Cleco Power | President - Cleco Power | 2021 | $ | 284,231 | | $ | 0 | | $ | 416,023 | | $ | 50,551 | | $ | 12,241 | | $ | 763,046 | |
| 2021 | |
| | 2020 | $ | 283,846 | | $ | 0 | | $ | 237,357 | | $ | 376,853 | | $ | 10,050 | | $ | 908,106 | |
| Former Executive Officer: | |
| Former Executive Officer: | |
| Former Executive Officer: | |
| William B. Conway, Jr., (3) | 2022 | $ | 383,462 | | $ | 0 | | $ | 433,169 | | $ | 0 | | $ | 24,138 | | $ | 840,769 | |
| William B. Conway, Jr., | |
| | William B. Conway, Jr., | |
| | William B. Conway, Jr., | |
| Chief Corporate Development & Compliance Officer & General Counsel | Chief Corporate Development & Compliance Officer & General Counsel | 2021 | $ | 363,846 | | $ | 0 | | $ | 186,108 | | $ | 0 | $ | 13,462 | | $ | 563,416 | |
| 2021 | |
(1) Amounts in this column include the change in pension value year over year. For 2022,2023, this amount includes the change in pension value from 20212022 to 2022.2023. Negative changes in the pension value year over year are reported as $0.
(2)Mr. Fontenot hasKleehammer is classified as a target STIP of 115% with 100% determined on the same basis as the other officers and the remaining 15% based on the realization of the Milestone Measures.named executive officer for 2023 only.
(3)Ms. GuilloryMr. LaBorde retired from the Company on December 31, 2023. See “— Pension Benefits — Estimated Annual Payments” for the actual annual payments to be made to Mr. LaBorde under the Pension Plan and Mr. Conway are classified as named executive officers for 2021 and 2022 only.SERP.
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General
The Summary Compensation Table sets forth individual compensation information for the CEO, the CFO, and the three other most highly compensated executive officers of Cleco and its affiliates for services rendered in all capacities to Cleco and its affiliates during the fiscal years ended December 31, 2023, 2022, 2021, and 20202021 (the “named executives” or “named executive officers”). Compensation components represent both payments made to the named executive officers during the year and other forms of compensation as follows:
•Column C, “Salary;” Column D, “Bonus;” Column E, “Non-Equity Incentive Plan Compensation;” and Column G, “All Other Compensation” represent cash compensation earned by the named executive in 2023, 2022, 2021, or 2020.2021.
•The amounts shown in Column F, “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” represent changes in the actuarial value of accrued benefits during 2023, 2022, 2021, and 20202021 under the Pension Plan and SERP, as applicable. Actuarial value computations are based on assumptions discussed in Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1011 — Pension Plan and
Employee Benefits.” The 20222023 changes shown in Column F are due in part to the actuarial impact from a decrease in the discount rate used to calculate future benefits under the Pension Plan and SERP. Negative changes, if any, are reported as zero. This compensation will be payable to the named executive in future years, generally as post-employment retirement payments.
Salary
Data in Column C includes pay for time worked, as well as pay for time not worked, such as vacation, sick leave, jury duty, bereavement, and holidays. The salary level of each of the named executives is determined by a review of market data for companies comparable in size and scope to Cleco, as discussed under “— Compensation Discussion and Analysis — Decisions Made in 20222023 with Regard to Each Compensation and Benefit Component — Base Salary.” In some instances, merit lump sum payments are used to recognize positive performance when base pay has reached or exceeded the Company’s base pay policy target, and are included in the salary column. Deferral of 2023, 2022, 2021, and 20202021 base pay made by Mr. Fontenot and Mr. LaBorde, pursuant to the Deferred Compensation Plan also is included in the salary
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column and is further detailed in the “Nonqualified Deferred Compensation” table. Adjustments to base pay are recommended to the Committee typically on an annual basis, and if approved, usually are implemented in January. Base salary changes made in 20222023 for named executives and the reasons for those changes are discussed in “— Compensation Discussion and Analysis — Decisions Made in 20222023 with Regard to Each Compensation and Benefit Component — Base Salary.”
Bonus
Column D, “Bonus” includes non-plan-based, discretionary incentives earned during 2023, 2022, 2021, or 2020.2021.
Non-Equity Incentive Plan Compensation
Column E, “Non-Equity Incentive Plan Compensation” contains cash awards earned during 20222023 that will be paid in March 2024 under the STIP; earned during 2022 and paid in March
2023 under the STIP; and earned during 2021 and paid in March 2022 under the STIP; and earned during 2020 and paid in March 2021 under the STIP. Deferral of annual cash incentive payments made by Mr. Fontenot and Mr. LaBorde pursuant to the Deferred Compensation Plan also is included in Column E and is further detailed in the “Nonqualified Deferred Compensation” table. Column E also includes cash awards earned during 20222023 that will be paid in March 2023;2024; earned during 2022 that were paid in March 2023, and earned during 2021 that were paid in MarchFebruary 2022 and earned during 2020 that were paid in February 2021 for the LTIP performance periods ended December 31, 2022,2023, December 31, 2021,2022, and December 31, 2020,2021, respectively.
Change in Pension Value and Nonqualified Deferred Compensation Earnings
The values in Column F represent the aggregate increase in the actuarial present value of benefits earned by each named executive officer during 2023, 2022, 2021, and 20202021 under the Pension Plan and SERP, including SERP’s supplemental death benefit provision. These values do not represent cash received by the named executives in 2023, 2022, 2021, and 2020;2021; rather, these amounts represent the present value of future retirement payments Cleco projects will be made to each named executive. Changes in the present value of the Pension Plan and SERP benefits from December 31, 2022, to December 31, 2023; from December 31, 2021 to December 31,
2022; and from December 31, 2020, to December 31, 2021; and from December 31, 2019, to December 31, 2020,2021, result from an additional year of earned service, compensation changes and the increase (or decrease) in value caused by the change in the discount rate used to compute present value. (Generally, a decrease in the discount rate will increase the present value of benefits and an increase in the discount rate will decrease the present value.) If the discount rate increases by a large enough amount, it can cause the accrued pension and SERP liability to decline versus the prior year. When this occurs, the values reported for Column F are zero.
The present value of the accumulated benefit obligation for each named executive officer is included in the table, “Pension Benefits.” These values are reviewed by the Committee in conjunction with its annual tally sheet analysis. An explanation of why the Company uses SERP and its relationship to other compensation elements can be found in “Decisions Made in 20222023 With Regard to Each Compensation and Benefit Component.”
Column F also would include any above-market or preferential earnings on deferred compensation paid by the Company. There were no such preferential earnings paid by the Company in 2023, 2022, 2021, and 2020.2021.
All Other Compensation
Payments made to or on behalf of named executive officers in Column G, “All Other Compensation,” include the following:
•Contributions by Cleco under the 401(k) Plan on behalf of the named executive officers;
•Term life insurance premiums paid for the benefit of the named executive officers;
•Spousal travel;
•Certain corporate memberships;
•Unused vacation paid at separation or retirement;
•Relocation; and
•Federal Insurance Contributions Act (FICA) tax due currently and paid by the Company on the annual increase in the named executive officers’ future SERP benefits.
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The value of the Column G items for 20222023 for each named executive officer is as follows:
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| MR. FONTENOT | MS. GUILLORY | MR. LABORDE | MR. HILTON | MR. CONWAY |
| Cleco Contributions to 401(k) Plan | $ | 12,200 | | $ | 13,602 | | $ | 26,029 | | $ | 11,884 | | $ | 23,338 | |
| Taxable Group Term Life Insurance | 830 | | 38 | | 350 | | 350 | | 0 | |
| Spousal Travel | 4,960 | | 0 | | 0 | | 0 | | 0 | |
| Memberships | 800 | | 800 | | 0 | | 800 | | 800 | |
| Unused vacation payout at separation/retirement | 0 | | 0 | | 0 | | 0 | | 0 | |
| Severance | 0 | | 0 | | 0 | | 0 | | 0 | |
| FICA Tax on SERP | 7,919 | | 0 | | 449 | | 0 | | 0 | |
| Total Other Compensation | $ | 26,709 | | $ | 14,440 | | $ | 26,828 | | $ | 13,034 | | $ | 24,138 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | GRANT DATE | ESTIMATED FUTURE PAYMENTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (STIP) | | ESTIMATED FUTURE PAYMENTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2022-2024 LTIP GRANT) |
| THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) |
| A | B | C | D | E | | F | G | H |
| Mr. Fontenot | 01/01/22 | $ | 0 | $ | 829,150 | | $ | 1,442,000 | | | $ | 0 | $ | 1,700,000 | | $ | 3,400,000 | |
| Ms. Guillory | 01/01/22 | $ | 0 | $ | 253,000 | | $ | 506,000 | | | $ | 0 | $ | 468,000 | | $ | 936,000 | |
| Mr. Conway | 01/01/22 | $ | 0 | $ | 230,077 | | $ | 460,154 | | | $ | 0 | $ | 404,250 | | $ | 808,500 | |
| Mr. LaBorde | 01/01/22 | $ | 0 | $ | 173,462 | | $ | 346,923 | | | $ | 0 | $ | 297,500 | | $ | 595,000 | |
| Mr. Hilton | 01/01/22 | $ | 0 | $ | 147,115 | | $ | 294,231 | | | $ | 0 | $ | 265,500 | | $ | 531,000 | |
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| MR. FONTENOT | MS. GUILLORY | MR. KLEEHAMMER | MR. LABORDE | MR. HILTON | MR. CONWAY |
| Cleco Contributions to 401(k) Plan | $ | 13,200 | | $ | 12,181 | | $ | 8,827 | | $ | 21,227 | | $ | 14,985 | | $ | 24,585 | |
| Taxable Group Term Life Insurance | 1,382 | | 38 | | 410 | | 830 | | 350 | | 0 | |
| Spousal Travel | 6,910 | | 1,598 | | 0 | | 0 | | 0 | | 0 | |
| Memberships | 0 | | 0 | | 800 | | 0 | | 800 | | 0 | |
| Unused vacation payout at separation/retirement | 0 | | 0 | | 0 | | 0 | | 0 | | 26,284 | |
| Severance | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Relocation | 0 | | 0 | | 23,742 | | 0 | | 0 | | 0 | |
| FICA Tax on SERP | 9,544 | | 0 | | 0 | | 21,585 | | 0 | | 0 | |
| Total Other Compensation | $ | 31,036 | | $ | 13,817 | | $ | 33,779 | | $ | 43,642 | | $ | 16,135 | | $ | 50,869 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | GRANT DATE | ESTIMATED FUTURE PAYMENTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (STIP) | | ESTIMATED FUTURE PAYMENTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2023-2025 LTIP GRANT) |
| THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | | THRESHOLD ($) | TARGET ($) | MAXIMUM ($) |
| A | B | C | D | E | | F | G | H |
| Mr. Fontenot | 01/01/23 | $ | 0 | $ | 933,318 | | $ | 1,866,636 | | | $ | 0 | $ | 2,129,000 | | $ | 4,258,000 | |
| Ms. Guillory | 01/01/23 | $ | 0 | $ | 285,125 | | $ | 570,250 | | | $ | 0 | $ | 608,360 | | $ | 1,216,720 | |
| Mr. Kleehammer | 01/01/23 | $ | 0 | $ | 198,300 | | $ | 396,600 | | | $ | 0 | $ | 467,500 | | $ | 935,000 | |
| Mr. LaBorde | 01/01/23 | $ | 0 | $ | 186,058 | | $ | 372,116 | | | $ | 0 | $ | 181,650 | | $ | 363,300 | |
| Mr. Hilton | 01/01/23 | $ | 0 | $ | 147,500 | | $ | 295,000 | | | $ | 0 | $ | 344,150 | | $ | 688,300 | |
| Mr. Conway | 01/01/23 | $ | 0 | $ | 122,608 | | $ | 245,216 | | | $ | 0 | $ | 158,375 | | $ | 316,750 | |
General
The target values for each of the Company’s incentive plans — the STIP and the LTIP — are determined as part of the Committee’s review of executive officer compensation. The Committee’s review, supported by data prepared by Pay Governance, includes comparisons of base salary and annual and long-term incentive levels of Cleco executive officers versus the Comparator Group as detailed in “— Compensation Discussion and Analysis — Evaluation and Design of the Compensation and Benefit Programs.” Targets for both the STIP and the LTIP are set as a percentage of base salary and stated in their dollar equivalent in the table above.
Estimated Future Payments under Non-Equity Incentive Plan Awards (STIP)
See “— Compensation Discussion and Analysis — Decisions Made in 20222023 with Regard to Each Compensation and Benefit Component — Annual Cash Incentive” for a discussion of 20222023 STIP award calculations.
Estimated Future Payments under Non-Equity Incentive Plan Awards (LTIP)
See “— Compensation Discussion and Analysis — Decisions Made in 20222023 with Regard to Each Compensation and Benefit Component — Long-Term Compensation” for a discussion of grants made in 2022.2023.
Pension Benefits
| | NAME | NAME | PLAN NAME (s) | NUMBER OF
YEARS OF
CREDITED
SERVICE (#) | | PRESENT
VALUE OF
ACCUMULATED
BENEFIT ($) | | PAYMENTS
DURING LAST
FISCAL YEAR ($) | NAME | PLAN NAME (s) | NUMBER OF
YEARS OF
CREDITED
SERVICE (#) | | PRESENT
VALUE OF
ACCUMULATED
BENEFIT ($) | | PAYMENTS
DURING LAST
FISCAL YEAR ($) |
| Mr. Fontenot | Mr. Fontenot | Cleco Corporate Holdings LLC Pension Plan | 36 | | $ | 1,908,912 | | | $ | 0 | |
| Cleco Corporation SERP | 36 | | $ | 3,523,112 | | | $ | 0 | |
| Cleco Corporation SERP | |
Ms. Guillory (1) | Ms. Guillory (1) | Cleco Corporate Holdings LLC Pension Plan | 18 | | $ | 362,401 | | | $ | 0 | |
| Cleco Corporation SERP | 0 | | $ | 0 | | | $ | 0 | |
Mr. LaBorde (2) | Cleco Corporate Holdings LLC Pension Plan | 16 | | $ | 471,383 | | | $ | 0 | |
| Cleco Corporation SERP | 14 | | $ | 1,230,648 | | | $ | 0 | |
Mr. Hilton (3) | Cleco Corporate Holdings LLC Pension Plan | 33 | | $ | 1,298,559 | | | $ | 0 | |
| Cleco Corporation SERP | 0 | | $ | 0 | | | $ | 0 | |
Mr. Conway (4) | Cleco Corporate Holdings LLC Pension Plan | 0 | | $ | 0 | | | $ | 0 | |
| Cleco Corporation SERP | 0 | | $ | 0 | | | $ | 0 | |
| Cleco Corporation SERP | |
Mr. Kleehammer (2) | |
| Cleco Corporation SERP | |
Mr. LaBorde (3) | |
| Cleco Corporation SERP | |
Mr. Hilton (4) | |
| Cleco Corporation SERP | |
Mr. Conway (5) | |
| Cleco Corporation SERP | |
(1) Ms. Guillory is not a participant in SERP as her appointment to her current position was after the plan was closed to new participants.
(2) Mr. Kleehammer was not a participant in the Pension Plan or SERP as he was hired after both plans were closed to new participants.
(3) Mr. LaBorde has prior years of service credit under the Pension Plan. He is not currently a participant in the Plan because he was rehired after the Pension Plan was closed to new participants in 2007.
(3)(4) Mr. Hilton is not a participant in SERP as his appointment to his current position was after the plan was closed to new participants.
(4)(5) Mr. Conway was not a participant in the Pension Plan or SERP as he was hired after both plans were closed to new participants.
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
General
The Company provides executive officers who meet certain tenure requirements benefits from the Pension Plan and SERP. Vesting in the Pension Plan requires five years of service with the Company. Mr. Fontenot, Ms. Guillory, and Mr. Hilton are fully vested in the Pension Plan. Mr. LaBorde is fully vested in the Pension Plan based on previous service with the Company. Having been rehired after August 1, 2007, he was no longer eligible to participate in the Pension Plan and was included in an enhanced 401(k) Plan for those employees hired (or rehired) on or after August 1, 2007. Mr.Messrs. Conway and Kleehammer, having been hired after August 1, 2007, waswere not eligible to participate in the Pension Plan and waswere included in an enhanced 401(k) Plan for those employees hired on or after August 1, 2007.
Vesting in SERP requires ten years of service. Under the terms of SERP, automatic vesting occurs upon a Change in Control if a participating executive is involuntarily terminated from the Company. Messrs. Fontenot and LaBorde are all fully vested in SERP based on years of service. Ms. Guillory and Messrs. Hilton and Conway are not participants in SERP.
The present value of each of the named executive officer’s accumulated benefit values was actuarially calculated and represents the values as of December 31, 2022.2023. These calculations were made using the projected unit credit method for valuation purposes and a discount rate of 5.44%5.13%. Other material assumptions relating to the valuation include use of the Pri-2012 Employee and Healthy Retiree gender distinct mortality tables projected generationally using Scale MP-2020 (using White Collar for SERP present values and no collar for Qualified Plan present values), assumed retirement at age 65 and retirement payments in the form of joint and 100% survivor with 10 years certain payment.
The sum of the change in actuarial value of the Pension Plan during 20222023 and the change in value of SERP is included in Column F, “Change in Pension Value and Nonqualified Deferred Compensation Earnings,” in the Summary Compensation Table. Negative changes, if any, are reported as zero.
Pension Plan
The Cleco Corporate Holdings LLC Pension Plan, restated effective September 1, 2020, is a defined benefit plan funded entirely by employer contributions. Effective August 1, 2007, the Pension Plan was closed to new participants. Employees hired or rehired on or after August 1, 2007 are eligible to participate in an enhanced 401(k) Plan. Mr. Fontenot, Ms. Guillory, and Mr. Hilton were hired prior to August 1, 2007.
Benefits under the Pension Plan are determined by years of service, age at retirement, and highest total average compensation for any consecutive five calendar years during the last ten years of employment. Earnings include base pay, cash incentives, merit lump sums, imputed income with respect to life insurance premiums paid by the Company, pre-tax contributions to the 401(k) Plan, salary and bonus deferrals to the Deferred Compensation Plan, and any other form of payment taxable under IRC Section 3401(a). Earnings exclude reimbursement of expenses, gifts, severance pay, moving expenses, outplacement assistance, relocation allowances, welfare benefits, benefits accrued (other than salary and bonus deferrals) or paid pursuant to the Deferred Compensation Plan, the value of benefits accrued or paid (including dividends) under the LTIP, income from the exercise of stock options and income from disqualifying stock dispositions. For 2022,2023, the
amount of earnings was further limited to $305,000$330,000 as prescribed by the IRS.
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The formula for calculating the defined benefit under the Pension Plan is as follows:
1. Defined Benefit = Annual Benefit + Supplement Benefit
2. Annual Benefit = Final Average Earnings × Years of Service × Pension Factor
3. Supplement Benefit = (Final Average Earnings - Social Security Covered Compensation) × Years of Service × .0065
The applicable pension factor for 20222023 was 1.25%. Based on the benefit formula, the pension factor will remain at 1.25% in future years. Social Security-covered income is prescribed by the IRS based on the year of birth.
Benefits from the Pension Plan are generally paid at normal, late or early retirement dates and are subject to a limit prescribed by the IRS, generally $245,000$265,000 in 2022.2023. Normal retirement at age 65 entitles the participant to a full pension. A participant may elect to delay retirement past age 65 as long as he/she is actively employed. Years of service continue to accumulate (up to a maximum of 35) and earnings continue to count toward the final earnings calculation. If a participant chooses to retire after age 55 but before normal retirement age, the amount of the annual pension benefit is reduced by 3% per year between ages 55 and 62. For example, the normal pension benefit at age 55 is reduced by 21%.
SERP
SERP is designed to provide retirement income of 65% of an executive officer’s final compensation at normal retirement, age 65. Final compensation under SERP is based on the sum of the highest annual salary paid during the five years prior to termination of employment and the average of the three highest STIP awards paid to the participant during the preceding 60 months. Final compensation also is determined without regard to the IRS limit on compensation. The SERP benefit rate at normal retirement is reduced by 2% per year for each year a participant retires prior to age 65, with a minimum benefit rate of 45% at age 55. The final benefit rate also may be reduced further if a participant separates from service prior to age 55. This actuarially determined reduction factor is equivalent to that used in the Pension Plan, which is 3% for each year from age 55 to 62. For example, if a SERP participant were to terminate service at age 50 and start receiving his or her SERP benefit at age 55, his or her SERP benefit rate would be 35.6%. This is the product of the minimum SERP benefit of 45% reduced by another 21% for early commencement. The actual SERP benefit payments are
reduced if a participant is to receive benefit payments from the Pension Plan, has received certain employer contributions related to the 401(k) Plan and/or is eligible to receive retirement-type payments from former employers and subsequent employers, if applicable.
SERP provides survivor benefits, which are payable to a participant’s surviving spouse or other beneficiary. SERP also contains a supplemental death benefit that was added in 1999 to reflect market practice. If a SERP participant dies while actively employed, the amount of the supplemental death benefit is equal to the sum of two times the participant’s annual base salary as of the date of death and the participant’s target bonus payable under the annual incentive plan for the year in which death occurs. If a participant dies after termination of
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
employment, the supplemental benefit is equal to the sum of the participant’s final annual base salary and target bonus payable under the annual incentive plan for the year in which the participant retired or otherwise terminated employment. The supplemental death benefit is not dependent on years of service.
In July 2014, Cleco Corporation’s Board of Directors closed SERP to new participants. In August 2016, the Company’s Board of Managers voted to freeze salary and bonus components used in the final compensation calculation as of December 31, 2017, for Mr. LaBorde. In December 2017, the Company entered into an employment agreement with Mr. Fontenot as its CEO, the terms of which amended the calculation of Mr. Fontenot’s SERP benefit to include a fixed benefit depending upon the year Mr. Fontenot separates from the Company. With regard to former employees or their beneficiaries, all terms of SERP will continue.
Estimated Annual Payments
The following table shows the estimated annual payments at age 55 (or actual attained age if greater than 55) to each of the
named executives under the Pension Plan and SERP as of December 31, 2022.2023.
| | | | ESTIMATED PAYMENTS AT 55
(OR ACTUAL ATTAINED AGE IF GREATER THAN 55) | | ESTIMATED PAYMENTS AT 55
(OR ACTUAL ATTAINED AGE IF GREATER THAN 55) |
| PENSION | SERP | TOTAL |
| PENSION | | | PENSION | SERP | TOTAL |
| Mr. Fontenot | Mr. Fontenot | $ | 132,303 | | $ | 162,697 | | $ | 295,000 | |
| Ms. Guillory | Ms. Guillory | $ | 57,075 | | $ | 0 | | $ | 57,075 | |
Mr. Kleehammer (1) | |
Mr. LaBorde | Mr. LaBorde | $ | 40,020 | | $ | 58,279 | | $ | 98,299 | |
| Mr. Hilton | Mr. Hilton | $ | 108,740 | | $ | 0 | | $ | 108,740 | |
Mr. Conway (1) | Mr. Conway (1) | $ | 0 | | $ | 0 | | $ | 0 | |
(1) Mr. Conway did not participant in the Pension Plan, as he was hired after August 1, 2007, nor SERP, as he was hired after the plan was closed to new participants in July 2014. | (1) Neither Mr. Conway nor Mr. Kleehammer participated in the Pension Plan, as they were hired after August 1, 2007, nor SERP, as they were hired after the plan was closed to new participants in July 2014. (2) Mr. LaBorde retired from the Company on December 31, 2023. Amounts shown reflect actual payments. | | (1) Neither Mr. Conway nor Mr. Kleehammer participated in the Pension Plan, as they were hired after August 1, 2007, nor SERP, as they were hired after the plan was closed to new participants in July 2014. (2) Mr. LaBorde retired from the Company on December 31, 2023. Amounts shown reflect actual payments. |
Nonqualified Deferred Compensation | | NAME | NAME |
EXECUTIVE OFFICER CONTRIBUTIONS IN 2022 ($)(1) |
COMPANY CONTRIBUTIONS IN
2022 ($) |
AGGREGATE EARNINGS IN 2022 ($) (2) | AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS IN
2022 ($) | AGGREGATE BALANCE AT DECEMBER 31, 2022 ($)(3) | NAME |
EXECUTIVE OFFICER CONTRIBUTIONS IN 2023 ($)(1) |
COMPANY CONTRIBUTIONS IN 2023 ($) |
AGGREGATE EARNINGS IN 2023 ($) (2) | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS IN 2023 ($) | AGGREGATE BALANCE AT DECEMBER 31, 2023 ($)(3) |
| A | A | B | C | D | E | F | A | B | C | D | E | F |
| Mr. Fontenot | Mr. Fontenot | $ | 467,966 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 3,038,029 | |
| Ms. Guillory | Ms. Guillory | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Mr. Kleehammer | |
| Mr. LaBorde | Mr. LaBorde | $ | 80,866 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 798,595 | |
| Mr. Hilton | Mr. Hilton | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Mr. Conway | Mr. Conway | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
(1) The amounts in Column B represent deferrals of salary and non-equity incentive compensation payments made to the named executive officers during 20222023 and are included in the amounts shown in Columns C and G,E, respectively, of the Summary Compensation Table.
(2) The aggregate earnings shown in Column D are not included in the Summary Compensation Table. Negative returns are reflected as zero.
(3) The aggregate balances shown in Column F include amounts reported as salary and non-equity incentive compensation payments in the Summary Compensation Table for the current fiscal year, as well as previous years and the earnings on those amounts.
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Deferred Compensation
Named executives and other key employees are eligible to participate in the Company’s Deferred Compensation Plan. Participants are allowed to defer up to 50% of their base salary and up to 100% of their annual cash incentive, as reported in Columns C and G in the Summary Compensation Table. Consequently, the executive officer contributions listed in Column B above are made by the participant and not by Cleco. Messrs. Fontenot and LaBorde elected to participate in the Deferred Compensation Plan during 20222023. All deferral elections for 20222023 were made prior to the beginning of 20222023 as required by the regulations under IRC Section 409A. There are no matching contributions made by the Company.
Deferrals become general funds for use by the Company to be repaid to the participant at a pre-specified date. Short-term deferrals may be paid out as early as five years following the end of the plan year (i.e., the year in which compensation was earned). Retirement deferrals are paid at the later of termination of service or the attainment of an age specified by the participant. A bookkeeping account is maintained for each participant that records deferred salary and/or bonus, as well as earnings on deferred amounts. Earnings are determined by the performance of notional investment alternatives, which are similar to the investments available under the 401(k) Plan. Participants select which of these alternatives will be used to
determine the earnings on their own accounts. The Deferred Compensation Plan is not intended to provide for the payment of above-market or preferential earnings (as these terms are defined under the SEC regulations) on compensation deferred under the plan. As such, the Deferred Compensation Plan does not provide a guaranteed rate of return.
Potential Payments at Termination or Change in Control
The following tables, “Potential Payments at Termination or Change in Control,” detail the estimated value of payments and benefits provided to each named executive officer assuming the following separation events occurred as of December 31, 2022:2023: termination by the executive; disability; death; retirement; constructive termination; termination by the Company for cause; and termination in connection with a change in control. The Company has selected these events based on long-standing provisions in employee benefit plans, such as the Pension Plan and 401(k) Plan, or because the use is common within the industry and Comparator Group. Some of the potential severance payments are governed by the separate documents establishing the STIP, LTIP, and SERP.
At its October 2011 meeting, Cleco Corporation’s Compensation Committee approved the Executive Severance Plan to provide severance benefits to executive officers. In October and December 2014 and July 2015, the Cleco
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Corporation’s Compensation Committee approved amendments to the Executive Severance Plan. At December 31, 2022,2023, all of the named executive officers were covered by the Executive Severance Plan.
The following narrative describes the type and form of payments and benefits for each separation event. The tables under “Potential Payments at Termination or Change in Control” provide an estimate of potential payments and benefits to each named executive officer under each separation event. Throughout this section, reference to “executive officers” is inclusive of named executive officers.
Termination by the Executive
If an executive officer resigns voluntarily, no payments are made or benefits provided other than those required by law.
Disability
Annual disability benefits are payable when a total and permanent disability occurs and are paid until the executive officer’s normal retirement age, which is age 65. This benefit is provided under SERP, if applicable, and is paid regardless of whether the executive was vested in SERP at the time of disability. At age 65, a disabled executive is eligible to receive annual retirement benefits under the Pension Plan, for those who are participants, and SERP as outlined under the headings “Pension Plan” and “SERP,” respectively. The executive officer also is eligible to receive a one-time, prorated share of the current year’s STIP award and a prorated award for each LTIP performance cycle in which he/she participates to the extent those performance cycles award at their completion.
Death
A prorated share of the current year’s STIP award and a supplemental death benefit provided from SERP, if applicable, are paid to an executive officer’s designated beneficiary in the event of death in service. Both are one-time payments. The executive officer’s designated beneficiary is also eligible to receive a prorated award for each LTIP performance cycle in which the executive officer participates, to the extent those performance cycles award at their completion.
Annual survivor benefits are payable to an executive officer’s surviving spouse for his/her life, or if there is no surviving spouse, to the executive officer’s designated beneficiary for a period of ten years or, if no designated beneficiary is named, to the executive officer’s estate for a period of ten years. Amounts are calculated under the provisions of the Pension Plan and SERP. For more information, see the discussion under the headings “Pension Plan” and “SERP,” respectively, as well as SERP provisions relating to death while in service. Survivor benefits are paid from SERP regardless of vested status in SERP at the time of death. The SERP supplemental death benefit is paid only to executives who were employed by the Company on or after December 17, 1999. Messrs. Fontenot and LaBorde are eligible for this benefit.
Retirement
In the event of early or normal retirement, the executive officer is eligible to receive a prorated share of the current year’s STIP award and at least a prorated award for each LTIP performance cycle in which he/she participates to the extent those performance cycles award at their completion. Retirement benefits are provided pursuant to the Pension Plan
and SERP. Payments are made monthly and are calculated using the assumptions described in the discussion following the “Pension Benefits” table.
Constructive Termination
Payments made and benefits provided upon a constructive termination are ordinarily greater than payments made on account of an executive officer’s retirement, death or disability because separation effectively is initiated by the Company. Certain payments are made contingent upon the execution of a waiver, release and covenants agreement in favor of the Company. Constructive termination also may be initiated by an
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CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
executive officer if there has been (i) a material reduction in his/her base compensation, other than a reduction uniformly applicable to all executive officers; and (ii) a contemporaneous, material reduction in his/her authority, job duties, or responsibilities.
Under the terms of the Executive Severance Plan, an executive would receive constructive termination payments including up to 52 weeks of base compensation, up to $50,000 in lieu of outplacement services and reimbursement of premiums paid to maintain coverage under Cleco’s medical plan for up to 18 months. The executive also would be eligible for a prorated portion of the current year’s payout under the STIP and a prorated award for the LTIP performance cycles in which he/she participates, to the extent those performance cycles award at their completion.
If the executive officer has vested retirement benefits and has attained eligible retirement age, he/she would receive retirement benefits as described under “Pension Benefits.”
Termination for Cause
“Cause” is defined as an executive’s (i) intentional act of fraud, embezzlement or theft in the course of employment or other intentional misconduct that is materially injurious to the Company’s financial condition or business reputation; (ii) intentional damage to Company property, including the wrongful disclosure of its confidential information; (iii) willful and intentional refusal to perform the essential duties of his/her position; (iv) failure to fully cooperate with government or independent agency investigations; (v) conviction of a felony or crime involving moral turpitude; (vi) willful, reckless, or negligent violation of the material provisions of Cleco’s Code of Conduct; or (vii) reckless or intentional acts or failures to act in a manner which materially compromises his/her ability to perform the essential duties of his/her position; or (viii) willful, reckless, or negligent violation of rules related to the Sarbanes-Oxley ActLTRP or rules adopted by the SEC. No payments, other than those required by law, are made or benefits provided under the Executive Severance Plan if an executive officer is terminated for cause. If an executive officer is vested in SERP, that benefit is forfeited. The value of that forfeiture is shown as a negative number in the separation payments tables.
Change in Control
The term “Change in Control” is defined in the LTIP.LTRP. One or more of the following triggering events constitute a Change in Control:
•Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or an Affiliate or any “person” who on the effective date of this Plan is a director, officer, or is the “beneficial owner” (as determined in Rule 13d-3 promulgated under the Exchange
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Act) of 20% or more of the combined voting power of outstanding securities of the Company or an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)) sponsored by the Company or an Affiliate, is or becomes the “beneficial owner” (as determined in Rule 13d-3 promulgated under the Exchange Act) of 80% or more of the combined voting power of the outstanding securities of the Company;
•The Company is party to a merger or consolidation with another entity and, as a result of such transaction, 80% or more of the combined voting power of outstanding securities of the Company or its successor in the merger (or a direct or
indirect parent company of the Company or its successor in the merger) is owned in the aggregate by persons who were not “beneficial owners” (as determined in Rule 13d-3 promulgated under the Exchange Act) of securities of the Company immediately before such transaction;
•The Company sells, leases, or otherwise disposes of, in one transaction or in a series of related transactions, all or substantially all of its assets;
•The owners of the Company approve a plan of dissolution or liquidation; or
•All or substantially all of the assets or the issued and outstanding membership interests of Cleco Power LLC is sold, leased or otherwise disposed of in one or a series of related transactions to a person, other than the Company or an Affiliate.
Except as described below, payments are made and benefits provided only if an executive’s employment is terminated during the 60-day period preceding or the 24-month period following the Change in Control.
Termination must be involuntary and by the Company without cause or initiated by the executive on account of “Good Reason.” Good reason means that (i) a Participant’s base compensation in effect immediately before the commencement of a Change in Control Period is materially reduced, or there is a material reduction or termination of such Participant’s rights to any employee benefit in effect immediately prior to such period; (ii) a Participant’s authority, duties or responsibilities are materially reduced from those in effect immediately before the commencement of a Change in Control Period, or such Participant has reasonably determined that, as a result of a change in circumstances that materially affects his or her employment with the Company, he or she is unable to exercise the authority, power, duties and responsibilities assigned to him or her immediately before the commencement of such period; or (iii) a Participant is required to transfer to an office or business location that is more than 60 miles from the primary location to which he or she was assigned prior to the commencement of a Change in Control Period. No event or condition shall constitute Good Reason
hereunder unless (a) a Participant provides to the Committee written notice of his or her objection to such event not later than 60 days after such Participant first learns, or should have learned, of such event; (b) such event is not corrected by the Company promptly after receipt of such notice, but in no event more than 30 days after receipt thereof; and (c) such Participant Separates from Service not more than 15 days following the expiration of the 30-day period described in clause (b) hereof. The executive also must satisfy the conditions included in the waiver, release and covenants agreement defined in the Executive Severance Plan.
Under the Executive Severance Plan, an executive would receive an amount up to two times the sum of annualized base salary and the average non-equity incentive plan bonus over the last three fiscal years and reimbursement of COBRA premiums for up to 24 months. Payments may also include the purchase of the executive officer’s primary residence and reimbursement of relocation expenses, but only if the executive relocates his/her primary residence more than 100 miles. No excise tax payments or gross-ups are made; instead, benefits will be reduced in lieu of the imposition of the tax. The numbers shown below do not give effect to this reduction.
Subject to the conditions described above, upon a Change in Control, SERP benefits are: (i) fully vested;
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CLECO POWER | | 2022 FORM 10-K |
(ii) increased by adding three years to an affected executive’s age, subject to a minimum benefit of 50% of compensation; and (iii) subject to a modified actuarial reduction determined by increasing the executive’s age by three years.
If an executive officer is vested and of eligible retirement age, he or she may become eligible to begin to receive the annual retirement benefit described above upon a Change in Control.
The following tables set forth the value of post-employment payments and benefits that are not generally made available to all employees. Each separation event is assumed to occur on December 31, 2022.2023. Retirement is assumed to occur at age 55 or the named executive officer’s actual attained age if greater than 55. Estimated payments
under the STIPLTRP and LTIPLTRP for disability, death, retirement and constructive termination are uncertain until the completion of the performance period/cycle. In the case of the STIP,LTRP, the performance period is the current fiscal year. The estimated payment for the home purchase and relocation is a projection of the expense to the Company to sell the named executive officer’s principal residence including any loss avoided by the named executive officer by having the right to sell the residence to the Company, plus the projected cost to the Company to relocate the named executive officer.
Pursuant to Item 401(j) of Regulation S-K, the separation events disclosed in this Annual Report on Form 10-K are assumed to occur in the past, as of December 31, 2022.2023.
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| Mr. Fontenot | | | | | | | |
| VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 721,000 | | $ | 0 | | $ | 3,009,405 | |
| Annual Cash Bonus | 0 | | 667,467 | | 667,467 | | 667,467 | | 667,467 | | 0 | | 0 | |
| Long-Term Incentive | 0 | | 2,921,000 | | 2,921,000 | | 2,921,000 | | 2,921,000 | | 0 | | 5,050,000 | |
| Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 50,000 | | 0 | | 0 | |
Present Value of Incremental SERP Payments(1) | 0 | | 201,869 | | 3,705,198 | | 0 | | 0 | | (2,502,107) | | 2,017,684 | |
| SERP Supplemental Death Benefit | 0 | | 0 | | 2,163,000 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 31,033 | | 0 | | 41,377 | |
| Total Incremental Value | $ | 0 | | $ | 3,790,336 | | $ | 9,456,665 | | $ | 3,588,467 | | $ | 4,390,500 | | $ | (2,502,107) | | $ | 10,201,966 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Fontenot | | | | | | | |
| VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 750,000 | | $ | 0 | | $ | 2,964,445 | |
| Annual Cash Bonus | 0 | | 1,142,754 | | 1,142,754 | | 1,142,754 | | 1,142,754 | | 0 | | 0 | |
| Long-Term Incentive | 0 | | 3,704,500 | | 3,704,500 | | 3,704,500 | | 3,704,500 | | 0 | | 5,529,000 | |
| Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 50,000 | | 0 | | 0 | |
Present Value of Incremental SERP Payments(1) | 0 | | 3,361,302 | | 7,093,636 | | 2,971,836 | | 2,971,836 | | (2,971,836) | | 4,719,879 | |
| SERP Supplemental Death Benefit | 0 | | 0 | | 2,437,500 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 31,798 | | 0 | | 42,398 | |
| Total Incremental Value | $ | 0 | | $ | 8,208,556 | | $ | 14,378,390 | | $ | 7,819,090 | | $ | 8,650,888 | | $ | (2,971,836) | | $ | 13,339,222 | |
(1) As of December 31, 2022,2023, Mr. Fontenot was vested in SERP payments, which would be forfeited upon termination for cause.
| | Ms. Guillory | Ms. Guillory | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 390,000 | | $ | 0 | | $ | 1,141,184 | |
| Annual Cash Bonus | Annual Cash Bonus | 0 | | 191,522 | | 191,522 | | 0 | | 191,522 | | 0 | | 0 | |
| Long-Term Incentive | Long-Term Incentive | 0 | | 565,640 | | 565,640 | | 0 | | 565,640 | | 0 | | 1,051,000 | |
| Cash Payment in Lieu of Outplacement Services | Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 25,000 | | 0 | | 0 | |
| Present Value of Incremental SERP Payments | Present Value of Incremental SERP Payments | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| SERP Supplemental Death Benefit | SERP Supplemental Death Benefit | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation Expenses | Purchase of Principal Residence/Relocation Expenses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
| COBRA Medical Coverage | COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 31,033 | | 0 | | 41,377 | |
| Total Incremental Value | Total Incremental Value | $ | 0 | | $ | 757,162 | | $ | 757,162 | | $ | 0 | | $ | 1,203,195 | | $ | 0 | | $ | 2,317,061 | |
(1) As of December 31, 2022,2023, Ms. Guillory was not eligible for retirement.
| | Mr. LaBorde | |
| Mr. Kleehammer | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 350,000 | | $ | 0 | | $ | 1,026,577 | |
| Annual Cash Bonus | Annual Cash Bonus | 0 | | 131,311 | | 131,311 | | 0 | | 131,311 | | 0 | | 0 | |
| Long-Term Incentive | Long-Term Incentive | 0 | | 510,100 | | 510,100 | | 0 | | 510,100 | | 0 | | 882,000 | |
| Cash Payment in Lieu of Outplacement Services | Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 25,000 | | 0 | | 0 | |
Present Value of Incremental SERP Payments(2) | 0 | | 638,730 | | 1,500,205 | | 0 | | 0 | | (932,667) | | 939,794 | |
| Present Value of Incremental SERP Payments | |
| SERP Supplemental Death Benefit | SERP Supplemental Death Benefit | 0 | | 0 | | 875,000 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation Expenses | Purchase of Principal Residence/Relocation Expenses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
| COBRA Medical Coverage | COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 31,033 | | 0 | | 41,377 | |
| Total Incremental Value | Total Incremental Value | $ | 0 | | $ | 1,280,141 | | $ | 3,016,616 | | $ | 0 | | $ | 1,047,444 | | $ | (932,667) | | $ | 2,973,248 | |
(1) As of December 31, 2022,2023, Mr. LaBordeKleehammer was not eligible for retirement.
(2)
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. LaBorde | | | | | | | |
| VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
| Annual Cash Bonus | 0 | | 0 | | 0 | | 227,809 | | 0 | | 0 | | 0 | |
| Long-Term Incentive | 0 | | 0 | | 0 | | 515,250 | | 0 | | 0 | | 0 | |
| Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Present Value of Incremental SERP Payments | 0 | | 0 | | 0 | | 1,897,688 | | 0 | | 0 | | 0 | |
| SERP Supplemental Death Benefit | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation Expenses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Total Incremental Value | $ | 0 | | $ | 0 | | $ | 0 | | $ | 2,640,747 | | $ | 0 | | $ | 0 | | $ | 0 | |
(1)As of Mr. LaBorde retired from the Company on December 31, 2022, Mr. LaBorde was vested in SERP payments, which would be forfeited upon termination for cause.2023.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | Mr. Hilton | Mr. Hilton | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | |
| VALUE OF PAYMENT/BENEFIT | VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 295,000 | | $ | 0 | | $ | 864,540 | |
| Annual Cash Bonus | Annual Cash Bonus | 0 | | 92,242 | | 92,242 | | 0 | | 92,242 | | 0 | | 0 | |
| Long-Term Incentive | Long-Term Incentive | 0 | | 502,350 | | 502,350 | | 0 | | 502,350 | | 0 | | 853,000 | |
| Cash Payment in Lieu of Outplacement Services | Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 25,000 | | 0 | | 0 | |
| Present Value of Incremental SERP Payments | Present Value of Incremental SERP Payments | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| SERP Supplemental Death Benefit | SERP Supplemental Death Benefit | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation Expenses | Purchase of Principal Residence/Relocation Expenses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
| COBRA Medical Coverage | COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 31,033 | | 0 | | 41,377 | |
| Total Incremental Value | Total Incremental Value | $ | 0 | | $ | 594,592 | | $ | 594,592 | | $ | 0 | | $ | 945,625 | | $ | 0 | | $ | 1,842,417 | |
(1) As of December 31, 2022,2023, Mr. Hilton was not eligible for retirement.
| | | | | | | | | | | | | | | | | | | | | | | |
| Mr. Conway | | | | | | | |
| VALUE OF PAYMENT/BENEFIT | TERMINATION
BY EXECUTIVE | DISABILITY | DEATH | RETIREMENT (1) | CONSTRUCTIVE
TERMINATION | TERMINATION
FOR CAUSE | CHANGE IN
CONTROL |
| Cash Severance | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 385,000 | | $ | 0 | | $ | 955,771 | |
| Annual Cash Bonus | 0 | | 174,169 | | 174,169 | | 0 | | 174,169 | | 0 | | 0 | |
| Long-Term Incentive | 0 | | 649,250 | | 649,250 | | 0 | | 649,250 | | 0 | | 1,137,500 | |
| Cash Payment in Lieu of Outplacement Services | 0 | | 0 | | 0 | | 0 | | 25,000 | | 0 | | 0 | |
| SERP Supplemental Death Benefit | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | |
| Purchase of Principal Residence/Relocation Expenses | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 83,500 | |
| COBRA Medical Coverage | 0 | | 0 | | 0 | | 0 | | 34,846 | | 0 | | 46,461 | |
| Total Incremental Value | $ | 0 | | $ | 823,419 | | $ | 823,419 | | $ | 0 | | $ | 1,268,265 | | $ | 0 | | $ | 2,223,232 | |
(1)
As of December 31, 2022, Mr. Conway was not eligible for retirement.
BOARD OF MANAGERS COMPENSATION
20222023 Board of Managers Compensation | NAME (1) | NAME (1) | FEES EARNED
OR PAID IN
CASH ($) | TOTAL ($) | NAME (1) | FEES EARNED
OR PAID IN
CASH ($) | TOTAL ($) |
| A | A | B | C | A | B | C |
| Rick Gallot | Rick Gallot | $ | 160,000 | | $ | 160,000 | |
| Randy Gilchrist | Randy Gilchrist | $ | 160,000 | | $ | 160,000 | |
| Peggy Scott | Peggy Scott | $ | 250,000 | | $ | 250,000 | |
| Melissa Stark | Melissa Stark | $ | 3,750 | | $ | 3,750 | |
| Bruce Wainer | Bruce Wainer | $ | 160,000 | | $ | 160,000 | |
(1)Messrs. Arnould, Chapman, Fronimos, Hanrahan, Leslie,Fronimos, Leslie, Perry, Rubin, Turner, and Solís-Hernández were appointed to the Boards by the Owner Group and do not receive additional compensation for their service on the Boards.
General
Column B, “Fees Earned or Paid in Cash” represents cash compensation earned and/or received in 2022.2023.
A non-management Board Manager may elect to participate in the Company’s Deferred Compensation Plan and defer the receipt of all or part of his or her fees. Benefits are equal to the amount credited to each Board Manager’s individual account based on compensation deferred plus applicable investment returns as specified by the director upon election to participate in the plan. Investment options are similar to those provided to participants in the 401(k) Plan. Funds may be reallocated between investments at the discretion of the Board Manager. Accounts, which may be designated separately by deferral year, are payable in the form of a single-sum payment or in the form of substantially equal annual installments, not to exceed 15, when a Board Manager ceases to serve on the Cleco’s Boards or attains a specified age.
Fees Earned or Paid in Cash
During 2022,2023, each Board Manager who is not a Cleco employee or appointed by the Owner Group, except Ms. Stark,
received an annual cash retainer of $160,000.$170,000. Ms. Stark received an annual cash retainer of $3,750. During this period, the non-management Chair was compensated with an additional retainer of $90,000.$95,000.
Board Managers are permitted to defer receipt of their fees under the Company’s Deferred Compensation Plan. Messrs. Gallot and Gilchrist elected to defer all or a portion of their fees in 2022.2023.
Cleco reimburses Board Managers for travel and related expenses incurred for attending meetings of Cleco’s Boards and Board committees, including travel costs for spouses/
companions. NoMs. Scott incurred $282 of expenses for spouses/companions were incurredspousal/companion travel during 2022.2023.
Cleco also provides its Board Managers who are not employed by Cleco or appointed by the Owner Group with $200,000 of life insurance and permanent total disability coverage under a group accidental death and dismemberment plan maintained by Cleco Power. The total 20222023 premium for all coverage (exempt employees, officers and Board Managers) under this plan was $6,128.
Interests of the Board of Managers
In 2022,2023, no non-management member of Cleco’s Boards performed services for or received compensation from Cleco or its affiliates except for those services relating to his or her duty as a member of Cleco’s Boards.
REPORT OF THE LEADERSHIP DEVELOPMENT AND COMPENSATION COMMITTEE
The Leadership Development and Compensation Committee of the Boards (see “Boards of Managers of Cleco” above and “Director Independence and Related Party Transactions” below), includes four managers, one of whom meets the additional requirements for independence which were adopted by the Board. The Leadership Development and Compensation Committee operates under a written charter last revised in December 2021, a copy of which is posted on
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Cleco’s web site at https://www.cleco.com/about/leadership-governance/board-committees. A copy of this charter also is available free of charge by request sent to: Public Relations, Cleco, P.O. Box 5000, Pineville, LA 71361-5000.
The Leadership Development and Compensation Committee was established in April 2016.
Based on the review and discussions referred to above, the Leadership Development and Compensation Committee recommended to the Company’s Boards that the CD&A and related required compensation disclosure tables be included in this Annual Report on Form 10-K and filed with the SEC.
The Leadership Development and Compensation Committee of the Boards of Managers of Cleco Holdings and Cleco Power
Andrew Chapman, Chair
Christopher Leslie
Richard Gallot, Jr.
Steven Turner
Leadership Development and Compensation Committee Interlocks and Insider Participation
The members of the Leadership Development and Compensation Committee are set forth above. No members of
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
the Leadership Development and Compensation Committee were officers or employees of the Company or any of its subsidiaries during 2022,2023, were former Company officers, or had any relationship otherwise requiring disclosure.
CEO Pay Ratio
The aggregate compensation of the executive who served in the CEO role in 20222023 (Mr. Fontenot) was $2,651,721.$4,308,399. This
amount differs from the aggregate amount reflected in the Summary Compensation Table included in this Annual Report on Form 10-K because of the inclusion of the value of the Company’s contribution to health and welfare benefits. The median employee’s annual total compensation for 20222023 was $113,124,$125,679, calculated including the same components of total pay as was used for Mr. Fontenot. As a result, Cleco estimates that the CEO’s 20222023 annual total compensation was 23.4was 34.3 times that of the median employee’s annual total compensation. The
median employee was determined based on employees of the Company on December 31, 2022,2023, using the consistently applied compensation measure of target total cash compensation (including base salary and target bonus). Target total cash compensation was annualized for those employees that were not employed for the full year of 2022.2023.
The pay ratio estimate has been calculated in a manner consistent with Item 402(u) of Regulation S-K. In addition, because the SEC rules for identifying the median employee allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Security Ownership of Directors and Management and Certain Beneficial Owners
Following the closing of the 2016 Merger, there are no longer any outstanding shares of Cleco Corporation common stock.
Equity Compensation Plan Information
Cleco has no compensation plans under which equity securities are awarded.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Director Independence and Related Party Transactions
Cleco’s Boards have adopted categorical standards to assist them in making determinations of managers’ independence. These categorical standards are posted on Cleco’s web site at https://cleco.com/about/leadership-governance/governance-guidelines. A copy of the standards is also available free of charge by request sent to: Public Relations, Cleco, P.O. Box 5000, Pineville, LA 71361-5000. The Boards have determined that Rick Gallot (member of the Boards of Cleco Group, Cleco
Holdings and Cleco Power), Randy Gilchrist (member of the Boards of Cleco Group, Cleco Holdings and Cleco Power), Peggy Scott (member of the Boards of Cleco Group, Cleco Holdings, and Cleco Power), Melissa Stark (member of the Board of Cleco Power), and Bruce Wainer (member of the Boards of Cleco Group, Cleco Holdings and Cleco Power) are independent within the meaning of the categorical standards adopted by the Boards.
Cleco has no relationships to report under Item 407(a)(3).
| | | | | | | | |
| CLECO | |
| CLECO POWER | | 2022 FORM 10-K
| | | | | | | | | | | | | | |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP (PwC) for the years ended December 31, 2022,2023, and 2021,2022, respectively, were as follows:
| | 2022 | | 2021 |
| 2023 | | | 2023 | | 2022 |
| Audit fees | Audit fees | $ | 2,420,500 | | | $ | 2,258,964 | |
| Audit-related fees | Audit-related fees | 208,500 | | | 206,250 | |
| Tax fees | Tax fees | 593,017 | | | 394,920 | |
| Other fees | Other fees | 60,251 | | | 8,251 | |
| Total | Total | $ | 3,282,268 | | | $ | 2,868,385 | |
Audit fees include professional fees rendered by PwC for financial statement audit and review services that are customary under generally accepted auditing standards or that are customary for the purpose of rendering an opinion or review report on the financial statements.
Audit-related fees consist of assurance and related services that are traditionally performed by PwC, such as audits of stand-alone financial statements or other assurance services not required by statute or regulation.
Tax fees consist of professional services rendered by PwC for tax compliance, tax planning and tax advice, and
consulting services, including assistance and representation in connection with tax audits and appeals, tax advice related to employee benefit plans and requests for rulings or technical advice from taxing authorities.
Other fees primarily reflect costs for training services and accounting research software licenses.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has established a policy requiring its pre-approval of all audit and non-audit services provided by the independent registered public accounting firm. The policy
requires the general pre-approval of annual audit services and specific pre-approval of all other permitted services. In determining whether to pre-approve permitted services, the Audit Committee considers whether such services are consistent with SEC rules and regulations. Furthermore, requests for pre-approval for services that are eligible for general pre-approval must be detailed as to the services to be provided. The independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval and the fees for the
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| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
services performed to date. During 20222023 and 2021,2022, all audit and non-audit fees were pre-approved by the Audit Committee in accordance with the policy described above and pursuant to applicable rules of the SEC.
For the fiscal years ended DeDecember 31, 2023cember 31,, and 2022, and 2021, professional services provided for Cleco Power that were directly billed to Cleco Holdings were allocated to Cleco Power though not billed directly to Cleco Power. The following is Cleco Power’s allocation of professional services provided by PwC:
| | 2022 | | 2021 |
| 2023 | | | 2023 | | 2022 |
| Audit fees | Audit fees | $ | 1,961,400 | | | $ | 1,846,721 | |
| Audit-related fees | Audit-related fees | 177,500 | | | 176,250 | |
| Tax fees | Tax fees | 474,414 | | | 315,936 | |
| Other fees | Other fees | 8,671 | | | 6,601 | |
| Total | Total | $ | 2,621,985 | | | $ | 2,345,508 | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
| | | FORM 10-K ANNUAL REPORT |
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| | Report of Independent Registered Public Accounting Firm (PCAOB ID 238) | |
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| 15(a)(2) | Financial Statement Schedules | |
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| Financial Statement Schedules other than those shown in the above index are omitted because they are either not required or are not applicable or the required information is shown in the Consolidated Financial Statements and Notes thereto | |
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The Exhibits designated by an asterisk are filed herewith, except for Exhibits 32.1, 32.2, 32.3, 32.4, which are furnished herewith (and not filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section). The Exhibits not so designated previously have been filed with the SEC and are incorporated herein by reference. The Exhibits designated by two asterisks are management contracts and compensatory plans and arrangements required to be filed as Exhibits to this Report.
Pursuant to paragraph 601(b)(4)(iii)(A) of Regulation S-K, the Registrants have omitted from the following listings of Exhibits, and hereby agrees to furnish to the SEC upon its request, copies of certain instruments, each relating to debt not exceeding 10 percent of the total assets of the respective Registrant and its subsidiaries on a consolidated basis.
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| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| EXHIBITS | | | | |
| CLECO | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER |
| 2(a) | | 1-15759 | 8-K(10/20/14) | 2.1 |
| 2(b) | | 1-15759 | 10-Q(3/18) | 2.1 |
| 2(c) | | 1-15759 | 8-K(2/8/19) | 10.6 |
| * | 2(d) | | | | |
| 3(a) | | 1-15759 | 8-K(4/19/16) | 3.1 |
| 3(b) | | 1-15759 | 8-K(4/19/16) | 3.2 |
| 4(a)(1) | Indenture between Cleco Power (as successor) and Bankers Trust Company, as Trustee, dated as of October 1, 1988 | 33-24896 | S-3(10/11/88) | 4(b) |
| 4(a)(2) | | 333-02895 | S-3(4/29/96) | 4(a)(2) |
| 4(a)(3) | | 333-52540 | S-3/A(1/26/01) | 4(a)(2) |
| 4(a)(4) | | 333-52540 | S-3/A(1/26/01) | 4(a)(3) |
| 4(a)(5) | | 1-05663 | 8-K(11/28/05) | 4.1 |
| 4(a)(6) | | 1-05663 | 8-K(11/12/09) | 4.1 |
| 4(a)(7) | | 1-05663 | 8-K(11/15/10) | 4.1 |
| 4(b)(1) | | 1-15759 | 8-K(5/17/16) | 4.1 |
| 4(b)(2) | | 1-15759 | 8-K(5/17/16) | 4.2 |
| 4(b)(3) | | 1-15759 | 8-K(5/17/16) | 4.3 |
| 4(b)(4) | | 1-15759 | 8-K(5/24/16)8-K(05/02/23) | 4.2 |
| 4(c)(1) | | 1-15759 | 8-K(9/12/19) | 4.1 |
| 4(c)(2) | | 1-15759 | 8-K(9/12/19) | 4.2 |
| 4(d) | | 1-05663 | 10-Q(9/99) | 4(c) |
| ** | 10(a)(1) | | 1-15759 | 10-K(2008) | 10(f)(4) |
| ** | 10(a)(2) | | 1-15759 | 8-K(12/9/08) | 10.3 |
| ** | 10(a)(3) | | 1-15759 | 10-Q(9/11) | 10.2 |
| ** | 10(a)(4) | | 1-15759 | 10-K(2014) | 10(c)(10) |
| ** | 10(a)(5) | | 1-15759 | 8-K(12/21/17) | 10.2 |
| ** | 10(a)(6) | | 1-15759 | 10-K(2003) | 10(e)(1)(c) |
| ** | 10(a)(7) | | 1-15759 | 10-K(2002) | 10(z)(1) |
| ** | 10(a)(8) | | 1-15759 | 10-K(2004) | 10(v)(3) |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| ** | 10(b)(1) | | 1-15759 | 10-Q(6/21) | 10.3 |
| ** | 10(b)(2) | | 1-15759 | 8-K(3/28/17) | 10.1 |
| ** | 10(b)(3) | | 1-15759 | 8-K(4/27/11) | 10.1 |
| ** | 10(b)(4) | | 1-15759 | 8-K(12/21/17) | 10.1 |
| ** | 10(b)(5) | | 1-15759 | 10-Q(6/23) | 10.1 |
| ** | 10(c)(1) | | 333-59696 | S-8(4/27/01) | 4.3 |
| ** | 10(c)(2) | | 1-15759 | 10-K(2008) | 10(n)(5) |
| ** | 10(c)(3) | | 1-15759 | 8-K(12/9/08) | 10.2 |
| ** | 10(c)(4) | | 1-15759 | 10-K(2003) | 10(u) |
| ** | 10(c)(5) | | 1-15759 | 10-Q(9/11) | 10.5 |
| 10(d)(1) | | 1-05663 | 8-K(05/09/12) | 10.1 |
| 10(d)(2) | | 1-15759 | 8-K(11/13/15) | 10.1 |
| 10(d)(3) | | 1-05663 | 8-K(12/21/16) | 10.1 |
| 10(d)(4) | | 1-15759 | 8-K(12/21/17) | 10.1 |
| 10(d)(5) | | 1-15759 | 8-K(2/8/19) | 10.2 |
| 10(d)(6) | | 1-15759 | 8-K(5/21/20) | 10.1 |
| 10(d)(7) | | 1-15759 | 8-K(5/26/21) | 10.1 |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| EXHIBITS | | | | |
| CLECO | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER |
| 10(d)(8) | | 1-15759 | 8-K(5/26/21) | 10.2 |
| 10(d)(9) | | 1-15759 | 8-K(5/26/21) | 10.1 |
| 10(d)(10) | | | | | | | | |
CLECO1-15759 | | |
CLECO POWER | 10-Q(3/23) | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | |
EXHIBITS | | | | |
CLECO | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER10.1 |
| 10(d)(10)(11) | | 1-15759 | 8-K(5/26/21) | 10.2 |
| 10(d)(12) | | 1-15759 | 10-Q(3/23) | 10.2 |
| 10(e)(1) | | 1-15759 | 10-Q(3/17) | 10.3 |
| 10(e)(2) | | 1-15759 | 10-Q(3/17) | 10.4 |
| 10(e)(3) | | 1-15759 | 10-Q(3/17) | 10.5 |
| 10(f) | | 1-15759 | 10-Q(3/22)23) | 10.110.5 |
| 10(g) | | 1-15759 | 10-Q(3/17) | 10.6 |
| * | 10(h) | | | | |
| * | 21 | | | | |
| * | 24(a) | | | | |
| * | 31.1 | | | | |
| * | 31.2 | | | | |
| * | 32.1 | | | | |
| * | 32.2 | | | | |
| * | 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | |
| * | 101.SCH | Inline XBRL Taxonomy Extension Schema | | | |
| * | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | | | |
| * | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | | | |
| * | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | | | |
| * | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | | | |
| * | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER |
| 3(a) | | 1-05663 | 8-K(4/19/16) | 3.3 |
| 3(b) | | 1-05663 | 8-K(4/19/16) | 3.4 |
| 4(a)(1) | Indenture between the Company and Bankers Trust Company, as Trustee, dated as of October 1, 1988 | 33-24896 | S-3(10/11/88) | 4(b) |
| 4(a)(2) | | 333-02895 | S-3(4/29/96) | 4(a)(2) |
| 4(a)(3) | | 333-52540 | S-3/A(1/26/01) | 4(a)(2) |
| 4(a)(4) | | 333-52540 | S-3/A(1/26/01) | 4(a)(3) |
| 4(a)(5) | | 1-05663 | 8-K(7/6/05) | 4.1 |
| 4(a)(6) | | 1-05663 | 8-K(11/28/05) | 4.1 |
| 4(a)(7) | | 1-05663 | 8-K(6/2/08) | 4.1 |
| 4(a)(8) | | 1-05663 | 8-K(11/12/09) | 4.1 |
| 4(a)(9) | | 1-05663 | 8-K(11/15/10) | 4.1 |
| 4(b) | | 333-71643-01 | 10-Q(9/99) | 4(c) |
| 4(c) | | 1-05663 | 8-K(11/20/07) | 4.1 |
| 4(d)4(c) | | 1-05663 | 10-Q(3/10) | 4.1 |
| 4(e)4(d) | | 1-05663 | 10-Q(3/10) | 4.2 |
| 4(f)4(e)(1) | | 1-05663 | 8-K(09/10/21) | 4.1 |
| 4(f)4(e)(2) | | 1-05663 | 8-K(09/10/21) | 4.2 |
| 4(f)4(e)(3) | | 1-05663 | 8-K(09/10/21) | 4.3 |
| 4(g)4(f)(1) | | 1-05663 | 8-K(6/22/22) | 4.1 |
| 4(g)4(f)(2) | | 1-05663 | 8-K(6/22/22) | 4.2 |
| ** | 10(a) | Supplemental Executive Retirement Plan | 1-05663 | 10-K(1992) | 10(o)(1) |
| 10(b)(1) | | 1-05663 | 8-K(12/19/11) | 10.1 |
| 10(b)(2) | | 1-05663 | 8-K(05/09/12) | 10.1 |
| 10(b)(3) | | 1-05663 | 8-K(11/13/15) | 10.1 |
| 10(b)(4) | | 1-05663 | 8-K(12/21/16) | 10.1 |
| 10(b)(5) | | 1-05663 | 8-K(12/21/17) | 10.1 |
| 10(b)(6) | | 1-05663 | 8-K(5/26/21) | 10.1 |
| 10(b)(7) | | 1-05663 | 10-Q(3/23) | 10.3 |
| 10(b)(7)(8) | | 1-05663 | 8-K(5/26/21) | 10.2 |
| 10(b)(9) | | 1-05663 | 10-Q(3/23) | 10.4 |
| 10(c) | | 1-05663 | 8-K(4/19/16) | 10.4 |
| ** | 10(d)(1) | | 1-05663 | 8-K(3/28/17) | 10.1 |
| ** | 10(d)(2) | | 1-05663 | 8-K(12/21/17) | 10.1 |
| 10(e) | | 1-05663 | 10-Q(3/22)23) | 10.110.5 |
| 10(f)(1) | | 1-05663 | 8-K(6/22/22) | 10.1 |
| 10(f)(2) | | 1-05663 | 8-K(6/22/22) | 10.2 |
| 10(f)(3) | | 1-05663 | 8-K(6/22/22) | 10.3 |
| * | 10(h) | | | | |
| * | 24(a) | | | | |
| * | 31.3 | | | | |
| * | 31.4 | | | | |
| * | 32.3 | | | | |
| * | 32.4 | | | | |
| * | 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | | |
| * | 101.SCH | Inline XBRL Taxonomy Extension Schema | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| CLECO POWER | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER |
| * | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | | | |
| * | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | | | |
| * | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | | | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | |
CLECO POWER | SEC FILE OR
REGISTRATION
NUMBER | REGISTRATION
STATEMENT OR
REPORT | EXHIBIT
NUMBER |
| * | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | | | |
| * | 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | |
| | | | | | | | | | | | | | |
ITEM 16. FORM 10-K SUMMARY |
None.
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | |
| CLECO HOLDINGS (Parent Company Only) | SCHEDULE I |
| | Condensed Statements of Income | Condensed Statements of Income | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | FOR THE YEAR ENDED DEC. 31, | |
| | | FOR THE YEAR ENDED DEC. 31, | |
| | | FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating expenses | Operating expenses | |
| Administrative and general | Administrative and general | $ | 1,088 | | | $ | 1,644 | | | $ | 1,497 | |
| Administrative and general | |
| Administrative and general | |
| Merger transaction costs | Merger transaction costs | 228 | | | 436 | | | 3,606 | |
| | Other operating expense | |
| Other operating expense | |
| Other operating expense | Other operating expense | 246 | | | 247 | | | 239 | |
| Total operating expenses | Total operating expenses | 1,562 | | | 2,327 | | | 5,342 | |
| Operating loss | Operating loss | (1,562) | | | (2,327) | | | (5,342) | |
| Equity income from subsidiaries, net of tax | Equity income from subsidiaries, net of tax | 231,702 | | | 234,512 | | | 173,337 | |
| Interest, net | Interest, net | (62,267) | | | (60,461) | | | (64,362) | |
| Other (expense) income, net | (724) | | | 8,788 | | | 3,021 | |
| Income before income taxes | 167,149 | | | 180,512 | | | 106,654 | |
| Other income (expense), net | |
| (Loss) income before income taxes | |
| Federal and state income tax benefit | Federal and state income tax benefit | (21,662) | | | (14,454) | | | (15,646) | |
| Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | |
| Net (loss) income | |
| The accompanying notes are an integral part of the condensed financial statements. | The accompanying notes are an integral part of the condensed financial statements. | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | |
| CLECO HOLDINGS (Parent Company Only) | SCHEDULE I |
| | Condensed Statements of Comprehensive Income | Condensed Statements of Comprehensive Income | | |
| FOR THE YEAR ENDED DEC. 31, |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Net income | Net income | $ | 188,811 | | | $ | 194,966 | | | $ | 122,300 | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | |
| Postretirement benefits gain (loss) (net of tax expense of $8,728, tax expense of $394, and tax benefit of $2,922, respectively) | 23,688 | | | 2,167 | | | (8,283) | |
| Postretirement benefits gain (loss) (net of tax benefit of $1,905, tax expense of $8,728, and tax expense of $394, respectively) | |
| Postretirement benefits gain (loss) (net of tax benefit of $1,905, tax expense of $8,728, and tax expense of $394, respectively) | |
| Postretirement benefits gain (loss) (net of tax benefit of $1,905, tax expense of $8,728, and tax expense of $394, respectively) | |
| | Total other comprehensive income (loss), net of tax | Total other comprehensive income (loss), net of tax | 23,688 | | | 2,167 | | | (8,283) | |
| Total other comprehensive income (loss), net of tax | |
| Total other comprehensive income (loss), net of tax | |
| Comprehensive income, net of tax | Comprehensive income, net of tax | $ | 212,499 | | | $ | 197,133 | | | $ | 114,017 | |
| The accompanying notes are an integral part of the condensed financial statements. | |
| The accompanying notes are an integral part of the financial statements. | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | |
| CLECO HOLDINGS (Parent Company Only) | SCHEDULE I |
| | Condensed Balance Sheets | Condensed Balance Sheets | | |
| AT DEC. 31, |
| AT DEC. 31, | |
| AT DEC. 31, | |
| AT DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | (THOUSANDS) | 2023 | | 2022 |
| Assets | Assets | | | | Assets | | | |
| Current assets | Current assets | | | | Current assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 2,556 | | | $ | 10,408 | |
| Accounts receivable - affiliate | Accounts receivable - affiliate | 31,242 | | | 94,704 | |
| Other accounts receivable | Other accounts receivable | 1,781 | | | 419 | |
| Taxes receivable, net | Taxes receivable, net | 13,242 | | | 4,001 | |
| Cash surrender value of trust-owned life insurance policies | Cash surrender value of trust-owned life insurance policies | 43,388 | | | 82,316 | |
| | Other current assets | Other current assets | 65 | | | 59 | |
| | Other current assets | |
| | Other current assets | |
| Total current assets | Total current assets | 92,274 | | | 191,907 | |
| Equity investment in subsidiaries | Equity investment in subsidiaries | 4,292,018 | | | 4,304,496 | |
| Accumulated deferred federal and state income taxes, net | Accumulated deferred federal and state income taxes, net | 145,513 | | | 148,371 | |
| Other deferred charges | Other deferred charges | 788 | | | 1,010 | |
| Total assets | Total assets | $ | 4,530,593 | | | $ | 4,645,784 | |
| | Liabilities and member's equity | Liabilities and member's equity | | | |
| Liabilities and member's equity | |
| Liabilities and member's equity | | | | |
| Liabilities | Liabilities | |
| Current liabilities | Current liabilities | |
| Current liabilities | |
| Current liabilities | |
| Long-term debt due within one year | |
| Long-term debt due within one year | |
| Long-term debt due within one year | Long-term debt due within one year | $ | 230,523 | | | $ | 67,700 | |
| Accounts payable | Accounts payable | 1,900 | | | 570 | |
| Short-term debt | Short-term debt | 64,000 | | | — | |
| Accounts payable - affiliate | Accounts payable - affiliate | 17,496 | | | 120,691 | |
| Taxes payable, net | Taxes payable, net | 33 | | | 14 | |
| Interest accrued | Interest accrued | 10,264 | | | 10,123 | |
| Deferred compensation | Deferred compensation | 12,162 | | | 14,420 | |
| Other current liabilities | Other current liabilities | 749 | | | 748 | |
| Total current liabilities | Total current liabilities | 337,127 | | | 214,266 | |
| Postretirement benefit obligations | Postretirement benefit obligations | 2,774 | | | 3,941 | |
| Other deferred credits | Other deferred credits | 313 | | | 1,313 | |
| Long-term debt, net | Long-term debt, net | 1,243,312 | | | 1,472,108 | |
| Total liabilities | Total liabilities | 1,583,526 | | | 1,691,628 | |
| Commitments and contingencies (Note 5) | Commitments and contingencies (Note 5) | | Commitments and contingencies (Note 5) | | | |
| | Member's equity | Member's equity | 2,947,067 | | | 2,954,156 | |
| | Member's equity | |
| | Member's equity | |
| Total liabilities and member's equity | Total liabilities and member's equity | $ | 4,530,593 | | | $ | 4,645,784 | |
| The accompanying notes are an integral part of the condensed financial statements. | The accompanying notes are an integral part of the condensed financial statements. | | | | The accompanying notes are an integral part of the condensed financial statements. | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | |
| CLECO HOLDINGS (Parent Company Only) | SCHEDULE I |
| | Condensed Statements of Cash Flows | Condensed Statements of Cash Flows | | |
| FOR THE YEAR ENDED DEC. 31, |
| | | FOR THE YEAR ENDED DEC. 31, | |
| | | FOR THE YEAR ENDED DEC. 31, | |
| | | FOR THE YEAR ENDED DEC. 31, | |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Operating activities | Operating activities | |
| Net cash provided by operating activities | |
| Net cash provided by operating activities | |
| Net cash provided by operating activities | Net cash provided by operating activities | $ | 180,270 | | | $ | 56,054 | | | $ | 73,452 | |
| Investing activities | Investing activities | |
| | Return on investment in trust-owned life insurance policies | Return on investment in trust-owned life insurance policies | 35,175 | | | — | | | — | |
| | | Return on investment in trust-owned life insurance policies | |
| | Return on investment in trust-owned life insurance policies | |
| | Net cash provided by investing activities | |
| Net cash provided by investing activities | |
| Net cash provided by investing activities | Net cash provided by investing activities | 35,175 | | | — | | | — | |
| Financing activities | Financing activities | |
| | Draws on credit facility | Draws on credit facility | 64,000 | | | — | | | 88,000 | |
| | Draws on credit facility | |
| | Draws on credit facility | |
| Payments on credit facility | Payments on credit facility | — | | | — | | | (88,000) | |
| | Repayment of long-term debt | |
| Repayment of long-term debt | |
| Repayment of long-term debt | Repayment of long-term debt | (67,700) | | | (66,000) | | | (64,000) | |
| Payment of financing costs | Payment of financing costs | (9) | | | (1,268) | | | (2,838) | |
| | Distributions to member | Distributions to member | (219,588) | | | — | | | — | |
| | Distributions to member | |
| | Distributions to member | |
| | Net cash used in financing activities | Net cash used in financing activities | (223,297) | | | (67,268) | | | (66,838) | |
| Net (decrease) increase in cash and cash equivalents | (7,852) | | | (11,214) | | | 6,614 | |
| Net cash used in financing activities | |
| Net cash used in financing activities | |
| Net increase (decrease) in cash and cash equivalents | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 10,408 | | | 21,622 | | | 15,008 | |
| Cash and cash equivalents at end of period | Cash and cash equivalents at end of period | $ | 2,556 | | | $ | 10,408 | | | $ | 21,622 | |
| | Supplementary cash flow information | Supplementary cash flow information | |
| Supplementary cash flow information | |
| Supplementary cash flow information | |
| Interest paid, net of amount capitalized | Interest paid, net of amount capitalized | $ | 59,848 | | | $ | 57,688 | | | $ | 62,745 | |
| Income taxes refunded, net | $ | — | | | $ | — | | | $ | (2,942) | |
| Interest paid, net of amount capitalized | |
| Interest paid, net of amount capitalized | |
| Income taxes paid, net | |
| | The accompanying notes are an integral part of the condensed financial statements. | The accompanying notes are an integral part of the condensed financial statements. | |
| | The accompanying notes are an integral part of the condensed financial statements. | |
| | The accompanying notes are an integral part of the condensed financial statements. | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | |
| CLECO HOLDINGS (Parent Company Only) Notes to the Condensed Financial Statements |
| | | | | | | | | | | | | | |
| Note 1 — Summary of Significant Accounting Policies |
The condensed financial statements represent the financial information required by SEC Regulation S-X 5-04 for Cleco Holdings, which requires the inclusion of parent company only financial statements if the restricted net assets of consolidated subsidiaries exceed 25% of total consolidated net assets as of the last day of its most recent fiscal year. As of December 31, 2022,2023, Cleco Holdings’ restricted net assets of consolidated subsidiaries were $1.37$1.36 billion and exceeded 25% of its total consolidated net assets.
Cleco Holdings’ major, first-tier subsidiaries are Cleco Power and Cleco Cajun. Cleco Power contains the LPSC-jurisdictional generation, transmission, and distribution electric utility operations serving its retail and wholesale customers. Cleco Cajun is an unregulated electric utility company that owns generation and transmission assets and supplies wholesale power and capacity to its customers.
The accompanying financial statements have been prepared to present the results of operations, financial condition, and cash flows of Cleco Holdings on a stand-alone basis as a holding company. Investments in subsidiaries and other investees are presented using the equity method. These financial statements should be read in conjunction with Cleco’s consolidated financial statements.
At December 31, 2022,2023, Cleco Holdings had $64.0$110.0 million of outstanding borrowings under its $175.0 million revolving credit facility at a weighted average all-in interest rate of 5.977%7.079%. At December 31, 2021,2022, Cleco Holdings had no short-term debt outstanding.$64.0 million of outstanding borrowings under its credit facility.
At December 31, 2022,2023, Cleco Holding’s long-term debt outstanding was $1.47$1.41 billion, of which $230.5$66.5 million was due within one year. The amount due within one year primarily represents $165.0$66.7 million of Cleco Holdings’ senior notes due in May 2023 and $65.6 million principal payments on Cleco Holdings’ debt asbank term loan due in May 2024, which also represents the amount required to be paid by the Cleco Cajun TransactionAcquisition commitments to the LPSC.
On May 1, 2023, Cleco Holdings amended certain terms of the supplemental indenture governing its $165.0 million senior notes due in 2023. As a result, the interest rate of the senior notes changed to a floating interest rate equal to SOFR plus 1.725% and the maturity date was extended from May 1, 2023, to May 1, 2025.
On February 17, 2023, Cleco Holdings amended its revolving credit facility and bank term loans to transition the benchmark interest rate from LIBOR to SOFR.
Cleco Holdings’ $175.0 million revolving credit agreement matures on May 21, 2026. Under this agreement, Cleco Holdings is required to maintain total indebtedness less than or equal to 65.0% of total capitalization. At December 31, 2022,2023, the borrowing costs for amounts drawn under this agreement were equal to LIBORSOFR plus 1.625%1.725% or ABR plus 0.625%, plus commitment fees of 0.275% paid on the unused portion of the facility. If Cleco Holdings’ credit ratings were to be downgraded one level by the credit rating agencies, Cleco Holdings may be required to pay incremental interest and commitment fees of 0.125% and 0.05%, respectively.
Upon approval of the Cleco Cajun Transaction,Acquisition, commitments were made to the LPSC by Cleco Holdings, including repayment of $400.0 million of Cleco Holdings’ debt by December 31, 2024. As of December 31, 2022,2023, Cleco Holdings was in compliance with these commitments. The cumulative minimum principal amounts committed to be repaid for each year through 2024 are as follows:
| | | | | | | | |
| (THOUSANDS) | | |
| For the year ending Dec. 31, | | |
| 2019 | | $ | 66,700 | |
| 2020 | | $ | 133,300 | |
| 2021 | | $ | 200,000 | |
| 2022 | | $ | 267,700 | |
| 2023 | | $ | 333,300 | |
| 2024 | | $ | 400,000 | |
|
The principal amounts payable under long-term debt agreements for each year through 20272028 and thereafter are as follows:
| | AMOUNTS PAYABLE UNDER LONG-TERM DEBT ARRANGEMENTS | AMOUNTS PAYABLE UNDER LONG-TERM DEBT ARRANGEMENTS | (THOUSANDS) | AMOUNTS PAYABLE UNDER LONG-TERM DEBT ARRANGEMENTS | (THOUSANDS) |
| For the year ending Dec. 31, | For the year ending Dec. 31, | |
| 2023 | $ | 165,000 | |
| 2024 | |
| 2024 | |
| 2024 | 2024 | $ | 132,300 | |
| 2025 | 2025 | $ | — | |
| 2026 | 2026 | $ | 535,000 | |
| 2027 | 2027 | $ | — | |
| 2028 | |
| Thereafter | Thereafter | $ | 650,000 | |
| | | | | | | | | | | | | | |
| Note 3 — Cash Distributions and Equity Contributions |
Some provisions in Cleco Power’s debt instruments restrict the amount of equity available for distribution to Cleco Holdings by Cleco Power by requiring Cleco Power’s total indebtedness to be less than or equal to 65.0% of total capitalization. In addition, the 2016 Merger Commitments provide for limitations on the amount of distributions that may be paid from Cleco Power to Cleco Holdings, depending on Cleco Power’s common equity ratio and its corporate credit ratings.
The following table summarizes the cash distributions Cleco Holdings received from affiliates during 2023, 2022, 2021, and 2020:2021:
| | | | FOR THE YEAR ENDED DEC. 31, | | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | (THOUSANDS) | 2022 | | 2021 | | 2020 | (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Cleco Power | Cleco Power | $ | 105,500 | | | $ | — | | | $ | — | |
| Cleco Cajun | Cleco Cajun | 137,000 | | | 111,000 | | | 134,000 | |
| | Total | Total | $ | 242,500 | | | $ | 111,000 | | | $ | 134,000 | |
| | Total | |
| | Total | |
During the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco Holdings made no contributions to affiliates.
During the years ended December 31, 2023, 2022, 2021, and 2020,2021, Cleco Holdings received no equity contributions from Cleco Group.
During the yearyears ended December 31, 2023 and December 31, 2022, Cleco Holdings made $53.5 million and $219.6 million, respectively, of distribution payments to Cleco
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
Group. During the yearsyear ended December 31, 2021, and 2020, Cleco Holdings made no distribution payments to Cleco Group.
Cleco Holdings’ (Parent Company Only) Condensed Statements of Income reflect income tax expense (benefit) for the following line items:
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
| | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2022 | | 2021 | | 2020 |
| Federal and state income tax benefit | $ | (21,662) | | | $ | (14,454) | | | $ | (15,646) | |
| Equity income from subsidiaries - federal and state income tax expense | $ | 22,579 | | | $ | 27,565 | | | $ | 51,364 | |
For information regarding the TCJA, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 11 — Income Taxes — TCJA.” | | | | | | | | | | | | | | | | | |
| | FOR THE YEAR ENDED DEC. 31, |
| (THOUSANDS) | 2023 | | 2022 | | 2021 |
| Federal and state income tax benefit | $ | (19,048) | | | $ | (21,662) | | | $ | (14,454) | |
| Equity income from subsidiaries - federal and state income tax (benefit) expense | $ | (44,268) | | | $ | 22,579 | | | $ | 27,565 | |
| | | | | | | | | | | | | | |
| Note 5 — Commitments and Contingencies |
For information regarding commitments and contingencies related to Cleco Holdings, see Part II, Item 8, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 1516 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees.”
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 2023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | SCHEDULE II |
| VALUATION AND QUALIFYING ACCOUNTS | | | | | | | |
| (THOUSANDS) | BALANCE AT BEGINNING OF PERIOD | | ADDITIONS | | DEDUCTIONS | | BALANCE AT END OF PERIOD (1) |
| Allowance for Credit Losses | | | | | | | |
| | | | | | | |
| Year Ended Dec. 31, 2023 | $ | 1,147 | | | $ | 6,804 | | | $ | 4,939 | | | $ | 3,012 | |
| Year Ended Dec. 31, 2022 | $ | 1,302 | | | $ | 4,645 | | | $ | 4,800 | | | $ | 1,147 | |
| Year Ended Dec. 31, 2021 | $ | 2,758 | | | $ | 5,463 | | | $ | 6,919 | | | $ | 1,302 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Deducted in the consolidated balance sheet | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | SCHEDULE II |
| VALUATION AND QUALIFYING ACCOUNTS | | | | | | | |
| (THOUSANDS) | BALANCE AT BEGINNING OF PERIOD | | ADDITIONS | | DEDUCTIONS | | BALANCE AT END OF PERIOD (1) |
| Allowance for Credit Losses | | | | | | | |
| Year Ended Dec. 31, 2023 | $ | 1,147 | | | $ | 6,804 | | | $ | 4,939 | | | $ | 3,012 | |
| Year Ended Dec. 31, 2022 | $ | 1,302 | | | $ | 4,645 | | | $ | 4,800 | | | $ | 1,147 | |
| Year Ended Dec. 31, 2021 | $ | 2,758 | | | $ | 5,463 | | | $ | 6,919 | | | $ | 1,302 | |
(1) Deducted in the consolidated balance sheet | | | | | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO | | | | | SCHEDULE II |
| VALUATION AND QUALIFYING ACCOUNTS | | | | | | | |
| (THOUSANDS) | BALANCE AT BEGINNING OF PERIOD | | ADDITIONS | | DEDUCTIONS | | BALANCE AT END OF PERIOD (1) |
| Allowance for Credit Losses | | | | | | | |
| | | | | | | |
| Year Ended Dec. 31, 2022 | $ | 1,302 | | | $ | 4,645 | | | $ | 4,800 | | | $ | 1,147 | |
| Year Ended Dec. 31, 2021 | $ | 2,758 | | | $ | 5,463 | | | $ | 6,919 | | | $ | 1,302 | |
| Year Ended Dec. 31, 2020 | $ | 3,005 | | | $ | 6,176 | | | $ | 6,423 | | | $ | 2,758 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Deducted in the consolidated balance sheet | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| CLECO POWER | | | | | SCHEDULE II |
| VALUATION AND QUALIFYING ACCOUNTS | | | | | | | |
| (THOUSANDS) | BALANCE AT BEGINNING OF PERIOD | | ADDITIONS | | DEDUCTIONS | | BALANCE AT END OF PERIOD (1) |
| Allowance for Credit Losses | | | | | | | |
| Year Ended Dec. 31, 2022 | $ | 1,302 | | | $ | 4,645 | | | $ | 4,800 | | | $ | 1,147 | |
| Year Ended Dec. 31, 2021 | $ | 2,758 | | | $ | 5,463 | | | $ | 6,919 | | | $ | 1,302 | |
| Year Ended Dec. 31, 2020 | $ | 3,005 | | | $ | 6,176 | | | $ | 6,423 | | | $ | 2,758 | |
(1) Deducted in the consolidated balance sheet | | | | | | | |
| | | | | | | | |
CLECO | | |
CLECO POWER | | 2022 FORM 10-K |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | CLECO CORPORATE HOLDINGS LLC |
| | (Registrant) |
| | |
| By: | /s/ William G. Fontenot |
| | (William G. Fontenot) |
| | (President & Chief Executive Officer) |
Date: March 8, 20232024
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| SIGNATURE | | TITLE | DATE |
| | | |
| /s/ William G. Fontenot | | President & Chief Executive Officer | March 8, 20232024 |
| (William G. Fontenot) | | (Principal Executive Officer)
| |
| /s/ Kristin L. Guillory | | Chief Financial Officer | March 8, 20232024 |
(Kristin L. Guillory) | | (Principal Financial Officer)
| |
| /s/ Tonita Laprarie | | Controller and Chief Accounting Officer | March 8, 20232024 |
| (Tonita Laprarie) | | (Principal Accounting Officer) | |
| | | | | | | | |
| MANAGERS* | |
| Dylan D. Arnould | |
| Andrew M. Chapman | |
| Paraskevas Fronimos | |
| Richard J. Gallot, Jr. | |
| David R. Gilchrist | |
| Gerald C. Hanrahan, Jr. | |
| Christopher J. Leslie | |
| Jon R. R. Perry | |
| Aaron J. Rubin | |
| Peggy B. Scott | |
| Domingo Solís-Hernández | |
| Steven J. Turner | |
| Bruce D. Wainer | |
| | | | | | | | | | | | | | |
| *By: | /s/ William G. Fontenot | | | March 8, 20232024 |
| (William G. Fontenot, as Attorney-in-Fact) | | | |
| | | | | | | | |
| CLECO | | |
| CLECO POWER | | 20222023 FORM 10-K |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | |
| | CLECO POWER LLC |
| | (Registrant) |
| | |
| By: | /s/ William G. Fontenot |
| | (William G. Fontenot) |
| | (Chief Executive Officer) |
Date: March 8, 20232024
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| SIGNATURE | | TITLE | DATE |
| | | |
| /s/ William G. Fontenot | | Chief Executive Officer | March 8, 20232024 |
| (William G. Fontenot) | | (Principal Executive Officer)
| |
| /s/ Kristin L. Guillory | | Chief Financial Officer | March 8, 20232024 |
(Kristin L. Guillory) | | (Principal Financial Officer)
| |
| /s/ Tonita Laprarie | | Controller and Chief Accounting Officer | March 8, 20232024 |
| (Tonita Laprarie) | | (Principal Accounting Officer) | |
| | | | | | | | |
| MANAGERS* | |
| Andrew M. Chapman | |
| Paraskevas Fronimos | |
| Richard J. Gallot, Jr. | |
| David R. Gilchrist | |
| Gerald C. Hanrahan, Jr. | |
| Christopher J. Leslie | |
| Jon R. R. Perry | |
| Aaron J. Rubin | |
| Peggy B. Scott | |
| Domingo Solís-Hernández | |
| Melissa M. Stark | | Melissa Stark |
| Steven J. Turner | |
| Bruce D. Wainer | |
| | | | | | | | | | | | | | |
| *By: | /s/ William G. Fontenot | | | March 8, 20232024 |
| (William G. Fontenot, as Attorney-in-Fact) | | | |