UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2020

☐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,, Louisiana71360-5226

~~(Address~~ (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (~~318~~) (318) 484-7400

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,, Louisiana71360-5226

~~(Address~~ (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (~~318~~) (318) 484-7400



Securities registered pursuant to Section 12(b) of the Act:
Cleco Corporate Holdings LLC: None			Cleco Power LLC: None

Indicate by check mark whether the Registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports) and (2) have been subject to such filing requirements for the past 90 days. Yes ☐☒ No☒☐

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit such files). Yes ☒ No ☐

Indicate by check mark whether Cleco Corporate Holdings LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether Cleco Power LLC is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company ☐

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Cleco Corporate Holdings LLC has 0 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.

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



~~CLECO~~


CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q

This Combined Quarterly Report on Form 10-Q (this “Quarterly Report on Form 10-Q”) 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 Quarterly Report on Form 10-Q should be read in its entirety as it pertains to each respective Registrant. The Notes to the Unaudited Condensed Consolidated Financial Statements for the Registrants and certain other sections of this Quarterly Report on Form 10-Q are combined.



~~CLECO~~
ITEM 6.	Exhibits	73
	Signatures	74


CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q



GLOSSARY OF TERMS

Abbreviations or acronyms used in this filing, including all items in Parts I and II, are defined below.



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 ~~of which a performance report must be filed annually by October 31 for the 12 months ending June 30~~
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 LIBOR plus 1.0%
Acadia			Acadia Power Partners, LLC, previously a wholly owned subsidiary of Midstream. Acadia Power Partners, LLC was dissolved effective August 29, 2014.
Acadia Unit 1			Cleco Power’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana
Acadia Unit 2			Entergy Louisiana’s 580-MW, combined cycle power plant located at the Acadia Power Station in Eunice, Louisiana, which is operated by Cleco Power
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


BCI			British Columbia Investment Management Corporation


CARES Act			Coronavirus Aid, Relief, and Economic Security Act of March 2020
CCR			Coal combustion by-products or residual
CDC			Centers for Disease Control and Prevention
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 (formerly Cleco Energy LLC, a wholly owned subsidiary of Cleco Holdings) and its subsidiaries
Cleco Cajun Transaction			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 Purchase and Sale Agreement, which includes the Cottonwood Sale Leaseback.
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

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 Partners			Cleco Partners L.P., a Delaware limited partnership that is owned by a consortium of investors, including funds or investment vehicles managed by MIRA, BCI, John Hancock Financial, and other infrastructure investors
Cleco Power			Cleco Power LLC and its subsidiaries, a wholly owned subsidiary of Cleco Holdings

Como 1			Como 1, L.P., currently known as Cleco Partners
~~Consent Decree~~			The Consent Decree, entered March 5, 2013, in Civil Action No. 09-100-JJB-DLD, United States 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 Transaction on February 4, 2019, Cottonwood Energy was an indirect subsidiary of South Central Generating.
Cottonwood Plant			Cleco Cajun’s 1,263-MW, natural-gas-fired 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.
Coughlin			Cleco Power’s 775-MW, combined-cycle power plant located in St. Landry, Louisiana
COVID-19			Novel coronavirus disease 2019 and the related global outbreak that was subsequently declared a pandemic by ~~the World Health Organization~~WHO in March 2020.
~~CPP~~			~~Clean Power Plan~~

DHLC			Dolet Hills Lignite Company, LLC, a wholly owned subsidiary of SWEPCO
Diversified Lands			Diversified Lands LLC, a wholly owned subsidiary of Cleco Holdings


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 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.~~Hills Power Station.
EAC			Environmental Adjustment Clause
~~EBITDA~~
EBITDA			Earnings before interest, income taxes, depreciation, and amortization



Entergy Gulf States			Entergy Gulf States Louisiana, LLC
Entergy Louisiana			Entergy Louisiana, LLC



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~



~~ABBREVIATION OR ACRONYM~~	~~DEFINITION~~
EPA	U.S. Environmental Protection Agency
ERO		Electric Reliability Organization


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


ABBREVIATION OR ACRONYM			DEFINITION
Evangeline			Cleco Evangeline LLC, a wholly owned subsidiary of Midstream
FAC			Fuel Adjustment Clause
FASB			Financial Accounting Standards Board
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.
GO Zone			Gulf Opportunity Zone Act of 2005 (Public Law 109-135)


IRS			Internal Revenue Service

kWh			Kilowatt-hour(s)
LCFC			Lost Contribution to Fixed Cost
LDEQ			Louisiana Department of Environmental Quality

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

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 Transaction to provide maintenance services related to the Cottonwood Plant
~~Madison Unit 3~~			~~A 641-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana~~

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
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

MIRA			Macquarie Infrastructure and Real Assets Inc.
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)


NERC			North American Electric Reliability Corporation



Not Meaningful			A percentage comparison of these items is not statistically meaningful because the percentage difference is greater than 1,000%


NRG Energy			NRG Energy, Inc.
NRG South Central			NRG South Central Generating LLC




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

Perryville			Perryville Energy Partners, L.L.C., a wholly owned subsidiary of Cleco Holdings



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

Registrant(s)			Cleco Holdings and/or Cleco Power
~~Rodemacher Unit 2~~			~~A 523-MW generating unit at Cleco Power’s plant site in Boyce, Louisiana. Cleco Power has a 30% ownership interest in the capacity of Rodemacher Unit 2.~~

ROE			Return on Equity
~~ROU~~			~~Right of Use~~

RTO			Regional Transmission Organization
S&P			Standard & Poor’s Ratings Services, a credit rating agency

SEC			U.S. Securities and Exchange Commission

SERP			Supplemental Executive Retirement Plan

South Central Generating			South Central Generating LLC, formerly NRG South Central Generating LLC


SSR			System Support Resource
START			Strategic Alignment and Real-Time Transformation


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 generating unit at Cleco Power’s plant site in Baldwin, Louisiana
WHO			World Health Organization


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” about future events, circumstances, and results. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q 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, 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:

•the COVID-19 pandemic and its effect on Cleco, Cleco’s operations, business, and financial condition, and the communities it serves, U.S. and world financial markets and supply chains, potential regulatory actions, changes in customer and stakeholder behaviors, and impacts on and modifications to Cleco’s operations, business, and financial condition relating thereto,

•the effects of the Cleco Cajun Transaction and the 2016 Merger on Cleco’s business relationships, operating results, and business generally,

•the ability to successfully remediate underlying causes of identified material weaknesses in internal control over financial reporting,

•regulatory factors, such as changes in rate-setting practices or policies; political actions of governmental regulatory ~~bodies;~~bodies, including results of the November 2020 election; adverse regulatory ratemaking actions; recovery of investments made under traditional regulation; recovery offor storm restoration ~~costs;~~costs, including costs associated with Hurricanes Laura, Delta, and Zeta; the frequency, timing, and amount of rate increases or decreases; the impact that rate cases or requests for FRP extensions may have on operating decisions of Cleco Power; the results of periodic NERC, LPSC, and FERC audits; participation in MISO and the related operating challenges and uncertainties, including increased wholesale competition relative to additional suppliers; and compliance with the ERO reliability standards for bulk power systems by Cleco Power and Cleco Cajun,

•Cleco Power’s ability to recover fuel costs through the FAC,

~~the ability to successfully integrate the assets acquired in the Cleco Cajun Transaction into Cleco’s operations,~~

•factors affecting utility operations, such as unusual weather conditions or other natural phenomena; catastrophic weather-related damage caused by hurricanes and other

storms or severe drought conditions; pandemic illnesses, specifically COVID-19; unexpected delays in capital projects; unscheduled generation outages; unanticipated maintenance or repairs; unanticipated changes to fuel costs or fuel supply costs, shortages, solid fuel and natural gas transportation problems, or other developments; decreased customer load; environmental incidents and compliance costs; and power transmission system constraints,

•reliance on third parties for determination of Cleco’s commitments and obligations to markets for generation resources and reliance on third-party fuel transportation and transmission services,

•global and domestic economic conditions, including the negative impact of COVID-19, the ability of customers to continue paying their utility bills, related growth and/or down-sizing of businesses in Cleco’s service area, monetary fluctuations, and inflation rates,

•political uncertainty in the U.S., including uncertainty relating to the U.S. federal government budget and debt ceiling, and volatility and disruption in global capital and credit markets,

•the ability ofto consume the ~~lignite reserves~~remaining fuel inventory at ~~Dolet Hills to provide sufficient fuel to~~ the Dolet Hills Power Station, ~~to meet projected dispatch needs,~~

•the timing and costs associated with the ~~potential~~ early closure of Dolet Hills, including the ability to recover those costs,

•Cleco’s ability to maintain its right to sell wholesale power at market-based rates within its control area,

•Cleco’s dependence on energy from sources other than its facilities and future sources of such additional energy,

•reliability of Cleco’s generating facilities,

•the imposition of energy efficiency requirements or increased conservation efforts of customers,

•the impact of current or future environmental laws and regulations, including those related to CCRs, greenhouse gases, and energy efficiency that could limit or terminate the operation of Cleco’s generating units, increase costs, or reduce customer demand for electricity,

•the ability to recover costs of compliance with environmental laws and regulations, including those through Cleco Power’s EAC,

•financial or regulatory accounting principles or policies imposed by FASB, the SEC, FERC, the LPSC, or similar entities with regulatory or accounting oversight,

•changing market conditions and a variety of other factors associated with physical energy, financial transactions, COVID-19, and energy service activities, including, but not limited to, price, basis, credit, liquidity, volatility, capacity, transmission, interest rates, and warranty risks,

•changes in commodity prices and transportation costs,



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

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


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

•costs and other effects of legal and administrative proceedings, settlements, investigations, claims, and other matters,

•the availability and use of alternative sources of energy and technologies, such as wind, solar, battery storage, and distributed generation,

•changes in federal, state, or local laws (including the TCJA and other tax laws), changes in tax rates, disallowances of tax positions, or changes in other regulatory policies that may result in a change to tax benefits or expenses,

•the restriction on the ability of Cleco Power to make distributions to Cleco Holdings in certain instances, as a result of the 2016 Merger Commitments,

•Cleco’s ability to remain in compliance with the commitments made to the LPSC in connection with the Cleco Cajun Transaction and the 2016 Merger,

•Cleco Holdings’ dependence on the earnings, dividends, or distributions from its subsidiaries to meet its debt obligations,

•acts of terrorism, cyber attacks, data security breaches or other attempts to disrupt Cleco’s business or the business of third parties, or other man-made disasters,

•the ability to successfully modify ~~or transition Cleco’s legacy~~business processes around the new enterprise business applications, ~~into new systems,~~

•credit ratings of Cleco Holdings and Cleco Power,

•Cleco Holdings’ and Cleco Power’s ability to remain in compliance with their respective debt covenants,

•the availability or cost of capital resulting from changes in global markets, Cleco’s business or financial condition, interest rates, or market perceptions of the electric utility industry and energy-related industries, and

•workforce factors, including aging workforce, changes in management, impact of pandemic illnesses, specifically COVID-19, ~~and~~ unavailability of skilled ~~employees.~~employees, and impacts of prolonged remote working arrangements.

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 II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q ~~and~~and Part I, Item 1A, “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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 Quarterly Report on Form 10-Q 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.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q



PART I — FINANCIAL INFORMATION



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco

These unaudited condensed consolidated financial statements should be read in conjunction with Cleco’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~.2019. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

CLECO

Condensed Consolidated Statements of Income (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Operating revenue
Electric operations $ 311,157
$ 312,949
Other operations 44,908
39,397
Gross operating revenue 356,065

352,346
Electric customer credits (8,493 ) (8,160 )
Operating revenue, net 347,572
344,186
Operating expenses
Fuel used for electric generation 76,637
104,054
Purchased power 66,320
60,099
Other operations and maintenance 74,766
60,731
Depreciation and amortization 55,873
49,856
Taxes other than income taxes 16,536
13,870
Merger transaction and commitment costs 2,775
4,990
Total operating expenses 292,907
293,600
Operating income 54,665
50,586
Interest income 1,157
1,491
Allowance for equity funds used during construction (74 ) 5,688
Other (expense) income, net (12,709 ) 2,777
Interest charges
Interest charges, net 35,328
36,115
Allowance for borrowed funds used during construction (179 ) (2,116 )
Total interest charges 35,149
33,999
Income before income taxes 7,890
26,543
Federal and state income tax expense 1,562
5,986
Net income $ 6,328
$ 20,557
The accompanying notes are an integral part of the condensed consolidated financial statements.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

CLECO

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Net income $ 6,328
$ 20,557
Other comprehensive income (loss), net of tax

Postretirement benefits gain (loss) (net of tax expense of $146 in 2020 and tax benefit of $47 in 2019) 414
(135 )
Total other comprehensive income (loss), net of tax 414
(135 )
Comprehensive income, net of tax $ 6,742
$ 20,422
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Operating revenue
Electric operations	$	386,388	$	451,902
Other operations	47,597		49,780

Gross operating revenue	433,985		501,682
Electric customer credits	(16,534)		(13,711)
Operating revenue, net	417,451		487,971
Operating expenses
Fuel used for electric generation	74,142		141,722
Purchased power	82,690		85,176
Other operations and maintenance	71,131		82,913
Depreciation and amortization	52,892		57,004
Taxes other than income taxes	14,660		17,611
Merger transaction and commitment costs	184		2,006

Total operating expenses	295,699		386,432
Operating income	121,752		101,539
Interest income	910		1,690
Allowance for equity funds used during construction	144		3,619


Other expense, net	(3,374)		(1,363)
Interest charges
Interest charges, net	34,349		37,412
Allowance for borrowed funds used during construction	(289)		(1,580)
Total interest charges	34,060		35,832
Income before income taxes	85,372		69,653
Federal and state income tax expense	25,075		14,088
Net income	$	60,297	$	55,565
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Net income	$	60,297	$	55,565
Other comprehensive income (loss), net of tax
Postretirement benefits gain (loss) (net of tax expense of $159 in 2020 and tax benefit of $13 in 2019)	448		(37)

Total other comprehensive income (loss), net of tax	448		(37)
Comprehensive income, net of tax	$	60,745	$	55,528
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Operating revenue
Electric operations	$	1,019,501	$	1,130,318
Other operations	137,407		131,544

Gross operating revenue	1,156,908		1,261,862
Electric customer credits	(34,126)		(31,832)
Operating revenue, net	1,122,782		1,230,030
Operating expenses
Fuel used for electric generation	218,643		354,921
Purchased power	208,515		213,912
Other operations and maintenance	217,693		208,608
Depreciation and amortization	162,852		158,395
Taxes other than income taxes	45,233		47,081
Merger transaction and commitment costs	3,234		7,792

Total operating expenses	856,170		990,709
Operating income	266,612		239,321
Interest income	2,964		4,456
Allowance for equity funds used during construction	197		14,825


Other (expense) income, net	(15,827)		292
Interest charges
Interest charges, net	104,700		111,426
Allowance for borrowed funds used during construction	(777)		(5,755)
Total interest charges	103,923		105,671
Income before income taxes	150,023		153,223
Federal and state income tax expense	40,230		32,355
Net income	$	109,793	$	120,868
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Assets
Current assets
Cash and cash equivalents $ 350,231
$ 116,292
Restricted cash and cash equivalents 4,054
11,100
Customer accounts receivable (less allowance for credit losses of $2,123 in 2020 and $3,005 in 2019) 71,796
83,591
Other accounts receivable 29,485
35,731
Unbilled revenue 30,434
33,207
Fuel inventory, at average cost 109,232
83,061
Materials and supplies, at average cost 120,646
118,858
Energy risk management assets 1,992
7,023
Accumulated deferred fuel 16,353
22,910
Cash surrender value of company-/trust-owned life insurance policies 75,411
86,096
Prepayments 6,518
7,711
Regulatory assets 18,643
19,807
Other current assets 12,356
12,688
Total current assets 847,151
638,075
Property, plant, and equipment
Property, plant, and equipment 5,038,241
4,982,255
Accumulated depreciation (503,554 ) (454,874 )
Net property, plant, and equipment 4,534,687
4,527,381
Construction work in progress 121,575
117,630
Total property, plant, and equipment, net 4,656,262
4,645,011
Equity investment in investee 17,072
17,072
Goodwill 1,490,797
1,490,797
Prepayments 27,794
25,949
Operating lease right of use assets 28,447
28,791
Restricted cash and cash equivalents 9,899
15,203
Note receivable 15,031
15,198
Regulatory assets 415,226
422,431
Intangible assets 131,122
138,103
Other deferred charges 37,394
39,668
Total assets $ 7,676,195
$ 7,476,298
The accompanying notes are an integral part of the condensed consolidated financial statements.

(Continued on next page)



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Net income	$	109,793	$	120,868
Other comprehensive income (loss), net of tax
Postretirement benefits gain (loss) (net of tax expense of $460 in 2020 and tax benefit of $112 in 2019)	1,304		(319)

Total other comprehensive income (loss), net of tax	1,304		(319)
Comprehensive income, net of tax	$	111,097	$	120,549
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Liabilities and member’s equity
Liabilities
Current liabilities
Short-term debt $ 238,000
$ —
Long-term debt and finance leases due within one year 63,932
125,986
Accounts payable 104,091
158,863
Accounts payable - affiliate 33,780
33,780
Customer deposits 59,192
58,289
Provision for rate refund 29,735
38,903
Taxes payable, net 23,902
8,931
Interest accrued 41,731
19,001
Energy risk management liabilities 9,697
4,113
Regulatory liabilities - other 3,910
6,675
Deferred compensation 9,371
12,115
Other current liabilities 45,699
44,683
Total current liabilities 663,040
511,339
Long-term liabilities and deferred credits

Accumulated deferred federal and state income taxes, net 655,027
657,058
Postretirement benefit obligations 283,830
283,075
Regulatory liabilities - deferred taxes, net 146,225
146,948
Restricted storm reserve 8,324
12,285
Deferred lease revenue 47,561
49,862
Intangible liabilities 30,119
31,872
Asset retirement obligations 23,489
23,173
Operating lease liabilities 25,119
25,779
Other deferred credits 30,474
27,222
Total long-term liabilities and deferred credits 1,250,168
1,257,274
Long-term debt and finance leases, net 3,113,239
3,064,679
Total liabilities 5,026,447
4,833,292
Commitments and contingencies (Note 14)

Member’s equity 2,649,748
2,643,006
Total liabilities and member’s equity $ 7,676,195
$ 7,476,298
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Assets
Current assets
Cash and cash equivalents	$	528,678	$	116,292
Restricted cash and cash equivalents	4,619		11,100
Customer accounts receivable (less allowance for credit losses of $5,581 in 2020 and $3,005 in 2019)	90,136		83,591

Other accounts receivable	33,554		35,731

Unbilled revenue	34,504		33,207
Fuel inventory, at average cost	99,739		83,061
Materials and supplies, at average cost	128,552		118,858
Energy risk management assets	19,974		7,023
Accumulated deferred fuel	43,612		22,910
Cash surrender value of company-/trust-owned life insurance policies	82,510		86,096
Prepayments	11,848		7,711
Regulatory assets	19,814		19,807
Other current assets	11,927		12,688
Total current assets	1,109,467		638,075
Property, plant, and equipment
Property, plant, and equipment	5,149,355		4,982,255
Accumulated depreciation	(604,833)		(454,874)
Net property, plant, and equipment	4,544,522		4,527,381
Construction work in progress	211,065		117,630
Total property, plant, and equipment, net	4,755,587		4,645,011
Equity investment in investee	13,072		17,072
Goodwill	1,490,797		1,490,797
Prepayments	32,999		25,949
Operating lease right of use assets	27,022		28,791
Restricted cash and cash equivalents	744		15,203
Note receivable	14,685		15,198

Regulatory assets	491,274		422,431
Intangible assets	118,195		138,103

Other deferred charges	44,232		39,668
Total assets	$	8,098,074	$	7,476,298
The accompanying notes are an integral part of the condensed consolidated financial statements.

(Continued on next page)

CLECO

Condensed Consolidated Statements of Cash Flows (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Operating activities
Net income $ 6,328
$ 20,557
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 63,307
56,776
Provision for credit losses 2,957
316
Unearned compensation expense 1,788
948
Allowance for equity funds used during construction 74
(5,688 )
Loss on risk management assets and liabilities, net 6,509
954
Deferred lease revenue (2,301 ) (1,440 )
Deferred income taxes (2,900 ) 5,425
Deferred fuel costs 7,626
13,869
Cash surrender value of company-/trust-owned life insurance 10,686
(1,806 )
Changes in assets and liabilities
Accounts receivable 13,310
(6,929 )
Unbilled revenue 2,773
5,109
Fuel inventory and materials and supplies (27,928 ) (1,939 )
Prepayments (1,638 ) 14
Accounts payable (55,131 ) (19,999 )
Accounts payable - affiliate —
3,102
Customer deposits 2,731
2,598
Provision for merger commitments 1,018
(732 )
Postretirement benefit obligations 1,315
192
Regulatory assets and liabilities, net (721 ) 5,173
Other deferred accounts (4,571 ) (540 )
Taxes accrued 14,563
5,403
Interest accrued 22,730
28,662
Deferred compensation (2,743 ) 152
Other operating 424
(2,048 )
Net cash provided by operating activities 60,206
108,129
Investing activities
Additions to property, plant, and equipment (65,624 ) (83,679 )
Allowance for equity funds used during construction (74 ) 5,688
Payment to acquire business, net of cash acquired —
(814,969 )
Other investing 285
299
Net cash used in investing activities (65,413 ) (892,661 )
Financing activities
Draws on credit facilities 238,000
108,000
Payments on credit facilities —
(108,000 )
Issuances of long-term debt —
400,000
Repayment of long-term debt (11,055 ) (10,382 )
Payment of financing costs —
(3,785 )
Contributions from member —
384,900
Other financing (149 ) (134 )
Net cash provided by financing activities 226,796

770,599
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 221,589

(13,933 )
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period 142,595
⁽¹⁾
140,086
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period $ 364,184
⁽²⁾
$ 126,153
Supplementary cash flow information

Interest paid, net of amount capitalized $ 9,077
$ 5,752
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment $ 11,854
$ 56,670
⁽¹⁾Includes cash and cash equivalents of $116,292, current restricted cash and cash equivalents of $11,100, and non-current restricted cash and cash equivalents of $15,203.
⁽²⁾Includes cash and cash equivalents of $350,231, current restricted cash and cash equivalents of $4,054, and non-current restricted cash and cash equivalents of $9,899.

The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Liabilities and member’s equity
Liabilities
Current liabilities
Short-term debt	$	238,000	$	0
Long-term debt and finance leases due within one year	63,965		125,986
Accounts payable	280,708		158,863
Accounts payable - affiliate	35,250		33,780
Customer deposits	58,270		58,289
Provision for rate refund	9,852		38,903
Taxes payable, net	40,288		8,931
Interest accrued	40,063		19,001

Energy risk management liabilities	2,580		4,113
Regulatory liabilities	29,651		6,675
Deferred compensation	12,018		12,115

Other current liabilities	50,796		44,683
Total current liabilities	861,441		511,339
Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net	698,949		657,058

Postretirement benefit obligations	285,964		283,075

Regulatory liabilities - deferred taxes, net	116,784		146,948
Restricted storm reserve	0		12,285


Deferred lease revenue	42,958		49,862
Intangible liabilities	26,612		31,872
Asset retirement obligations	26,445		23,173
Operating lease liabilities	23,887		25,779
Other deferred credits	27,446		27,222
Total long-term liabilities and deferred credits	1,249,045		1,257,274
Long-term debt and finance leases, net	3,233,485		3,064,679
Total liabilities	5,343,971		4,833,292
Commitments and contingencies (Note 14)
Member’s equity	2,754,103		2,643,006
Total liabilities and member’s equity	$	8,098,074	$	7,476,298
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO

Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS) MEMBERSHIP INTEREST
RETAINED EARNINGS
AOCI

TOTAL
MEMBER’S
EQUITY

Balances, Dec. 31, 2018 $ 2,069,376
$ 53,578
$ 1,786
$ 2,124,740
Contribution from member —
384,900
—
384,900
Net income —
20,557
—
20,557
Other comprehensive loss, net of tax —
—
(135 ) (135 )
Balances, Mar. 31, 2019 $ 2,069,376
$ 459,035

$ 1,651

$ 2,530,062

Balances, Dec. 31, 2019 $ 2,069,376
$ 591,143
$ (17,513 ) $ 2,643,006
Net income —
6,328
—
6,328
Other comprehensive income, net of tax —
—
414
414
Balances, Mar. 31, 2020 $ 2,069,376
$ 597,471
$ (17,099 ) $ 2,649,748
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Cash Flows (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020			2019
Operating activities
Net income	$	109,793		$	120,868
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	185,496			180,240



Provision for credit losses	6,134			3,800
Unearned compensation expense	5,113			4,015
Allowance for equity funds used during construction	(197)			(14,825)
(Gain) loss on risk management assets and liabilities, net	(23,254)			4,092
Deferred lease revenue	(6,904)			(6,137)
Deferred income taxes	39,657			27,033
Deferred fuel costs	(21,076)			(21,207)
Cash surrender value of company-/trust-owned life insurance	3,586			(3,731)
Changes in assets and liabilities
Accounts receivable	(14,683)			(44,070)

Unbilled revenue	(1,297)			(10,767)
Fuel inventory and materials and supplies	(26,747)			35,488
Prepayments	(12,895)			(10,680)
Accounts payable	(30,633)			20,315
Accounts payable - affiliate	1,469			3,175
Customer deposits	4,688			3,113
Provision for merger commitments	738			(1,623)
Postretirement benefit obligations	4,654			(11,301)
Regulatory assets and liabilities, net	(12,264)			8,196
Other deferred accounts	(13,324)			(5,690)
Taxes accrued	30,132			29,268
Interest accrued	21,063			28,001


Other operating	5,830			3,202
Net cash provided by operating activities	255,079			340,775
Investing activities
Additions to property, plant, and equipment	(215,692)			(251,845)
Allowance for equity funds used during construction	197			14,825







Return of equity investment in investees	4,000			500

Return of equity investment in tax credit fund	0			1,625
Return of investment in company-owned life insurance	0			1,891
Payment to acquire business, net of cash acquired	0			(814,969)
Other investing	821			1,007
Net cash used in investing activities	(210,674)			(1,046,966)
Financing activities
Draws on revolving credit facilities	238,000			108,000
Payments on revolving credit facilities	0			(108,000)
Issuances of long-term debt	125,000			700,000
Repayment of long-term debt	(11,055)			(390,571)

Payment of financing costs	(4,448)			(5,951)
Contributions from member	0			384,900

Other financing	(456)			(412)
Net cash provided by financing activities	347,041			687,966
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents	391,446			(18,225)
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period	142,595		(1)	140,086
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	534,041	(2)	$	121,861
(1) Includes cash and cash equivalents of $116,292, current restricted cash and cash equivalents of $11,100, and non-current restricted cash and cash equivalents of $15,203. (2) Includes cash and cash equivalents of $528,678, current restricted cash and cash equivalents of $4,619, and non-current restricted cash and cash equivalents of $744.



The accompanying notes are an integral part of the condensed consolidated financial statements.

(Continued on next page)


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Cash Flows (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Supplementary cash flow information
Interest paid, net of amount capitalized	$	73,714	$	74,055
Income taxes paid (refunded), net	$	2,777	$	(19)
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	89,604	$	15,982





The accompanying notes are an integral part of the condensed consolidated financial statements.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO

Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)	MEMBERSHIP INTEREST		RETAINED EARNINGS		AOCI		TOTAL MEMBER’S EQUITY
Balances, June 30, 2019	$	2,454,276	$	118,881	$	1,504	$	2,574,661


Net income	—		55,565		—		55,565
Other comprehensive loss, net of tax	—		—		(37)		(37)
Balances, Sept. 30, 2019	$	2,454,276	$	174,446	$	1,467	$	2,630,189

Balances, June 30, 2020	$	2,454,276	$	255,739	$	(16,657)	$	2,693,358


Net income	—		60,297		—		60,297
Other comprehensive income, net of tax	—		—		448		448
Balances, Sept. 30, 2020	$	2,454,276	$	316,036	$	(16,209)	$	2,754,103

Balances, Dec. 31, 2018	$	2,069,376	$	53,578	$	1,786	$	2,124,740
Contribution from member	384,900		—		—		384,900

Net income	—		120,868		—		120,868
Other comprehensive loss, net of tax	—		—		(319)		(319)
Balances, Sept. 30, 2019	$	2,454,276	$	174,446	$	1,467	$	2,630,189

Balances, Dec. 31, 2019	$	2,454,276	$	206,243	$	(17,513)	$	2,643,006


Net income	—		109,793		—		109,793
Other comprehensive income, net of tax	—		—		1,304		1,304
Balances, Sept. 30, 2020	$	2,454,276	$	316,036	$	(16,209)	$	2,754,103
The accompanying notes are an integral part of the condensed consolidated financial statements.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cleco Power

These unaudited condensed consolidated financial statements should be read in conjunction with Cleco Power’s Consolidated Financial Statements and Notes included in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~.2019. For more information on the basis of presentation, see “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Basis of Presentation.”



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

CLECO POWER

Condensed Consolidated Statements of Income (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Operating revenue
Electric operations $ 224,430
$ 257,175
Other operations 15,764
19,430
Affiliate revenue 1,106
300
Gross operating revenue 241,300
276,905
Electric customer credits (8,340 ) (8,160 )
Operating revenue, net 232,960
268,745
Operating expenses
Fuel used for electric generation 61,064
94,131
Purchased power 23,462
29,654
Other operations and maintenance 56,944
47,700
Depreciation and amortization 43,677
42,377
Taxes other than income taxes 12,276
9,978
Total operating expenses 197,423
223,840
Operating income 35,537
44,905
Interest income 954
994
Allowance for equity funds used during construction (74 ) 5,688
Other (expense) income, net (2,667 ) 268
Interest charges
Interest charges, net 18,760
19,261
Allowance for borrowed funds used during construction (179 ) (2,116 )
Total interest charges 18,581
17,145
Income before income taxes 15,169
34,710
Federal and state income tax expense 3,338
7,998
Net income $ 11,831
$ 26,712
The accompanying notes are an integral part of the condensed consolidated financial statements.



~~CLECO~~
~~CLECO POWER~~	��	~~2020 1ST QUARTER FORM 10-Q~~

CLECO POWER

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Net income $ 11,831
$ 26,712
Other comprehensive income, net of tax

Postretirement benefits gain (net of tax expense of $152 in 2020 and $55 in 2019) 426
156
Amortization of interest rate derivatives to earnings (net of tax expense of $22 in 2020 and $22 in 2019) 64
64
Total other comprehensive income, net of tax 490
220
Comprehensive income, net of tax $ 12,321
$ 26,932
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Operating revenue
Electric operations	$	288,852	$	339,869
Other operations	17,775		18,485
Affiliate revenue	1,506		334
Gross operating revenue	308,133		358,688
Electric customer credits	(16,534)		(13,711)
Operating revenue, net	291,599		344,977
Operating expenses
Fuel used for electric generation	80,148		116,831
Purchased power	32,096		34,908
Other operations and maintenance	52,595		57,718
Depreciation and amortization	40,268		44,903
Taxes other than income taxes	11,408		12,485


Total operating expenses	216,515		266,845
Operating income	75,084		78,132
Interest income	789		1,421
Allowance for equity funds used during construction	144		3,619

Other expense, net	(3,408)		(1,231)
Interest charges
Interest charges, net	18,730		19,563
Allowance for borrowed funds used during construction	(289)		(1,580)
Total interest charges	18,441		17,983
Income before income taxes	54,168		63,958
Federal and state income tax expense	18,076		12,431
Net income	$	36,092	$	51,527
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Net income	$	36,092	$	51,527
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $132 in 2020 and $81 in 2019)	373		230
Amortization of interest rate derivatives to earnings (net of tax expense of $22 in 2020 and 2019)	63		63
Total other comprehensive income, net of tax	436		293
Comprehensive income, net of tax	$	36,528	$	51,820
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Income (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Operating revenue
Electric operations	$	752,925	$	862,969
Other operations	49,443		53,318
Affiliate revenue	3,852		971
Gross operating revenue	806,220		917,258
Electric customer credits	(33,974)		(30,565)
Operating revenue, net	772,246		886,693
Operating expenses
Fuel used for electric generation	205,276		297,197
Purchased power	74,737		83,048
Other operations and maintenance	164,207		148,330
Depreciation and amortization	125,541		126,610
Taxes other than income taxes	33,132		33,023


Total operating expenses	602,893		688,208
Operating income	169,353		198,485
Interest income	2,498		3,281
Allowance for equity funds used during construction	197		14,825

Other expense, net	(9,498)		(2,091)
Interest charges
Interest charges, net	56,401		58,253
Allowance for borrowed funds used during construction	(777)		(5,755)
Total interest charges	55,624		52,498
Income before income taxes	106,926		162,002
Federal and state income tax expense	30,770		34,407
Net income	$	76,156	$	127,595
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Assets
Utility plant and equipment
Property, plant, and equipment $ 5,542,292
$ 5,489,457
Accumulated depreciation (1,941,674 ) (1,905,031 )
Net property, plant, and equipment 3,600,618
3,584,426
Construction work in progress 114,710
111,687
Total utility plant and equipment, net 3,715,328
3,696,113
Current assets
Cash and cash equivalents 189,423
55,489
Restricted cash and cash equivalents 4,054
11,100
Customer accounts receivable (less allowance for credit losses of $2,123 in 2020 and $3,005 in 2019) 30,735
39,165
Accounts receivable - affiliate 12,037
14,481
Other accounts receivable 24,852
24,604
Unbilled revenue 30,434
33,207
Fuel inventory, at average cost 80,459
59,602
Materials and supplies, at average cost 93,544
91,941
Energy risk management assets 1,673
6,311
Accumulated deferred fuel 16,353
22,910
Cash surrender value of company-owned life insurance policies 17,614
17,574
Prepayments 4,469
4,786
Regulatory assets 10,907
10,973
Other current assets 646
655
Total current assets 517,200
392,798
Equity investment in investee 17,072
17,072
Prepayments 1,686
2,693
Operating lease right of use assets 27,883
28,633
Restricted cash and cash equivalents 9,056
14,363
Note receivable 15,031
15,198
Regulatory assets 267,602
272,289
Other deferred charges 36,791
37,371
Total assets $ 4,607,649
$ 4,476,530
The accompanying notes are an integral part of the condensed consolidated financial statements.

(Continued on next page)



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Comprehensive Income (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019
Net income	$	76,156	$	127,595
Other comprehensive income, net of tax
Postretirement benefits gain (net of tax expense of $430 in 2020 and $182 in 2019)	1,218		515
Amortization of interest rate derivatives to earnings (net of tax expense of $67 in 2020 and 2019)	191		191
Total other comprehensive income, net of tax	1,409		706
Comprehensive income, net of tax	$	77,565	$	128,301
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Liabilities and member’s equity
Member’s equity $ 1,725,713
$ 1,713,392
Long-term debt and finance leases, net 1,377,432
1,327,372
Total capitalization 3,103,145
3,040,764
Current liabilities
Short-term debt 150,000
—
Long-term debt and finance leases due within one year 632
61,587
Accounts payable 77,892
110,096
Accounts payable - affiliate 10,486
14,123
Customer deposits 59,192
58,289
Provision for rate refund 28,921
38,241
Taxes payable, net 46,988
38,888
Interest accrued 23,232
7,972
Energy risk management liabilities 524
586
Regulatory liabilities - other 3,910
6,675
Other current liabilities 22,497
22,802
Total current liabilities 424,274
359,259
Commitments and contingencies (Note 14)

Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net 664,071
657,834
Postretirement benefit obligations 207,293
206,270
Regulatory liabilities - deferred taxes, net 146,225
146,948
Restricted storm reserve 8,324
12,285
Asset retirement obligations 7,441
7,325
Operating lease liabilities 25,001
25,658
Other deferred credits 21,875
20,187
Total long-term liabilities and deferred credits 1,080,230
1,076,507
Total liabilities and member’s equity $ 4,607,649
$ 4,476,530
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Assets
Utility plant and equipment
Property, plant, and equipment	$	5,649,646	$	5,489,457
Accumulated depreciation	(2,014,635)		(1,905,031)
Net property, plant, and equipment	3,635,011		3,584,426
Construction work in progress	199,364		111,687
Total utility plant and equipment, net	3,834,375		3,696,113
Current assets
Cash and cash equivalents	325,443		55,489
Restricted cash and cash equivalents	4,619		11,100
Customer accounts receivable (less allowance for credit losses of $5,581 in 2020 and $3,005 in 2019)	54,905		39,165
Accounts receivable - affiliate	13,388		14,481
Other accounts receivable	28,447		24,604

Unbilled revenue	34,504		33,207
Fuel inventory, at average cost	59,781		59,602
Materials and supplies, at average cost	100,898		91,941
Energy risk management assets	7,177		6,311
Accumulated deferred fuel	43,612		22,910
Cash surrender value of company-owned life insurance policies	16,156		17,574
Prepayments	4,529		4,786
Regulatory assets	12,079		10,973
Other current assets	677		655
Total current assets	706,215		392,798
Equity investment in investee	13,072		17,072
Prepayments	1,560		2,693
Operating lease right of use assets	26,748		28,633
Restricted cash and cash equivalents	0		14,363
Note receivable	14,685		15,198

Regulatory assets	348,683		272,289


Other deferred charges	37,800		37,371
Total assets	$	4,983,138	$	4,476,530
The accompanying notes are an integral part of the condensed consolidated financial statements.

(Continued on next page)

CLECO POWER

Condensed Consolidated Statements of Cash Flows (Unaudited)
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Operating activities
Net income $ 11,831
$ 26,712
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 45,079
43,739
Provision for credit losses 2,569
316
Allowance for equity funds used during construction 74
(5,688 )
Deferred income taxes 5,341
(2,386 )
Deferred fuel costs 7,626
13,869
Cash surrender value of company-owned life insurance (40 ) 3,044
Changes in assets and liabilities
Accounts receivable 3,452
(8,045 )
Accounts receivable - affiliate 2,863
1,687
Unbilled revenue 2,773
5,109
Fuel inventory and materials and supplies (22,429 ) (6,147 )
Prepayments 1,209
965
Accounts payable (33,749 ) (10,704 )
Accounts payable - affiliate (3,817 ) 8,422
Customer deposits 2,731
2,598
Provision for merger commitments (1,295 ) (732 )
Postretirement benefit obligations 1,181
394
Regulatory assets and liabilities, net (1,218 ) 4,676
Other deferred accounts (3,452 ) (840 )
Taxes accrued 7,691
(22,895 )
Interest accrued 15,260
16,868
Other operating 370
(993 )
Net cash provided by operating activities 44,050
69,969
Investing activities
Additions to property, plant, and equipment (61,477 ) (81,040 )
Allowance for equity funds used during construction (74 ) 5,688
Other investing 285
299
Net cash used in investing activities (61,266 ) (75,053 )
Financing activities
Draws on credit facility 150,000
33,000
Payments on credit facility —
(33,000 )
Repayment of long-term debt (11,055 ) (10,382 )
Other financing (148 ) (142 )
Net cash provided by (used in) financing activities 138,797
(10,524 )
Net increase (decrease) in cash, cash equivalents, restricted cash, and restricted cash equivalents 121,581
(15,608 )
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period 80,952
⁽¹⁾
61,877
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period $ 202,533
⁽²⁾
$ 46,269
Supplementary cash flow information

Interest paid, net of amount capitalized $ 605
$ 1,348
Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment $ 11,015
$ 49,477
⁽¹⁾ Includes cash and cash equivalents of $55,489, current restricted cash and cash equivalents of $11,100, and non-current restricted cash and cash equivalents of $14,363.
⁽²⁾ Includes cash and cash equivalents of $189,423, current restricted cash and cash equivalents of $4,054, and non-current restricted cash and cash equivalents of $9,056.

The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Balance Sheets (Unaudited)
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Liabilities and member’s equity
Member’s equity	$	1,790,957	$	1,713,392
Long-term debt and finance leases, net	1,502,249		1,327,372
Total capitalization	3,293,206		3,040,764
Current liabilities
Short-term debt	150,000		0
Long-term debt and finance leases due within one year	665		61,587
Accounts payable	240,409		110,096
Accounts payable - affiliate	14,688		14,123
Customer deposits	58,270		58,289
Provision for rate refund	9,038		38,241

Taxes payable, net	90,752		38,888
Interest accrued	21,561		7,972

Energy risk management liabilities	1,765		586
Regulatory liabilities	29,651		6,675

Other current liabilities	27,752		22,802
Total current liabilities	644,551		359,259
Commitments and contingencies (Note 14)
Long-term liabilities and deferred credits
Accumulated deferred federal and state income taxes, net	665,464		657,834

Postretirement benefit obligations	209,809		206,270

Regulatory liabilities - deferred taxes, net	116,784		146,948
Restricted storm reserve	0		12,285



Asset retirement obligations	10,999		7,325
Operating lease liabilities	23,847		25,658
Other deferred credits	18,478		20,187
Total long-term liabilities and deferred credits	1,045,381		1,076,507
Total liabilities and member’s equity	$	4,983,138	$	4,476,530
The accompanying notes are an integral part of the condensed consolidated financial statements.

CLECO POWER

Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS) MEMBER’S EQUITY
AOCI
TOTAL
MEMBER’S
EQUITY
Balances, Dec. 31, 2018 $ 1,607,715
$ (13,182 ) $ 1,594,533
Net income 26,712
—
26,712
Other comprehensive income, net of tax —
220
220
Balances, Mar. 31, 2019 $ 1,634,427
$ (12,962 ) $ 1,621,465

Balances, Dec. 31, 2019 $ 1,735,977
$ (22,585 ) $ 1,713,392
Net income 11,831
—
11,831
Other comprehensive income, net of tax —
490
490
Balances, Mar. 31, 2020 $ 1,747,808
$ (22,095 ) $ 1,725,713
The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Cash Flows (Unaudited)
	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020			2019
Operating activities
Net income	$	76,156		$	127,595
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	129,740			130,927

Provision for credit losses	5,746			3,800
Unearned compensation expense	1,135			635
Allowance for equity funds used during construction	(197)			(14,825)
Deferred income taxes	5,358			24,063
Deferred fuel costs	(21,076)			(21,207)
Cash surrender value of company-owned life insurance	1,418			2,963
Changes in assets and liabilities
Accounts receivable	(29,942)			(38,373)
Accounts receivable - affiliate	3,751			2,606
Unbilled revenue	(1,297)			(10,767)
Fuel inventory and materials and supplies	(9,511)			39,090
Prepayments	1,107			747
Accounts payable	(22,666)			22,362
Accounts payable - affiliate	1,015			757
Customer deposits	4,688			3,113
Provision for merger commitments	(1,574)			(1,623)
Postretirement benefit obligations	2,581			(10,809)
Regulatory assets and liabilities, net	(13,755)			6,706
Other deferred accounts	(14,153)			(5,630)
Taxes accrued	50,638			(7,743)
Interest accrued	13,589			16,297
Other operating	5,236			2,075
Net cash provided by operating activities	187,987			272,759
Investing activities
Additions to property, plant, and equipment	(205,765)			(247,987)
Allowance for equity funds used during construction	197			14,825
Return of equity investment in investees	4,000			500




Return of investment in company-owned life insurance	0			1,891

Other investing	821			1,007
Net cash used in investing activities	(200,747)			(229,764)
Financing activities
Draws on revolving credit facility	150,000			33,000
Payments on revolving credit facility	0			(33,000)
Issuances of long-term debt	125,000			0
Repayment of long-term debt	(11,055)			(20,571)

Payment of financing costs	(1,619)			(22)


Other financing	(456)			(412)
Net cash provided by (used in) financing activities	261,870			(21,005)
Net increase in cash, cash equivalents, restricted cash, and restricted cash equivalents	249,110			21,990
Cash, cash equivalents, restricted cash, and restricted cash equivalents at beginning of period	80,952		(1)	61,877
Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of period	$	330,062	(2)	$	83,867
Supplementary cash flow information

Interest paid, net of amount capitalized	$	34,454		$	34,893

Supplementary non-cash investing and financing activities
Accrued additions to property, plant, and equipment	$	88,939		$	15,668



(1) Includes cash and cash equivalents of $55,489, current restricted cash and cash equivalents of $11,100, and non-current restricted cash and cash equivalents of $14,363. (2) Includes cash and cash equivalents of $325,443 and current restricted cash and cash equivalents of $4,619.

The accompanying notes are an integral part of the condensed consolidated financial statements.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


CLECO POWER

Condensed Consolidated Statements of Changes in Member’s Equity (Unaudited)
(THOUSANDS)	MEMBER’S EQUITY		AOCI		TOTAL MEMBER’S EQUITY
Balances, June 30, 2019	$	1,683,783	$	(12,769)	$	1,671,014


Net income	51,527		—		51,527
Other comprehensive income, net of tax	—		293		293
Balances, Sept. 30, 2019	$	1,735,310	$	(12,476)	$	1,722,834

Balances, June 30, 2020	$	1,776,041	$	(21,612)	$	1,754,429


Net income	36,092		—		36,092
Other comprehensive income, net of tax	—		436		436
Balances, Sept. 30, 2020	$	1,812,133	$	(21,176)	$	1,790,957

Balances, Dec. 31, 2018	$	1,607,715	$	(13,182)	$	1,594,533


Net income	127,595		—		127,595
Other comprehensive income, net of tax	—		706		706
Balances, Sept. 30, 2019	$	1,735,310	$	(12,476)	$	1,722,834

Balances, Dec. 31, 2019	$	1,735,977	$	(22,585)	$	1,713,392


Net income	76,156		—		76,156
Other comprehensive income, net of tax	—		1,409		1,409
Balances, Sept. 30, 2020	$	1,812,133	$	(21,176)	$	1,790,957
The accompanying notes are an integral part of the condensed consolidated financial statements.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


Index to Applicable Notes to the Unaudited Condensed Consolidated Financial Statements of Registrants

Note 1	Summary of Significant Accounting Policies	Cleco and Cleco Power
Note 2	Business Combinations	Cleco
Note 3	Recent Authoritative Guidance	Cleco and Cleco Power
Note 4	Leases	Cleco and Cleco Power
Note 5	Revenue Recognition	Cleco and Cleco Power
Note 6	Regulatory Assets and Liabilities	Cleco and Cleco Power
Note 7	Fair Value Accounting	Cleco and Cleco Power
Note 8	Debt	Cleco and Cleco Power
Note 9	Pension Plan and Employee Benefits	Cleco and Cleco Power
Note 10	Income Taxes	Cleco and Cleco Power
Note 11	Disclosures about Segments	Cleco
Note 12	Regulation and Rates	Cleco and Cleco Power
Note 13	Variable Interest Entities	Cleco and Cleco Power
Note 14	Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees	Cleco and Cleco Power
Note 15	Affiliate Transactions	Cleco and Cleco Power
Note 16	Intangible Assets and Liabilities	Cleco and Cleco Power
Note 17	Accumulated Other Comprehensive Loss	Cleco and Cleco Power
Note 18	Storm Restoration	Cleco and Cleco Power



Notes to the Unaudited Condensed Consolidated Financial Statements



Note 1 — Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements of Cleco include the accounts of Cleco and its majority-owned subsidiaries after elimination of intercompany accounts and transactions. Cleco’s condensed consolidated financial statements include the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, through ~~March 31,~~September 30, 2020. For more information about the Cleco Cajun Transaction, see Note 2 — “Business Combinations.”

Basis of Presentation

The condensed consolidated financial statements of Cleco and Cleco Power have been prepared in accordance with GAAP for interim financial information and with the instructions to the Form 10-Q and Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and notes required by GAAP for annual financial statements. The year-end condensed consolidated balance sheet data was derived from audited financial statements. Because the interim condensed consolidated financial statements and the accompanying notes do not include all of the information and notes required by GAAP for annual financial statements, the condensed consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

These condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments that are necessary to fairly state the financial position and results of operations of Cleco and Cleco Power. Amounts reported in Cleco and Cleco Power’s interim financial statements are not necessarily indicative of amounts expected

for the annual periods due to the effects of seasonal

temperature variations on energy consumption, regulatory rulings, the timing of maintenance on electric generating units, changes in mark-to-market valuations, changing commodity prices, discrete income tax items, and other factors.

On March 11, 2020, ~~the World Health Organization~~WHO declared the ~~current~~ outbreak of COVID-19 to be a global pandemic, and on March 13, 2020, the U.S. declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments ~~have~~ imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” orders and directives in Cleco’s service territory. State and local authorities have also implemented multistep policies with the goal of reopening various sectors of the economy such as retail establishments, health and personal care businesses, and restaurants, among others. However, certain jurisdictions have begun reopening only to delay these plans or return to restrictions in the face of increases in new COVID-19 cases. For example, the governor of the state of Louisiana issued orders in May 2020 to allow businesses to reopen at varying levels of capacity in May and June 2020. To address the June 2020 spike in COVID-19 cases, such reopening activities were temporarily paused or scaled back, and also included closing certain establishments. These restrictions resulted in a decline in new COVID-19 cases, and in September 2020, the State of Louisiana entered into the next phase of its multistep reopening plan. The COVID-19 outbreak may significantly worsen in the U.S. during the upcoming winter months, which may cause federal, state, and local governments to reconsider restrictions on business and social activities. In the event governments increase restrictions, the reopening of the economy may be further curtailed.

Cleco has modified some of its business operations, as these restrictions have significantly impacted many sectors of the ~~economy, including~~economy. Impacts include record levels of unemployment, with businesses, nonprofit organizations, and governmental entities modifying, curtailing, or ceasing normal operations. Cleco has also modified and continues to adjust certain


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

business practices to conform to government restrictions and best practices encouraged by the ~~Centers for Disease Control and Prevention, the World Health Organization,~~CDC, WHO, and other governmental and regulatory authorities.

Cleco cannot predict the full impact that COVID-19, or the significant disruption and volatility currently being experienced in the markets, will have on its business, cash flows, liquidity, financial condition, and results of operations at this time, due to numerous uncertainties. The ultimate impacts will depend on future developments, including, among others, the ultimate geographic spread of COVID-19, the consequences of governmental and other measures designed to prevent the spread of COVID-19, the development of effective treatments, the duration of the ~~outbreak,~~pandemic, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

In preparing financial statements that conform to GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, and the



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. For information on recent authoritative guidance and its effect on financial results, see Note 3 — “Recent Authoritative Guidance.”

Restricted Cash and Cash Equivalents

Cleco and Cleco Power’s restricted cash and cash equivalents consisted of the following:


Cleco
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current
Cleco Katrina/Rita’s storm recovery bonds	$	2,626	$	9,632

Cleco Power’s charitable contributions	1,765		1,200
Cleco Power’s rate credit escrow	228		268
Total current	4,619		11,100
Non-current
Diversified Lands’ mitigation escrow	23		21
Cleco Cajun’s defense fund	721		719
Cleco Cajun’s margin deposits	0		100
Cleco Power’s future storm restoration costs	0		12,269
Cleco Power’s charitable contributions	0		2,094

Total non-current	744		15,203
Total restricted cash and cash equivalents	$	5,363	$	26,303

Cleco
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current
Cleco Katrina/Rita’s storm recovery bonds $ 2,623

$ 9,632
Cleco Power’s charitable contributions 1,200
1,200
Cleco Power’s rate credit escrow 231
268
Total current 4,054
11,100
Non-current
Diversified Lands’ mitigation escrow 23
21
Cleco Cajun’s defense fund 720
719
Cleco Cajun’s margin deposits 100
100
Cleco Power’s future storm restoration costs 8,315
12,269
Cleco Power’s charitable contributions 741
2,094
Total non-current 9,899
15,203
Total restricted cash and cash equivalents $ 13,953
$ 26,303


Cleco Power
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current
Cleco Katrina/Rita’s storm recovery bonds	$	2,626	$	9,632

Charitable contributions	1,765		1,200
Rate credit escrow	228		268
Total current	4,619		11,100
Non-current
Future storm restoration costs	0		12,269
Charitable contributions	0		2,094

Total non-current	0		14,363
Total restricted cash and cash equivalents	$	4,619	$	25,463

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current
Cleco Katrina/Rita’s storm recovery bonds $ 2,623
$ 9,632
Charitable contributions 1,200
1,200
Rate credit escrow 231
268
Total current 4,054
11,100
Non-current
Future storm restoration costs 8,315
12,269
Charitable contributions 741
2,094
Total non-current 9,056
14,363
Total restricted cash and cash equivalents $ 13,110
$ 25,463

Cleco Katrina/Rita had the right to bill and collect storm restoration costs from Cleco Power’s customers. As cash was collected, it was restricted for payment of administration fees, interest, and principal on storm recovery bonds. The change from December 31, 2019, to ~~March 31,~~September 30, 2020, was due to Cleco Katrina/Rita using $11.1 million for the final storm recovery bond principal payment and $0.3 million for the related final interest payment, partially offset by collections of $4.4 million net of administration fees. ~~The~~At September 30, 2020, the remaining $2.6 million of restricted cash is expected to be used for final administrative and winding up activities of Cleco Katrina/~~Rita.~~Rita, including refunds to Cleco Power customers for amounts remaining after all other costs are paid.

Cleco Power’s restricted cash and cash equivalents held for future storm restoration costs decreased $12.3 million from December 31, 2019, primarily due to the transfer of $8.3 million towards the costs associated with Hurricane Laura and $4.0 million to cover costs associated with other storms. For more information about Hurricane Laura, see Note 18 — “Storm Restoration.”

Reserves for Credit Losses

Customer accounts receivable are recorded at the invoiced amount and do not bear interest. Customer accounts 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 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. ~~While~~In response to the COVID-19 pandemic, the LPSC ~~has~~ issued ~~a moratorium on disconnects~~an executive order prohibiting the disconnection of ~~customers~~utilities for nonpayment onfrom March 13, 2020, through July 16, 2020. As a result of this executive order, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies, which resulted in no additional charge-offs during the second and third quarters of 2020. On July 16, 2020, Cleco Power began setting up payment plan arrangements for customers with past due balances to be repaid over a period of up to 18 months. On August 27, 2020, Hurricane Laura made landfall in southwest Louisiana causing substantial damage to Cleco’s distribution and transmission facilities and to the properties of Cleco’s customers. Although


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Cleco’s service territory experienced a recent decline in the economy related to ~~the COVID-19 outbreak,~~these events, the economic outlook at ~~March 31,~~September 30, 2020, was still within range of ~~Cleco’s~~its historical credit loss analysis. Cleco began reinstating disconnections and late fees and utilizing collection agencies on October 1, 2020.

The table below presents the changes in the allowance for credit losses by receivable for Cleco and Cleco Power:


Cleco
(THOUSANDS)	ACCOUNTS RECEIVABLE		OTHER*		TOTAL
Balances, June 30, 2020	$	3,486	$	1,638	$	5,124

Current period provision	2,041		0		2,041

Recovery	54		0		54
Balances, Sept. 30, 2020	$	5,581	$	1,638	$	7,219

Cleco
(THOUSANDS) ACCOUNTS RECEIVABLE
OTHERS^*

TOTAL
Balances, Dec. 31, 2019 $ 3,005
$ 1,250
$ 4,255
CECL adoption 71
—
71
Current period provision 2,498
388
2,886
Charge-offs (4,092 ) —
(4,092 )
Recovery 641
—
641
Balances, Mar. 31, 2020 $ 2,123
$ 1,638
$ 3,761

^*Loan held at Diversified Lands that iswas fully reserved for at ~~March 31,~~September 30, 2020.


(THOUSANDS)	ACCOUNTS RECEIVABLE		OTHER*		TOTAL
Balances, Dec. 31, 2019	$	3,005	$	1,250	$	4,255
CECL adoption	71		—		71
Current period provision	5,675		388		6,063
Charge-offs	(4,091)		0		(4,091)
Recovery	921		0		921
Balances, Sept. 30, 2020	$	5,581	$	1,638	$	7,219

Cleco Power
(THOUSANDS) ACCOUNTS RECEIVABLE
Balances, Dec. 31, 2019 $ 3,005
CECL adoption 71
Current period provision 2,498
Charge-offs (4,092 )
Recovery 641
Balances, Mar. 31, 2020 $ 2,123
* Loan held at Diversified Lands that was fully reserved for at September 30, 2020.


Cleco Power
(THOUSANDS)	ACCOUNTS RECEIVABLE
Balances, June 30, 2020	$	3,486

Current period provision	2,041

Recovery	54
Balances, Sept. 30, 2020	$	5,581


(THOUSANDS)	ACCOUNTS RECEIVABLE
Balances, Dec. 31, 2019	$	3,005
CECL adoption	71
Current period provision	5,675
Charge-offs	(4,091)
Recovery	921
Balances, Sept. 30, 2020	$	5,581

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 7 — “Fair Value Accounting.”

~~Derivatives and Other Risk Management Activity~~

Cleco’s Energy Market Risk Management Policy authorizes hedging of commodity price risk with physical or financially settled derivative instruments. Some of these contracts 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.

Additionally, Cleco Power and Cleco Cajun are awarded and/or purchase FTRs in auctions facilitated by MISO. FTRs represent economic hedges of future congestion charges that will be incurred in serving customer load. FTRs are derivatives not designated as hedging instruments for accounting purposes.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

Cleco Power’s FTRs are marked-to-market with the resulting unrealized gains or losses deferred as a component of deferred fuel assets or liabilities in accordance with regulatory policy. At settlement, realized gains or losses are included in the FAC and reflected on customers’ bills as a component of the fuel charge.

Cleco Cajun’s FTRs are marked-to-market with the resulting unrealized gains and losses recorded on the income statement as a component of purchased power expense. At settlement, realized gains or losses are also recorded on the income statement as a component of purchased power expense.

Cleco Cajun entered into other commodity derivative contracts during the three months ended March 31, 2020. Management did not elect to apply hedge accounting to these contracts as allowed under applicable accounting standards. When these contracts are marked-to-market, the resulting unrealized gain or loss is recorded on the income statement as a component of fuel expense for gas related derivative contracts or purchased power for power related derivative contracts. At settlement, realized gains or losses are also recorded on the income statement as a component of fuel expense for gas related derivative contracts or purchased power for power related derivative contracts.

~~For more information on FTRs and other commodity derivatives, see Note 7 — “Fair Value Accounting — Commodity Contracts.”~~

Cleco may also 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.

Note 2 — Business Combinations

On February 4, 2019, Cleco Cajun acquired from NRG Energy all of the outstanding membership interests in South Central Generating. This acquisition enabled Cleco to significantly increase the scale of its operations in Louisiana.

Accounting for the Cleco Cajun Transaction

As consideration for all of the outstanding membership interest in South Central Generating, Cleco paid cash of approximately $962.2 million, which represents the $1.0 billion acquisition price net of working capital and other adjustments of $37.8 million.

Cleco Cajun accounted for the Cleco Cajun Transaction as a business combination, and accordingly, the assets acquired and liabilities assumed were recorded at their estimated fair values as of the date of the acquisition. Cleco made certain measurement period adjustments at June 30, 2019. The following chart presents Cleco’s purchase price allocation:


Purchase Price Allocation
(THOUSANDS)
Current assets
Cash and cash equivalents	$	146,494
Customer and other accounts receivable	49,809
Fuel inventory	22,060
Materials and supplies	25,659
Energy risk management assets	4,193
Other current assets	10,056
Non-current assets
Property, plant, and equipment, net	741,203
Prepayments	36,166
Restricted cash and cash equivalents	707
Intangible assets	98,900
Other deferred charges	133
Total assets acquired	1,135,380
Current liabilities
Accounts payable	38,478
Taxes payable	723
Energy risk management liabilities	241
Other current liabilities	14,570
Non-current liabilities
Accumulated deferred federal and state income taxes, net	7,165
Deferred lease revenue	58,300
Intangible liabilities	38,300
Asset retirement obligations	15,323
Operating lease liabilities	110
Total liabilities assumed	173,210
Total purchase price consideration	$	962,170

Purchase Price Allocation
(THOUSANDS) AT FEB. 4, 2019
Current assets
Cash and cash equivalents $ 146,494
Customer and other accounts receivable 49,809
Fuel inventory 22,060
Materials and supplies 25,659
Energy risk management assets 4,193
Other current assets 10,056
Non-current assets
Property, plant, and equipment, net 741,203
Prepayments 36,166
Restricted cash and cash equivalents 707
Intangible assets 98,900
Other deferred charges 133
Total assets acquired 1,135,380
Current liabilities
Accounts payable 38,478
Taxes payable 723
Energy risk management liabilities 241
Other current liabilities 14,570
Non-current liabilities
Accumulated deferred federal and state income taxes, net 7,165
Deferred lease revenue 58,300
Intangible liabilities 38,300
Asset retirement obligations 15,323
Operating lease liabilities 110
Total liabilities assumed 173,210
Total purchase price consideration $ 962,170

During the second quarter of 2019, certain modifications were made to the preliminary valuations as of February 4, 2019, due to the refinement of valuation models, assumptions, and inputs. The measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date.

Measurement Period Adjustments
(THOUSANDS) AT JUNE 30, 2019
Current assets
Customer and other accounts receivable $ 1,408
Other current assets $ 56
Non-current assets
Property, plant, and equipment, net $ 13,297
Prepayments $ (56 )
Intangible assets $ (3,600 )
Other deferred charges $ 1
Current liabilities
Accounts payable $ 3,022
Energy risk management liabilities $ (1 )
Other current liabilities $ 327
Non-current liabilities
Accumulated deferred federal and state income taxes, net $ 421
Deferred lease revenue $ (3,600 )
Intangible liabilities $ 6,400
Asset retirement obligations $ 4,534
Operating lease liabilities $ 3



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


Measurement Period Adjustments
(THOUSANDS)	AT JUNE 30, 2019
Current assets
Customer and other accounts receivable	$	1,408
Other current assets	$	56
Non-current assets
Property, plant, and equipment, net	$	13,297
Prepayments	$	(56)
Intangible assets	$	(3,600)
Other deferred charges	$	1

Current liabilities
Accounts payable	$	3,022
Energy risk management liabilities	$	(1)
Other current liabilities	$	327
Non-current liabilities
Accumulated deferred federal and state income taxes, net	$	421
Deferred lease revenue	$	(3,600)
Intangible liabilities	$	6,400
Asset retirement obligations	$	4,534
Operating lease liabilities	$	3

The measurement period adjustments resulted in an increase in electric operations revenue of $0.5 million, a decrease in other operations revenue of $0.1 million, and an increase in depreciation expense of $0.2 million recorded for the three months ended June 30, 2019.

As of December 31, 2019, Cleco completed its evaluation and determination of the fair value of assets acquired and liabilities assumed in the Cleco Cajun Transaction. There were no adjustments to those amounts during the ~~three months ended March 31, 2020.~~third and fourth quarters of 2019.

Pro forma Impact of the Cleco Cajun Transaction

The following table includes the unaudited pro forma financial information reflecting the consolidated results of operations of Cleco as if the Cleco Cajun Transaction had taken place on January 1, 2018. The pro forma net income for the three and nine months ended ~~March 31,~~September 30, 2019, was adjusted to exclude nonrecurring transaction-related expenses of ~~$3.9 million.~~$0.6 million and $4.5 million, respectively.

The unaudited pro forma financial information presented in the following table is not necessarily indicative of the consolidated results of operations that would have been achieved had the transaction taken place on the date indicated, or the future consolidated results of operations of the combined companies.


Unaudited Pro Forma Financial Information
(THOUSANDS)	FOR THE THREE MONTHS ENDED SEPT. 30, 2019		FOR THE NINE MONTHS ENDED SEPT. 30, 2019
Operating revenue, net	$	487,971	$	1,250,787
Net income	$	56,004	$	122,771

Unaudited Pro Forma Financial Information
(THOUSANDS) FOR THE THREE MONTHS ENDED MAR. 31, 2019
Operating revenue, net $ 381,796
Net income $ 32,986



Note 3 — Recent Authoritative Guidance

In June 2016, FASB amended the guidance for the measurement of credit losses on receivables and certain other assets. In-scope items for Cleco include unbilled revenue, trade receivables, notes receivables, other accounts receivables, and guarantees. The guidance requires use of a current expected loss model, which may result in earlier recognition of credit losses. Effective January 1, 2020, Cleco

adopted the amended guidance using the prospective transition method. Adoption of this standard resulted in a $0.1 million increase in credit loss reserves related to unbilled revenue and trade receivables. The current expected credit loss model did not impact reserves related to any other in-scope items. For more information on Cleco’s accounting for credit losses, see Note 1 — “Summary of Significant Accounting Policies — Reserves for Credit Losses.”

In August 2018, FASB issued guidance that allows for the deferral of certain implementation costs incurred in a cloud computing arrangement. Effective January 1, 2020, Cleco adopted the guidance using the prospective transition method. Adoption of this guidance did not materially impact the Registrants’ results of operations, financial condition, or cash flows.

In March 2020, FASB issued ~~amendments~~optional guidance for a limited period of time that ~~are elective and apply~~applies to ~~all~~ entities ~~subject to~~ 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 ~~amendments include~~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 ~~amendment became effective~~optional guidance may be applied from March 12, ~~2020.~~2020, through December 31, 2022. Management is evaluating this guidance and the impact it may have on the Registrants’ results of operations, financial condition, or cash flows.

Note 4 — Leases

Cleco maintains operating and finance leases in its ordinary course of business activities.

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
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Cleco Cajun is Cleco’s only entity with lessor arrangements. Cleco Cajun’s lease income under the Cottonwood Sale Leaseback for the three and nine months ended ~~March 31,~~September 30, 2020, and 2019, was as follows:


	FOR THE THREE MONTHS ENDED MAR. 31,					FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		(THOUSANDS)	2020		2019		2020		2019
Fixed payments	$	10,000	$	6,667	Fixed payments	$	10,000	$	10,000	$	30,000	$	26,667
Variable payments	5,566		3,151		Variable payments	5,190		6,010		15,950		14,248
Amortization of deferred lease liability⁽¹⁾	2,302		1,440
Amortization of deferred lease liability*					Amortization of deferred lease liability*	2,301		2,301		6,904		6,137
Total lease income	$	17,868	$	11,258	Total lease income	$	17,491	$	18,311	$	52,854	$	47,052

⁽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. For more information, see Note 2 — “Business Combinations.”



Note 5 — Revenue Recognition

Disaggregated Revenue

Upon the completion of the Cleco Cajun Transaction on February 4, 2019, Cleco Cajun became a reportable segment. For more information on the transaction, see Note 2 — “Business Combinations.”

Operating revenue, net for the three and nine months ended ~~March 31,~~September 30, 2020, and 2019, was as follows:



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~


	FOR THE THREE MONTHS ENDED MAR. 31, 2020																		FOR THE THREE MONTHS ENDED SEPT. 30, 2020
(THOUSANDS)	CLECO POWER				CLECO CAJUN			OTHER				ELIMINATIONS			TOTAL			(THOUSANDS)	CLECO POWER			CLECO CAJUN			OTHER			ELIMINATIONS		TOTAL
Revenue from contracts with customers																		Revenue from contracts with customers
Retail revenue																		Retail revenue
Residential ⁽¹⁾	$	81,571			$	—		$	—			$	—		$	81,571		Residential (1)	$	128,981		$	0		$	0		$	0	$	128,981
Commercial ⁽¹⁾	61,110				—			—				—			61,110			Commercial (1)	68,220			0			0			0		68,220
Industrial ⁽¹⁾	32,210				—			—				—			32,210			Industrial (1)	32,809			0			0			0		32,809
Other retail ⁽¹⁾	3,461				—			—				—			3,461			Other retail (1)	3,614			0			0			0		3,614
Surcharge	2,443				—			—				—			2,443

Electric customer credits	(8,340		)		—			—				—			(8,340		)	Electric customer credits	(16,534)			0			0			0		(16,534)
Total retail revenue	172,455				—			—				—			172,455			Total retail revenue	217,090			0			0			0		217,090
Wholesale, net	42,229			⁽¹⁾	89,147			(2,420		)	⁽²⁾	—			128,956			Wholesale, net	52,216		(1)	99,956			(2,420)		(2)	0		149,752
Transmission, net	12,069				12,931		⁽³⁾	—				(1,818		)	23,182			Transmission, net	14,656			13,818			0			(1,510)		26,964
Other	3,695			⁽⁴⁾	—			1				—			3,696			Other	3,118			0			0			0		3,118
Affiliate ⁽⁵⁾	1,106				161			29,278				(30,545		)	—
Affiliate (3)																		Affiliate (3)	1,506			0			35,522			(37,028)		0
Total revenue from contracts with customers	231,554				102,239			26,859				(32,363		)	328,289			Total revenue from contracts with customers	288,586			113,774			33,102			(38,538)		396,924
Revenue unrelated to contracts with customers																		Revenue unrelated to contracts with customers
Other	1,406			⁽⁶⁾	17,877		⁽⁷⁾	—				—			19,283			Other	3,013		(4)	17,513		(5)	1			0		20,527
Total revenue unrelated to contracts with customers	1,406				17,877			—				—			19,283			Total revenue unrelated to contracts with customers	3,013			17,513			1			0		20,527
Operating revenue, net	$	232,960			$	120,116		$	26,859			$	(32,363	)	$	347,572		Operating revenue, net	$	291,599		$	131,287		$	33,103		$	(38,538)	$	417,451

⁽¹⁾Includes fuel recovery revenue.

⁽²⁾ Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.

⁽³⁾ ~~Includes $0.2 million of electric customer credits.~~

⁽⁴⁾ ~~Includes $3.7 million of other miscellaneous fee revenue.~~

⁽⁵⁾Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.

⁽⁶⁾(4) Includes realized gains associated with FTRs of ~~$1.4~~$3.0 million.

⁽⁷⁾(5) Includes ~~$15.6~~$15.2 million in lease revenue related to the Cottonwood Sale Leaseback and $2.3 million of deferred lease revenue amortization.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


	FOR THE THREE MONTHS ENDED MAR. 31, 2019																			FOR THE THREE MONTHS ENDED SEPT. 30, 2019
(THOUSANDS)	CLECO POWER				CLECO CAJUN				OTHER				ELIMINATIONS			TOTAL			(THOUSANDS)	CLECO POWER			CLECO CAJUN			OTHER			ELIMINATIONS		TOTAL
Revenue from contracts with customers																			Revenue from contracts with customers
Retail revenue																			Retail revenue
Residential ⁽¹⁾	$	87,148			$	—			$	—			$	—		$	87,148		Residential (1)	$	142,265		$	0		$	0		$	0	$	142,265
Commercial ⁽¹⁾	65,380				—				—				—			65,380			Commercial (1)	84,816			0			0			0		84,816
Industrial ⁽¹⁾	37,870				—				—				—			37,870			Industrial (1)	36,830			0			0			0		36,830
Other retail ⁽¹⁾	3,681				—				—				—			3,681			Other retail (1)	4,234			0			0			0		4,234
Surcharge	5,321				—				—				—			5,321			Surcharge	170			0			0			0		170
Electric customer credits	(8,160		)		—				—				—			(8,160		)	Electric customer credits	(13,711)			0			0			0		(13,711)
Total retail revenue	191,240				—				—				—			191,240			Total retail revenue	254,604			0			0			0		254,604
Wholesale, net	55,546			⁽¹⁾	58,191				(2,420		)	⁽²⁾	—			111,317			Wholesale, net	69,558		(1)	114,426			(2,420)		(2)	0		181,564
Transmission	12,579				8,727				—				—			21,306			Transmission	14,034			15,435			0			(2,442)		27,027
Other	6,851			⁽³⁾	(26		)		2				—			6,827			Other	4,452		(3)	0			0			0		4,452
Affiliate ⁽⁴⁾	300				—				26,535				(26,835		)	—			Affiliate (4)	334			31			28,252			(28,617)		0
Total revenue from contracts with customers	266,516				66,892				24,117				(26,835		)	330,690			Total revenue from contracts with customers	342,982			129,892			25,832			(31,059)		467,647
Revenue unrelated to contracts with customers																			Revenue unrelated to contracts with customers
Other	2,229			⁽⁵⁾	11,267			⁽⁶⁾	—				—			13,496			Other	1,995		(5)	18,329		(6)	0			0		20,324
Total revenue unrelated to contracts with customers	2,229				11,267				—				—			13,496			Total revenue unrelated to contracts with customers	1,995			18,329			0			0		20,324
Operating revenue, net	$	268,745			$	78,159			$	24,117			$	(26,835	)	$	344,186		Operating revenue, net	$	344,977		$	148,221		$	25,832		$	(31,059)	$	487,971

⁽¹⁾Includes fuel recovery revenue.

⁽²⁾ Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.

⁽³⁾ ~~Includes $4.4 million of other~~Other miscellaneous fee ~~revenue and $2.4 million of Teche Unit 3 SSR revenue at Cleco Power.~~revenue.

⁽⁴⁾ Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.

⁽⁵⁾ Includes realized gains associated with ~~FTRs of $4.8 million and the reversal of the LCFC revenue of $(2.6) million.~~FTRs.

⁽⁶⁾ Includes ~~$9.8~~$16.0 million in lease revenue related to the Cottonwood Sale Leaseback and ~~$1.4~~$2.3 million of deferred lease revenue amortization.


	FOR THE NINE MONTHS ENDED SEPT. 30, 2020
(THOUSANDS)	CLECO POWER			CLECO CAJUN			OTHER			ELIMINATIONS		TOTAL
Revenue from contracts with customers
Retail revenue
Residential (1)	$	308,525		$	0		$	0		$	0	$	308,525
Commercial (1)	190,905			0			0			0		190,905
Industrial (1)	94,227			0			0			0		94,227
Other retail (1)	10,416			0			0			0		10,416
Surcharge	2,440			0			0			0		2,440
Electric customer credits	(33,219)			0			0			0		(33,219)
Total retail revenue	573,294			0			0			0		573,294
Wholesale, net	140,139		(1)	273,836			(7,260)		(2)	0		406,715
Transmission, net	38,273		(3)	39,880		(4)	0			(4,966)		73,187
Other	10,416			0			0			1		10,417
Affiliate (5)	3,852			204			93,938			(97,994)		0
Total revenue from contracts with customers	765,974			313,920			86,678			(102,959)		1,063,613
Revenue unrelated to contracts with customers
Other	6,272		(6)	52,895		(7)	2			0		59,169
Total revenue unrelated to contracts with customers	6,272			52,895			2			0		59,169
Operating revenue, net	$	772,246		$	366,815		$	86,680		$	(102,959)	$	1,122,782

(1) Includes fuel recovery revenue.

(2) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.

(3) Includes $0.8 million of electric customer credits.

(4) Includes $0.2 million of electric customer credits.

(5) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.

(6) Includes realized gains associated with FTRs of $6.3 million.

(7) Includes $46.0 million in lease revenue related to the Cottonwood Sale Leaseback and $6.9 million of deferred lease revenue amortization.



CLECO


CLECO POWER
			2020 3RD QUARTER FORM 10-Q


	FOR THE NINE MONTHS ENDED SEPT. 30, 2019
(THOUSANDS)	CLECO POWER			CLECO CAJUN			OTHER			ELIMINATIONS		TOTAL
Revenue from contracts with customers
Retail revenue
Residential (1)	$	327,340		$	0		$	0		$	0	$	327,340
Commercial (1)	218,209			0			0			0		218,209
Industrial (1)	109,545			0			0			0		109,545
Other retail (1)	11,391			0			0			0		11,391
Surcharge	7,692			0			0			0		7,692
Electric customer credits	(30,565)			0			0			0		(30,565)
Total retail revenue	643,612			0			0			0		643,612
Wholesale, net	179,633		(1)	273,256			(7,260)		(2)	0		445,629
Transmission	38,679			36,625			0			(5,395)		69,909
Other	14,640		(3)	0			2			0		14,642
Affiliate (4)	971			31			77,800			(78,802)		0
Total revenue from contracts with customers	877,535			309,912			70,542			(84,197)		1,173,792
Revenue unrelated to contracts with customers
Other	9,158		(5)	47,081		(6)	0			(1)		56,238
Total revenue unrelated to contracts with customers	9,158			47,081			0			(1)		56,238
Operating revenue, net	$	886,693		$	356,993		$	70,542		$	(84,198)	$	1,230,030

(1) Includes fuel recovery revenue.

(2) Amortization of intangible assets related to Cleco Power’s wholesale power supply agreements.

(3) Includes $11.4 million of other miscellaneous fee revenue and $3.2 million of Teche Unit 3 SSR revenue at Cleco Power.

(4) Includes interdepartmental rents and support services. This revenue is eliminated upon consolidation.

(5) Includes realized gains associated with FTRs of $11.7 million and the reversal of the Lost Contribution to Fixed Cost revenue of $2.6 million.

(6) Includes $40.9 million in lease revenue related to the Cottonwood Sale Leaseback and $6.1 million of deferred lease revenue amortization.

Cleco and Cleco Power have unsatisfied performance obligations with durations ranging between 1 and 15 years that primarily relate to stand-ready obligations as part of fixed capacity minimums. At ~~March 31,~~September 30, 2020, Cleco and Cleco Power had ~~$80.7~~$75.7 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 6 — Regulatory Assets and Liabilities

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.

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. In addition, potential deregulation of the industry or possible



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

future changes in the method of rate regulation of Cleco Power could require discontinuance of the application of the authoritative guidance on regulated operations.

The following table summarizes Cleco Power’s regulatory assets and liabilities:


Cleco Power
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Regulatory assets (liabilities)
Acadia Unit 1 acquisition costs	$	2,045	$	2,124
Accumulated deferred fuel	43,612		22,910
AFUDC equity gross-up *	70,444		72,766
AMI deferred revenue requirement	2,727		3,136
AROs	4,805		3,668
Corporate franchise tax, net	(1,262)		(1,145)
Coughlin transaction costs	884		906
COVID-19 executive order	2,953		0
Deferred taxes, net	(145,173)		(146,948)
Deferred storm restoration costs — Hurricane Laura	57,669		0
Dolet Hills closure costs	28,635		0
Emergency declarations	408		1,349


Energy efficiency	2,820		2,820
Financing costs	7,276		7,554
Interest costs	3,771		3,958
Non-service cost of postretirement benefits	8,891		6,739
Other, net	3,206		153
Postretirement costs	139,369		151,543
Production operations and maintenance expenses	4,754		7,985
St. Mary Clean Energy Center	1,740		(4,696)
Surcredits, net *	0		145
Training costs	6,124		6,241
Tree trimming costs	12,241		11,341
Total regulatory assets, net	$	257,939	$	152,549
* Represents regulatory assets for past expenditures that were not earning a return on investment at September 30, 2020, and December 31, 2019, respectively. All other assets are earning a return on investment.

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Regulatory assets (liabilities)
Deferred taxes, net $ (146,225 ) $ (146,948 )
Interest costs 3,896
3,958
AROs 3,815
3,668
Postretirement costs 147,889
151,543
Tree trimming costs 11,384
11,341
Training costs 6,202
6,241
Surcredits, net ⁽¹⁾
72
145
AMI deferred revenue requirement 3,000
3,136
Emergency declarations 948
1,349
Production operations and maintenance expenses 6,756
7,985
AFUDC equity gross-up ⁽¹⁾
71,992
72,766
Acadia Unit 1 acquisition costs 2,098
2,124
Financing costs 7,461
7,554
Coughlin transaction costs 899
906
Corporate franchise tax, net (1,145 ) (1,145 )
Non-service cost of postretirement benefits 7,551
6,739
Energy efficiency 2,820
2,820
Accumulated deferred fuel 16,353
22,910
Other, net (1,039 ) (4,543 )
Total regulatory assets, net $ 144,727
$ 152,549
⁽¹⁾Represents regulatory assets for past expenditures that were not earning a return on investment at March 31, 2020, and December 31, 2019, respectively. All other assets are earning a return on investment.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

The following table summarizes Cleco’s net regulatory assets and liabilities:


Cleco					Cleco
(THOUSANDS)	AT MAR. 31, 2020		AT DEC. 31, 2019		(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Total Cleco Power regulatory assets, net	$	144,727	$	152,549	Total Cleco Power regulatory assets, net	$	257,939	$	152,549
2016 Merger adjustments ⁽¹⁾
2016 Merger adjustments *					2016 Merger adjustments *
Fair value of long-term debt	125,105		127,977		Fair value of long-term debt	121,404		127,977
Postretirement costs	16,902		17,399		Postretirement costs	15,908		17,399
Financing costs	7,849		7,935		Financing costs	7,677		7,935
Debt issuance costs	5,504		5,665		Debt issuance costs	5,337		5,665
Total Cleco regulatory assets, net	$	300,087	$	311,525	Total Cleco regulatory assets, net	$	408,265	$	311,525

⁽¹⁾*Cleco regulatory assets include acquisition accounting adjustments as a result of the 2016 Merger.

COVID-19 Executive Order

On March 13, 2020, the LPSC issued an executive order prohibiting the disconnection of utilities for nonpayment. This order resulted in an increase of expenses for Cleco Power. On 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 reinstating disconnections and late fees and utilizing collection agencies on October 1, 2020. At September 30, 2020, Cleco Power recognized a regulatory asset of $3.0 million for expenses incurred.

Deferred Storm Restoration Costs — Hurricane Laura

On August 27, 2020, Hurricane Laura made landfall in southwest Louisiana as a Category 4 storm, causing power outages for approximately 140,000 of Cleco Power’s electric customers located primarily in central and southwest Louisiana. In September 2020, the LPSC approved utilities establishing a regulatory asset to track and defer non-capital expenses associated with Hurricane Laura. At September 30, 2020, Cleco Power recognized a regulatory asset of $57.7 million for deferred storm costs, which was the remaining balance of non-capital expenses associated with Hurricane Laura after Cleco Power’s storm reserve was exhausted. Cleco Power anticipates making a filing with the LPSC in the fourth quarter of 2020 requesting interim rate recovery for return on the cost of the storm until such time securitization of the costs associated with Hurricane Laura can be completed. For more information about Hurricane Laura, see Note 18 — “Storm Restoration.”

Dolet Hills Closure Costs

In June 2020, Cleco Power revised depreciation rates for the Dolet Hills Power Station to utilize the December 2021 expected end-of-life and early closure 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. At September 30, 2020, Cleco Power had $28.6 million accrued as a regulatory asset for accelerated depreciation and closure costs. For more information on the Dolet Hills Power Station, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Risks and Uncertainties.”

St. Mary Clean Energy Center

On July 1, 2018, Cleco Power began collecting the revenue requirements related to the St. Mary Clean Energy Center

project based on expected commercial operations in the third quarter of 2018. Due to the delay in commercial operations, Cleco Power recorded a $9.6 million regulatory liability for over collections for the 12-month period ending June 30, 2019. On July 1, 2019, Cleco Power’s rider FRP rates were adjusted by the amount of the over collection and the liability was amortized over a period of 12 months. Due to the delay in the current base rate case, Cleco Power continues to charge FRP rates established in July 2019, which includes a portion of the revenue requirements adjusted by the over collections. Cleco Power accrued a regulatory asset of $1.7 million at September 30, 2020, for the resulting under collection of revenue related to St. Mary Clean Energy Center project.



Note 7 — Fair Value Accounting

The amounts reflected on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2020,,

and December 31, 2019,, 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. 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.

The following tables summarize the carrying value and estimated market value of Cleco and Cleco Power’s financial instruments not measured at fair value on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets:

Cleco
AT MAR. 31, 2020 AT DEC. 31, 2019
(THOUSANDS)
CARRYING
VALUE*

FAIR VALUE

CARRYING
VALUE*

FAIR VALUE
Long-term debt $ 3,174,821
$ 3,295,214
$ 3,188,664
$ 3,371,915


Cleco
	AT SEPT. 30, 2020				AT DEC. 31, 2019
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	3,296,274	$	3,775,943	$	3,188,664	$	3,371,915

* The carrying value of long-term debt does not include deferred issuance costs of ~~$13.2~~$14.0 million at ~~March 31,~~September 30, 2020, and $13.7 million at December 31, 2019.

Cleco Power
AT MAR. 31, 2020 AT DEC. 31, 2019
(THOUSANDS)
CARRYING
VALUE*

FAIR VALUE

CARRYING
VALUE*

FAIR VALUE
Long-term debt $ 1,369,716
$ 1,696,053
$ 1,380,688
$ 1,601,865


Cleco Power
	AT SEPT. 30, 2020				AT DEC. 31, 2019
(THOUSANDS)	CARRYING VALUE*		FAIR VALUE		CARRYING VALUE*		FAIR VALUE
Long-term debt	$	1,494,870	$	1,934,186	$	1,380,688	$	1,601,865

* The carrying value of long-term debt does not include deferred issuance costs of $7.2 million at ~~March 31,~~September 30, 2020, and $7.4 million at December 31, 2019.

In order to fund capital requirements, Cleco issues 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.

Fair Value Measurements and Disclosures

Cleco classifies assets and liabilities that are measured at their fair value according to three different levels depending on the inputs used in determining fair value.

The following tables disclose for Cleco and Cleco Power the fair value of financial assets and liabilities measured on a recurring basis:



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


Cleco
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT SEPT. 30, 2020		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2019		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Institutional money market funds	$	530,475	$	0	$	530,475	$	0	$	129,643	$	0	$	129,643	$	0
FTRs	7,907		0		0		7,907		6,822		0		0		6,822
Other commodity derivatives	17,343		0		17,343		0		201		0		201		0
Total assets	$	555,725	$	0	$	547,818	$	7,907	$	136,666	$	0	$	129,844	$	6,822
Liability description
FTRs	$	2,580	$	0	$	0	$	2,580	$	1,044	$	0	$	0	$	1,044
Other commodity derivatives	0		0		0		0		5,373		0		5,373		0
Total liabilities	$	2,580	$	0	$	0	$	2,580	$	6,417	$	0	$	5,373	$	1,044


Cleco Power
	FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS)	AT SEPT. 30, 2020		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)		AT DEC. 31, 2019		QUOTED PRICES IN ACTIVE MARKETS FOR IDENTICAL ASSETS (LEVEL 1)		SIGNIFICANT OTHER OBSERVABLE INPUTS (LEVEL 2)		SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)
Asset description
Institutional money market funds	$	326,731	$	0	$	326,731	$	0	$	74,903	$	0	$	74,903	$	0
FTRs	7,177		0		0		7,177		6,311		0		0		6,311
Total assets	$	333,908	$	0	$	326,731	$	7,177	$	81,214	$	0	$	74,903	$	6,311
Liability description
FTRs	$	1,765	$	0	$	0	$	1,765	$	586	$	0	$	0	$	586
Total liabilities	$	1,765	$	0	$	0	$	1,765	$	586	$	0	$	0	$	586

Cleco
FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS) AT MAR. 31, 2020

QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

AT DEC. 31, 2019

QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

Asset description
Institutional money market funds $ 352,549
$ —
$ 352,549
$ —
$ 129,643
$ —
$ 129,643
$ —
FTRs 1,779
—
—
1,779
6,822
—
—
6,822
Other commodity derivatives 213
—
213
—
201
—
201
—
Total assets $ 354,541
$ —
$ 352,762
$ 1,779
$ 136,666
$ —
$ 129,844
$ 6,822
Liability description

FTRs $ 683
$ —
$ —
$ 683
$ 1,044
$ —
$ —
$ 1,044
Other commodity derivatives 12,494
—
12,494
—
5,373
—
5,373
—
Total liabilities $ 13,177
$ —
$ 12,494
$ 683
$ 6,417
$ —
$ 5,373
$ 1,044

Cleco Power
FAIR VALUE MEASUREMENTS AT REPORTING DATE
(THOUSANDS) AT MAR. 31, 2020

QUOTED PRICES IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

AT DEC. 31, 2019

QUOTED PRICES
IN ACTIVE MARKETS
FOR IDENTICAL
ASSETS
(LEVEL 1)

SIGNIFICANT
OTHER
OBSERVABLE
INPUTS
(LEVEL 2)

SIGNIFICANT
UNOBSERVABLE
INPUTS
(LEVEL 3)

Asset description
Institutional money market funds $ 198,006
$ —
$ 198,006
$ —
$ 74,903
$ —
$ 74,903
$ —
FTRs 1,673
—
—
1,673
6,311
—
—
6,311
Total assets $ 199,679
$ —
$ 198,006
$ 1,673
$ 81,214
$ —
$ 74,903
$ 6,311
Liability description

FTRs $ 524
$ —
$ —
$ 524
$ 586
$ —
$ —
$ 586
Total liabilities $ 524
$ —
$ —
$ 524
$ 586
$ —
$ —
$ 586

The following tables summarize 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 THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Beginning balance $ 5,778
$ 22,887
Unrealized losses* (1,398 ) (1,917 )
Purchases 466
5,237
Settlements (3,750 ) (18,397 )
Ending balance $ 1,096
$ 7,810
* Cleco Power’s unrealized losses are reported through Accumulated deferred fuel on Cleco’s Condensed Consolidated Balance Sheet. Cleco Cajun’s unrealized (losses) gains are reported through Purchased power on Cleco’s Condensed Consolidated Income Statement.


Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Beginning balance	$	8,040	$	14,665	$	5,778	$	22,887
Unrealized losses*	4		(1,234)		(736)		(4,488)
Purchases	443		557		10,175		26,401
Settlements	(3,160)		(5,319)		(9,890)		(36,131)
Ending balance	$	5,327	$	8,669	$	5,327	$	8,669
* Cleco Power’s unrealized losses are reported through Accumulated deferred fuel on Cleco’s Condensed Consolidated Balance Sheet. Cleco Cajun’s unrealized (losses) gains are reported through Purchased power on Cleco’s Condensed Consolidated Income Statement.


Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Beginning balance	$	7,511	$	13,910	$	5,725	$	22,887
Unrealized gains (losses)*	426		(1,700)		1,355		(3,644)
Purchases	443		1,133		8,219		20,961
Settlements	(2,968)		(5,319)		(9,887)		(32,180)
Ending balance	$	5,412	$	8,024	$	5,412	$	8,024
* Unrealized gains (losses) are reported through Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheet.

Cleco Power
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Beginning balance $ 5,725
$ 22,887
Unrealized losses* (1,311 ) (2,939 )
Purchases 466
1,286
Settlements (3,731 ) (16,422 )
Ending balance $ 1,149
$ 4,812
* Unrealized losses are reported through Accumulated deferred fuel on Cleco Power’s Condensed Consolidated Balance Sheet.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions for Cleco and Cleco Power as of ~~March 31,~~September 30, 2020,, and December 31, ~~2019~~:

2019:

Cleco
FAIR VALUE VALUATION TECHNIQUE
SIGNIFICANT
UNOBSERVABLE INPUTS
FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE) ASSETS
LIABILITIES
LOW
HIGH
FTRs at Mar. 31, 2020 $ 1,779
$ 683
RTO auction pricing FTR price - per MWh $ (1.40 ) $ 2.93
FTRs at Dec. 31, 2019 $ 6,822
$ 1,044
RTO auction pricing FTR price - per MWh $ (2.57 ) $ 2.86


Cleco
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at Sept. 30, 2020	$	7,907	$	2,580	RTO auction pricing	FTR price - per MWh	$	(4.01)	$	4.62
FTRs at Dec. 31, 2019	$	6,822	$	1,044	RTO auction pricing	FTR price - per MWh	$	(2.57)	$	2.86


Cleco Power
	FAIR VALUE				VALUATION TECHNIQUE	SIGNIFICANT UNOBSERVABLE INPUTS	FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE)	ASSETS		LIABILITIES				LOW		HIGH
FTRs at Sept. 30, 2020	$	7,177	$	1,765	RTO auction pricing	FTR price - per MWh	$	(2.41)	$	4.62
FTRs at Dec. 31, 2019	$	6,311	$	586	RTO auction pricing	FTR price - per MWh	$	(2.04)	$	2.86

Cleco Power
FAIR VALUE VALUATION TECHNIQUE
SIGNIFICANT
UNOBSERVABLE INPUTS
FORWARD PRICE RANGE
(THOUSANDS, EXCEPT FORWARD PRICE RANGE) ASSETS
LIABILITIES
LOW
HIGH
FTRs at Mar. 31, 2020 $ 1,673
$ 524
RTO auction pricing FTR price - per MWh $ (1.40 ) $ 2.93
FTRs at Dec. 31, 2019 $ 6,311
$ 586
RTO auction pricing FTR price - per MWh $ (2.04 ) $ 2.86

Cleco utilizes different valuation techniques for fair value calculations. In order to measure the fair value for Level 1 assets and liabilities, Cleco obtains the closing price from

published indices in active markets for the various instruments and multiplies this price by the appropriate number of instruments held. Level 2 fair values are determined by



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

obtaining the closing price of similar assets and liabilities from published indices in active markets. Institutional money market funds assets are discounted to the current period using a U.S. Treasury published interest rate as a proxy for a risk-free rate of return. Level 3 fair values occur in situations in which there is little, if any, market activity for the asset or liability at the measurement date and prices are not observable. Cleco has consistently applied the Level 2 and Level 3 fair value techniques from fiscal period to fiscal period. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement. The assets and liabilities reported at fair value are grouped into classes based on the underlying nature and risks associated with the individual asset or liability.

At ~~March 31,~~September 30, 2020,, Cleco and Cleco Power were exposed to concentrations of credit risk through their short-term investments classified as cash equivalents and restricted cash equivalents. The following tables present the institutional money market funds in cash and cash equivalents and restricted cash and cash equivalents as recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2020, and December 31, 2019:


Cleco
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Cash and cash equivalents	$	525,112	$	103,409
Current restricted cash and cash equivalents	$	4,619	$	11,100
Non-current restricted cash and cash equivalents	$	744	$	15,134


Cleco
Cleco Power					Cleco Power
(THOUSANDS)	AT MAR. 31, 2020		AT DEC. 31, 2019		(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Cash and cash equivalents	$	338,611	$	103,409	Cash and cash equivalents	$	322,112	$	49,509
Current restricted cash and cash equivalents	$	4,054	$	11,100	Current restricted cash and cash equivalents	$	4,619	$	11,100
Non-current restricted cash and cash equivalents	$	9,883	$	15,134	Non-current restricted cash and cash equivalents	$	0	$	14,294

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Cash and cash equivalents $ 184,911
$ 49,509
Current restricted cash and cash equivalents $ 4,054
$ 11,100
Non-current restricted cash and cash equivalents $ 9,041
$ 14,294

If the money market funds 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 by either Cleco or Cleco Power. The Level 2 institutional 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 U.S. Treasury 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.

Other commodity derivatives include fixed price physical forwards and swap transactions. These contracts contain counterparty credit risk because they are transacted directly with a counterparty and are not cleared on an exchange. With respect to any open trading contracts that Cleco has entered into or may enter into in the future, Cleco may be required to provide credit support or pay liquidated damages under such contracts. 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, and changes in the amounts counterparties owe to Cleco. Changes in any of these factors could cause the amount of requested credit support to increase or decrease. These other commodity derivatives are recorded at fair value and categorized as Level 2 because pricing is indexed to other contracts.

Cleco Power and Cleco Cajun’s FTRs were priced using MISO’s monthly auction prices. Forward seasonal periods are not included in every monthly auction; therefore, the average of the most recent seasonal auction prices is used for monthly valuation. FTRs are categorized as Level 3 fair value measurements because the only relevant pricing available comes from MISO auctions, which occur monthly in the Multi-Period Monthly Auction.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and the year ended December 31, 2019, Cleco did not experience any transfers between levels within the fair value hierarchy.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Commodity Contracts

The following tables present the fair values of derivative instruments and their respective line items as recorded on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets at ~~March 31,~~September 30, 2020, and December 31, 2019:

Cleco
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS) BALANCE SHEET LINE ITEM AT MAR. 31, 2020
AT DEC. 31, 2019
Commodity-related contracts
FTRs
Current Energy risk management assets $ 1,779
$ 6,822
Current Energy risk management liabilities (683 ) (1,044 )
Other commodity derivatives
Current Energy risk management assets 213
201
Current Energy risk management liabilities (9,014 ) (3,069 )
Non-current Other deferred credits (3,480 ) (2,304 )
Commodity-related contracts, net $ (11,185 ) $ 606


Cleco
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT SEPT. 30, 2020		AT DEC. 31, 2019
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	7,907	$	6,822
Current	Energy risk management liabilities	(2,580)		(1,044)
Other commodity derivatives
Current	Energy risk management assets	12,067		201
Non-current	Other deferred charges	5,276		0
Current	Energy risk management liabilities	0		(3,069)
Non-current	Other deferred credits	0		(2,304)
Commodity-related contracts, net		$	22,670	$	606

Cleco Power
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS) BALANCE SHEET LINE ITEM AT MAR. 31, 2020
AT DEC. 31, 2019
Commodity-related contracts
FTRs
Current Energy risk management assets $ 1,673
$ 6,311
Current Energy risk management liabilities (524 ) (586 )
Commodity-related contracts, net $ 1,149
$ 5,725


Cleco Power
	DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS)	BALANCE SHEET LINE ITEM	AT SEPT. 30, 2020		AT DEC. 31, 2019
Commodity-related contracts
FTRs
Current	Energy risk management assets	$	7,177	$	6,311
Current	Energy risk management liabilities	(1,765)		(586)
Commodity-related contracts, net		$	5,412	$	5,725

The following tables present the effect of derivatives not designated as hedging instruments on Cleco and Cleco Power’s Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 30, 2020, and 2019:



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~


Cleco								Cleco
	AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES								AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
		FOR THE THREE MONTHS ENDED MAR. 31,								FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2020			2019			(THOUSANDS)	INCOME STATEMENT LINE ITEM	2020		2019		2020		2019
Commodity-related contracts								Commodity-related contracts
FTRs⁽¹⁾	Electric operations	$	1,396		$	5,209		FTRs(1)	Electric operations	$	3,013	$	1,997	$	6,262	$	12,396
FTRs⁽¹⁾	Purchased power	(381		)	(3,324		)	FTRs(1)	Purchased power	(763)		(2,648)		(1,053)		(12,985)
Other commodity derivatives	Fuel used for electric generation	(7,108		)	—			Other commodity derivatives	Fuel used for electric generation	20,307		3,474		22,515		704
Total		$	(6,093	)	$	1,885		Total		$	22,557	$	2,823	$	27,724	$	115

⁽¹⁾ For the three and nine months ended ~~March 31,~~September 30, 2020, unrealized ~~losses~~gains associated with FTRs for Cleco Power of ~~$1.3~~$0.4 million and $1.4 million, respectively, were reported through Accumulated deferred fuel on the balance sheet. For the three and nine months ended ~~March 31,~~September 30, 2019, unrealized losses associated with FTRs for Cleco Power of ~~$2.9~~$1.7 million and $3.6 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 THREE MONTHS ENDED MAR. 31,
(THOUSANDS) INCOME STATEMENT LINE ITEM 2020
2019
Commodity-related contracts
FTRs⁽¹⁾
Electric operations $ 1,396
$ 5,206
FTRs⁽¹⁾
Purchased power (751 ) (1,983 )
Total $ 645
$ 3,223


Cleco Power
	AMOUNT OF GAIN(LOSS) RECOGNIZED IN INCOME ON DERIVATIVES
		FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	INCOME STATEMENT LINE ITEM	2020		2019		2020		2019
Commodity-related contracts
FTRs(1)	Electric operations	$	3,013	$	1,997	$	6,262	$	12,400
FTRs(1)	Purchased power	(2,326)		(1,828)		(4,397)		(4,800)
Total		$	687	$	169	$	1,865	$	7,600

⁽¹⁾ For the three and nine months ended ~~March 31,~~September 30, 2020, unrealized ~~losses~~gains associated with FTRs of ~~$1.3~~$0.4 million and $1.4 million, respectively. were reported through Accumulated deferred fuel on the balance sheet. For the three and nine months ended ~~March 31,~~September 30, 2019, unrealized losses associated with FTRs of ~~$2.9~~$1.7 million and $3.6 million, respectively, were reported through Accumulated deferred fuel on the balance sheet.

The total volume of FTRs that Cleco Power had outstanding at ~~March 31,~~September 30, 2020,, and December 31, 2019,, was ~~3.4~~14.8 million MWh and 9.2 million MWh, respectively. The total volume of FTRs that Cleco had outstanding at ~~March 31,~~September 30, 2020, and December 31, 2019, was ~~5.4~~24.1 million MWh and 14.6 million MWh, respectively. The total volume of other commodity derivatives Cleco had outstanding at ~~March 31,~~September 30, 2020, and December 31, 2019, was ~~54.8~~63.9 million MMBtus and 58.5 million MMBtus, respectively.



Note 8 — Debt

On March 2, 2020, Cleco Power made the final $11.1 million principal payment and completed the repayment in full of its Cleco Katrina/Rita storm recovery bonds issued in March 2008.

On May 1, 2020, Cleco Power repriced at a mandatory tender date its $50.0 million 2008 series A GO Zone bonds and entered into a new interest rate period with a mandatory tender date of May 1, 2025. The interest rate for the new interest rate period is fixed at 2.50% per annum.

On May 15, 2020, Cleco Power entered into an amendment for its revolving credit agreement. This amendment extends the term of the revolving credit agreement through June 28, 2022. At ~~March 31,~~September 30, 2020, Cleco Power had $150.0 million of borrowings outstanding under its $300.0 million revolving credit facility at an all-in interest rate of 1.41%. The borrowing costs under the agreement currently are equal to LIBOR plus 1.25% or ABR plus 0.25%, plus commitment fees of 0.15%.

On August 28, 2020, Cleco Power entered into a $125.0 million variable rate bank term loan due June 28, 2022.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Amounts outstanding under the bank term loan bear interest at a base rate plus 0.250% or LIBOR plus 1.25%. At September 30, 2020, the all-in interest rate under the term loan was 1.40%, which was based on LIBOR.

On May 15, 2020, Cleco Holdings entered into amendments for its revolving credit agreement and two outstanding term loan agreements. These amendments extend the terms of each agreement through June 28, 2022.

At September 30, 2020, Cleco Holdings had $88.0 million of borrowings outstanding under its $175.0 million revolving credit facility at an all-in interest rate of ~~2.50%~~2.035%. The borrowing costs under the facility currently are equal to LIBOR plus ~~1.75%~~1.875% or ABR plus ~~0.75%~~0.875%, plus commitment fees of ~~0.275%~~0.30%.

At ~~March 31,~~September 30, 2020, Cleco ~~Power~~Holdings had ~~$150.0~~$330.0 million long-term variable rate bank term loans outstanding. One bank term loan had a balance of ~~borrowings outstanding under its~~ $300.0 million ~~credit facility~~outstanding, at an interest rate of LIBOR plus 1.875%, for an all-in interest rate of 2.035% at September 30, 2020. Another bank term loan had a balance of $30.0 million outstanding, at an interest rate of LIBOR plus 1.875%., for an all-in interest rate of 2.035% at September 30, 2020.

On September 11, 2019, Cleco Holdings completed the private placement of $300.0 million aggregate principal amount of its 3.375% senior notes due September 15, 2029. The ~~borrowing costs~~proceeds from the issuance were used to repay the remaining amounts due under the ~~facility are~~$300.0 million bridge loan agreement and a portion of the $100.0 million term loan agreement, both entered into in connection with the Cleco Cajun Transaction. On July 14, 2020, Cleco Holdings completed an exchange offer for its outstanding 3.375% senior notes, which were not registered under the Securities Act of 1993, as amended, for an equal ~~to LIBOR plus 1.125% or ABR plus 0.125%, plus commitment fees~~principal amount of ~~0.125%.~~newly issued 3.375% senior notes due September 15, 2029, that were so registered. Cleco Holdings did not receive any proceeds from the exchange offer.



Note 9 — 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. In September 2019, Cleco made a $12.3 million discretionary contribution to the pension plan. Based on updated funding assumptions at December 31, 2019, management estimates that $66.5 million in pension contributions will be required through 2024. Cleco expects to make a ~~$15.5~~$15.7 million minimum required contribution to the pension plan in the fourth quarter of 2020.

Cleco Power is the plan sponsor and Support Group is the plan administrator. The pension plan was amended on February 4, 2019, to include certain former NRG Energy employees who are now Cleco Cajun employees. The 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 an employee’s years of service, age at retirement, and accrued benefit at retirement.

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.

The non-service components of net periodic pension and Other Benefits cost are included in Other income (expense), net within Cleco and Cleco Power’s Condensed Consolidated Statements of Income. The components of net periodic pension and Other Benefits cost for the three and nine months ended ~~March 31,~~September 30, 2020, and 2019 were as follows:



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~


	PENSION BENEFITS				OTHER BENEFITS
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Components of periodic benefit costs
Service cost	$	2,455	$	2,104	$	600	$	328
Interest cost	5,204		5,621		418		435
Expected return on plan assets	(6,244)		(6,625)		0		0
Amortizations
Prior period service credit	(15)		(18)		0		0
Net loss	4,073		1,962		362		105
Net periodic benefit cost	$	5,473	$	3,044	$	1,380	$	868

PENSION BENEFITS OTHER BENEFITS
FOR THE THREE MONTHS ENDED MAR. 31, FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
2020
2019
Components of periodic benefit costs
Service cost $ 2,328
$ 2,067
$ 508
$ 288
Interest cost 5,130
5,650
410
400
Expected return on plan assets (6,245 ) (6,622 ) —
—
Amortizations
Prior period service credit (15 ) (18 ) —
—
Net loss (gain) 3,672
1,875
339
(45 )
Net periodic benefit cost $ 4,870
$ 2,952
$ 1,257
$ 643


	PENSION BENEFITS				OTHER BENEFITS
	FOR THE NINE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Components of periodic benefit costs
Service cost	$	7,365	$	6,311	$	1,615	$	896
Interest cost	15,612		16,864		1,238		1,235
Expected return on plan assets	(18,731)		(19,876)		0		0
Amortizations
Prior period service credit	(45)		(54)		0		0
Net loss	12,222		5,887		1,042		25
Net periodic benefit cost	$	16,423	$	9,132	$	3,895	$	2,156

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 three and nine


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

months ended ~~March 31,~~September 30, 2020, was ~~$0.4 million.~~$0.9 million and $2.6 million, respectively. The expense of the pension plan related to Cleco’s other subsidiaries for the three and nine months ended ~~March 31,~~September 30, 2019, was $0.5 ~~million.~~million and $1.6 million, respectively.

Cleco Holdings is the plan sponsor for the other benefit plans. There are 0 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 Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 30, 2020, was ~~$1.2 million.~~$1.1 million and $3.6 million, respectively. The expense related to other benefits reflected in Cleco Power’s Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 30, 2019, was ~~$0.7 million.~~$0.9 million and $2.3 million, respectively. The current and non-current portions of the Other Benefits liability for Cleco and Cleco Power at ~~March 31,~~September 30, 2020, and December 31, 2019, were as follows:

Cleco
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current $ 4,401
$ 4,401
Non-current $ 48,175
$ 48,321


Cleco
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current	$	4,401	$	4,401
Non-current	$	47,874	$	48,321

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current $ 3,815
$ 3,815
Non-current $ 41,994
$ 42,080


Cleco Power
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current	$	3,815	$	3,815
Non-current	$	41,673	$	42,080

SERP

Certain Cleco officers are covered by SERP. Cleco does not fund the SERP liability, but instead pays for current benefits out of the general funds available. Cleco Power has formed a rabbi trust. The life insurance policies issued on SERP participants designate the rabbi trust as the beneficiary. Market conditions could have a significant impact on the cash surrender value of the life insurance policies. Proceeds from the life insurance policies are expected to be used to pay the SERP participants’ death benefits, as well as future SERP payments. However, 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. All SERP benefits are paid out of the general cash available of the respective companies that employed the officer. Cleco Power is the plan sponsor and Support Group is the plan administrator.

The non-service components of net periodic benefit cost related to SERP are included in Other income (expense), net within Cleco and Cleco Power’s Condensed Consolidated

Statements of Income. The components of the net periodic benefit cost related to SERP for the three and nine months ended ~~March 31,~~September 30, 2020,, and 2019 were as follows:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Components of periodic benefit costs
Service cost	$	100	$	82	$	300	$	247
Interest cost	733		831		2,199		2,494
Amortizations
Prior period service credit	(54)		(34)		(161)		(104)
Net loss	796		381		2,388		1,143
Net periodic benefit cost	$	1,575	$	1,260	$	4,726	$	3,780

FOR THE THREE MONTHS
ENDED MAR. 31,

(THOUSANDS) 2020
2019
Components of periodic benefit costs
Service cost $ 95
$ 113
Interest cost 733
825
Amortizations
Prior period service credit (40 ) (35 )
Net loss 757
392
Net periodic benefit cost $ 1,545
$ 1,295

The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 30, 2020, was $0.2 ~~million.~~million and $0.7 million, respectively. The expense related to SERP reflected on Cleco Power’s Condensed Consolidated Statements of Income for the three and nine months ended ~~March 31,~~September 30, 2019, was ~~$0.3 million.~~$0.2 million and $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 ~~March 31,~~September 30, 2020,, and December 31, 2019,, were as follows:


Cleco
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current	$	4,599	$	4,599
Non-current	$	83,619	$	84,529

Cleco
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current $ 4,599
$ 4,599
Non-current $ 84,219
$ 84,529

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Current $ 760
$ 760
Non-current $ 13,863
$ 13,964


Cleco Power
(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Current	$	760	$	760
Non-current	$	13,665	$	13,964

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 was amended upon the close of the Cleco Cajun Transaction to include Cleco Cajun employees. Cleco’s 401(k) Plan expense for the three and nine months ended ~~March 31,~~September 30, 2020,, and 2019 was as follows:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
401(k) Plan expense	$	2,356	$	2,077	$	7,509	$	6,136



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

FOR THE THREE MONTHS
ENDED MAR. 31,

(THOUSANDS) 2020
2019
401(k) Plan expense $ 3,256
$ 2,267

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 three and nine months ended ~~March 31,~~September 30, 2020, and 2019 was as follows:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
401(k) Plan expense	$	996	$	873	$	3,491	$	2,625

FOR THE THREE MONTHS
ENDED MAR. 31,

(THOUSANDS) 2020
2019
401(k) Plan expense $ 1,662
$ 930



Note 10 — Income Taxes

Effective Tax Rates

The following tables summarize the effective income tax rates for Cleco and Cleco Power for the three and ninemonths ended ~~March 31,~~September 30, 2020,, and 2019:

Cleco

FOR THE THREE MONTHS
ENDED MAR. 31,

2020
2019
Effective tax rate 19.8 % 22.6 %


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Cleco Power

FOR THE THREE MONTHS
ENDED MAR. 31,

2020
2019
Effective tax rate 22.0 % 23.0 %


Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2020		2019		2020		2019
Effective tax rate	29.4	%	20.2	%	26.8	%	21.1	%


Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
	2020		2019		2020		2019
Effective tax rate	33.4	%	19.4	%	28.8	%	21.2	%

For the three and nine months ended ~~March 31,~~September 30, 2020, and 2019, the effective income tax rates for both Cleco and Cleco Power were different than the federal statutory rate primarily due to permanent tax differences; the flowthrough of tax benefits, including AFUDC equity; amortization of excess ADIT; adjustments for tax returns as filed; and state tax expense.

Net Operating Loss

For the 2019 tax year, Cleco created ~~approximately $551.4 million and $82.6~~$433.2 million of federal ~~and state~~ net operating losses ~~respectively,~~ primarily due to the Cleco Cajun Transaction.

The federal net operating loss may be carried forward ~~indefinitely, and state net operating loss carryforwards will begin to expire in 2039.~~indefinitely.

Cleco considers it more likely than not that these income tax losses will be utilized to reduce future income tax payments and utilize the entire net operating loss carryforward within the statutory deadlines.

Uncertain Tax Positions

Cleco classifies all interest related to uncertain tax positions as a component of interest payable and interest expense. At ~~March 31,~~September 30, 2020, and December 31, 2019, Cleco and Cleco Power had 0 liability for uncertain tax positions or interest payable related to uncertain tax positions. Cleco estimates that it is reasonably possible that the balance of unrecognized tax benefits as of ~~March 31,~~September 30, 2020, for Cleco and Cleco Power would be unchanged in the next 12 months. The settlement of open tax years could involve the payment of additional taxes,

and/or the recognition of tax benefits, which may have an effect on Cleco’s effective tax rate.

Income Tax Audits

Cleco participates in the IRS’s Compliance Assurance Process in which financial results are examined and agreed upon prior to filing the federal consolidated tax return. While the statute of limitations remains open for tax years ~~2016,~~ 2017, 2018, and ~~2018,~~2019, management believes the likelihood of further examination by the IRS is remote.

The state income tax years 2016, 2017, and 2018 remain subject to examination by the Louisiana Department of Revenue.

Cleco classifies income tax penalties as a component of other expense. For the three and nine months ended ~~March 31,~~September 30, 2020, and 2019, 0 penalties were recognized.

~~Coronavirus Aid, Relief and Economic Security (CARES Act)~~CARES Act

On March 27, 2020, the CARES Act was enacted and signed into law in response to the COVID-19 pandemic. Among other

provisions, the CARES Act includes modifications on the limitations of business interest for the 2019 and 2020 tax years. The modifications increase the allowable business interest deduction from 30% to 50% of adjusted taxable income. The modification increased Cleco’s allowable interest expense deduction and, as a result, decreased taxable income, creating larger net operating loss carryforwards for the tax year ended December 31, 2019. ~~As a result of~~Cleco did not have any disallowed interest for the ~~CARES Act, Cleco~~2019 tax year and does not expect any disallowed interest for the ~~2019 and~~ 2020 tax ~~years.~~year.



Note 11 — Disclosures about Segments

Cleco’s reportable segments are based on its method of internal reporting, which disaggregates business units by its first-tier subsidiary. Cleco’s reportable segments are Cleco Power and Cleco Cajun.

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 and Cleco Power’s Boards of Managers. The reportable segment prepares budgets that are presented to and approved by Cleco and 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. Upon the completion of the Cleco Cajun Transaction on February 4, 2019, Cleco Cajun became a reportable segment. For more information on the transaction, see Note 2 — “Business Combinations.” There are no other changes to Cleco’s existing reportable segments.

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. Management evaluates the performance of ~~its~~Cleco’s segments and allocates resources to them 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. Material intercompany transactions occur on a regular basis. These intercompany transactions relate primarily to joint and common administrative support services as well as transmission services provided by Cleco Power to Cleco Cajun.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

Segment Information For The Three Months Ended Mar. 31,
2020 (THOUSANDS)
CLECO POWER
CLECO CAJUN
OTHER
ELIMINATIONS
CONSOLIDATED
Revenue
Electric operations $ 224,430
$ 89,147
$ (2,420 ) $ —
$ 311,157
Other operations 15,764
30,961
1
(1,818 ) 44,908
Affiliate revenue 1,106
161
29,278
(30,545 ) —
Electric customer credits (8,340 ) (153 ) —
—
(8,493 )
Operating revenue, net $ 232,960
$ 120,116
$ 26,859
$ (32,363 ) $ 347,572
Depreciation and amortization $ 43,677
$ 10,103
$ 2,094
$ (1 ) $ 55,873
Interest income $ 954
$ 155
$ 100
$ (52 ) $ 1,157
Interest charges $ 18,581
$ 10
$ 16,610
$ (52 ) $ 35,149
Federal and state income tax expense (benefit) $ 3,338
$ 6,421
$ (8,197 ) $ —
$ 1,562
Net income (loss) $ 11,831
$ 19,535
$ (25,039 ) $ 1
$ 6,328
Additions to property, plant, and equipment $ 61,477
$ 3,341
$ 806
$ —
$ 65,624
Equity investment in investees $ 17,072
$ —
$ —
$ —
$ 17,072
Goodwill $ 1,490,797
$ —
$ —
$ —
$ 1,490,797
Total segment assets $ 6,098,446
$ 1,020,099
$ 616,068
$ (58,418 ) $ 7,676,195

2019 (THOUSANDS)
CLECO POWER
CLECO CAJUN
OTHER
ELIMINATIONS
CONSOLIDATED
Revenue
Electric operations $ 257,175
$ 58,194
$ (2,420 ) $ —
$ 312,949
Other operations 19,430
19,965
2
—
39,397
Affiliate revenue 300
—
26,535
(26,835 ) —
Electric customer credits (8,160 ) —
—
—
(8,160 )
Operating revenue, net $ 268,745
$ 78,159
$ 24,117
$ (26,835 ) $ 344,186
Depreciation and amortization $ 42,377
$ 5,410
$ 2,069
$ —
$ 49,856
Interest income $ 994
$ 254
$ 417
$ (174 ) $ 1,491
Interest charges $ 17,145
$ —
$ 17,028
$ (174 ) $ 33,999
Federal and state income tax expense (benefit) $ 7,998
$ 3,529
$ (5,540 ) $ (1 ) $ 5,986
Net income (loss) $ 26,712
$ 11,056
$ (17,210 ) $ (1 ) $ 20,557
Additions to property, plant, and equipment $ 81,040
$ 1,530
$ 1,109
$ —
$ 83,679
Equity investment in investees ⁽¹⁾
$ 17,072
$ —
$ —
$ —
$ 17,072
Goodwill ⁽¹⁾
$ 1,490,797
$ —
$ —
$ —
$ 1,490,797
Total segment assets ⁽¹⁾
$ 5,967,327
$ 1,011,591
$ 546,096
$ (48,716 ) $ 7,476,298
⁽¹⁾Balances as of December 31, 2019

CLECO

CLECO POWER

2020 3RD QUARTER FORM 10-Q


Segment Information For The Three Months Ended Sept. 30,
2020 (THOUSANDS)	CLECO POWER		CLECO CAJUN			TOTAL SEGMENTS
Revenue
Electric operations	$	288,852	$	99,956		$	388,808
Other operations	17,775		31,331			49,106
Affiliate revenue	1,506		0			1,506
Electric customer credits	(16,534)		0			(16,534)
Operating revenue, net	$	291,599	$	131,287		$	422,886
Net income	$	36,092	$	38,357		$	74,449
Add: Depreciation and amortization	40,268		11,344		(1)	51,612
Less: Interest income	789		10			799
Add: Interest charges	18,441		(484)			17,957
Add: Federal and state income tax expense	18,076		12,258			30,334



EBITDA	$	112,088	$	61,465		$	173,553
(1) Includes $3.1 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(2.3) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction.


2020 (THOUSANDS)	TOTAL SEGMENTS		OTHER			ELIMINATIONS		TOTAL
Revenue
Electric operations	$	388,808	$	(2,420)		$	0	$	386,388
Other operations	49,106		1			(1,510)		47,597
Affiliate revenue	1,506		35,522			(37,028)		0
Electric customer credits	(16,534)		0			0		(16,534)
Operating revenue, net	$	422,886	$	33,103		$	(38,538)	$	417,451
Depreciation and amortization	$	51,612	$	4,497	(1)	$	0	$	56,109
Interest income	$	799	$	121		$	(10)	$	910
Interest charges	$	17,957	$	16,115		$	(12)	$	34,060

Federal and state income tax expense (benefit)	$	30,334	$	(5,260)		$	1	$	25,075
Net income (loss)	$	74,449	$	(14,154)		$	2	$	60,297
(1) Includes $2.4 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger.


2019 (THOUSANDS)	CLECO POWER		CLECO CAJUN			TOTAL SEGMENTS
Revenue
Electric operations	$	339,869	$	114,453		$	454,322
Other operations	18,485		33,737			52,222
Affiliate revenue	334		31			365
Electric customer credits	(13,711)		0			(13,711)
Operating revenue, net	$	344,977	$	148,221		$	493,198
Net income	$	51,527	$	22,806		$	74,333

Add: Depreciation and amortization	44,903		10,880		(1)	55,783

Less: Interest income	1,421		220			1,641
Add: Interest charges	17,983		0			17,983
Add: Federal and state income tax expense	12,431		7,612			20,043
EBITDA	$	125,423	$	41,078		$	166,501
(1) Includes $3.2 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(2.3) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction.


2019 (THOUSANDS)	TOTAL SEGMENTS		OTHER			ELIMINATIONS		TOTAL
Revenue
Electric operations	$	454,322	$	(2,420)		$	0	$	451,902
Other operations	52,222		0			(2,442)		49,780
Affiliate revenue	365		28,252			(28,617)		0
Electric customer credits	(13,711)		0			0		(13,711)
Operating revenue, net	$	493,198	$	25,832		$	(31,059)	$	487,971
Depreciation and amortization	$	55,783	$	4,512	(1)	$	0	$	60,295
Interest income	$	1,641	$	228		$	(179)	$	1,690
Interest charges	$	17,983	$	18,028		$	(179)	$	35,832

Federal and state income tax expense (benefit)	$	20,043	$	(5,955)		$	0	$	14,088
Net income (loss)	$	74,333	$	(18,768)		$	0	$	55,565
(1) Includes $2.4 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											2020 3RD QUARTER FORM 10-Q


Segment Information For The Nine Months Ended Sept. 30,
2020 (THOUSANDS)	CLECO POWER		CLECO CAJUN			TOTAL SEGMENTS
Revenue
Electric operations	$	752,925	$	273,836		$	1,026,761
Other operations	49,443		92,928			142,371
Affiliate revenue	3,852		204			4,056
Electric customer credits	(33,974)		(153)			(34,127)
Operating revenue, net	$	772,246	$	366,815		$	1,139,061
Net income	$	76,156	$	84,655		$	160,811

Add: Depreciation and amortization	125,541		33,385		(2)	158,926

Less: Interest income	2,498		269			2,767
Add: Interest charges	55,624		(353)			55,271
Add: Federal and state income tax expense	30,770		27,280			58,050
EBITDA	$	285,593	$	144,698		$	430,291
Additions to property, plant, and equipment	$	205,765	$	7,908		$	213,673
Equity investment in investees (1)	$	13,072	$	0		$	13,072
Goodwill (1)	$	1,490,797	$	0		$	1,490,797
Total segment assets (1)	$	6,473,935	$	1,066,387		$	7,540,322
(1) Balances as of September 30, 2020. (2) Includes $9.3 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(6.9) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction.


2020 (THOUSANDS)	TOTAL SEGMENTS		OTHER			ELIMINATIONS		TOTAL
Revenue
Electric operations	$	1,026,761	$	(7,260)		$	0	$	1,019,501
Other operations	142,371		2			(4,966)		137,407
Affiliate revenue	4,056		93,938			(97,994)		0
Electric customer credits	(34,127)		0			1		(34,126)
Operating revenue, net	$	1,139,061	$	86,680		$	(102,959)	$	1,122,782
Depreciation and amortization	$	158,926	$	13,575	(2)	$	1	$	172,502

Interest income	$	2,767	$	276		$	(79)	$	2,964
Interest charges	$	55,271	$	48,731		$	(79)	$	103,923
Federal and state income tax expense (benefit)	$	58,050	$	(17,821)		$	1	$	40,230
Net income (loss)	$	160,811	$	(51,019)		$	1	$	109,793
Additions to property, plant, and equipment	$	213,673	$	2,019		$	0	$	215,692
Equity investment in investees (1)	$	13,072	$	0		$	0	$	13,072
Goodwill (1)	$	1,490,797	$	0		$	0	$	1,490,797
Total segment assets (1)	$	7,540,322	$	606,687		$	(48,935)	$	8,098,074
(1) Balances as of September 30, 2020. (2) Includes $7.3 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger.


2019 (THOUSANDS)	CLECO POWER		CLECO CAJUN			TOTAL SEGMENTS
Revenue
Electric operations	$	862,969	$	274,610		$	1,137,579
Other operations	53,318		83,619			136,937
Affiliate revenue	971		31			1,002
Electric customer credits	(30,565)		(1,267)			(31,832)
Operating revenue, net	$	886,693	$	356,993		$	1,243,686
Net income	$	127,595	$	46,788		$	174,383

Add: Depreciation and amortization	126,610		27,679		(2)	154,289

Less: Interest income	3,281		842			4,123
Add: Interest charges	52,498		0			52,498
Add: Federal and state income tax expense	34,407		15,169			49,576
EBITDA	$	337,829	$	88,794		$	426,623
Additions to property, plant, and equipment	$	247,987	$	3,654		$	251,641
Equity investment in investees (1)	$	17,072	$	0		$	17,072
Goodwill (1)	$	1,490,797	$	0		$	1,490,797
Total segment assets (1)	$	5,967,327	$	1,011,591		$	6,978,918
(1) Balances as of December 31, 2019. (2) Includes $8.3 million of amortization of intangible assets and liabilities related to wholesale power supply agreements and $(6.1) million deferred lease revenue amortization as a result of the Cleco Cajun Transaction.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


2019 (THOUSANDS)	TOTAL SEGMENTS		OTHER			ELIMINATIONS		TOTAL
Revenue
Electric operations	$	1,137,579	$	(7,260)		$	(1)	$	1,130,318
Other operations	136,937		2			(5,395)		131,544
Affiliate revenue	1,002		77,800			(78,802)		0
Electric customer credits	(31,832)		0			0		(31,832)
Operating revenue, net	$	1,243,686	$	70,542		$	(84,198)	$	1,230,030
Depreciation and amortization	$	154,289	$	13,491	(2)	$	(1)	$	167,779

Interest income	$	4,123	$	841		$	(508)	$	4,456
Interest charges	$	52,498	$	53,682		$	(509)	$	105,671
Federal and state income tax expense (benefit)	$	49,576	$	(17,220)		$	(1)	$	32,355
Net income (loss)	$	174,383	$	(53,515)		$	0	$	120,868
Additions to property, plant, and equipment	$	251,641	$	204		$	0	$	251,845
Equity investment in investees (1)	$	17,072	$	0		$	0	$	17,072
Goodwill (1)	$	1,490,797	$	0		$	0	$	1,490,797
Total segment assets (1)	$	6,978,918	$	546,096		$	(48,716)	$	7,476,298
(1) Balances as of December 31, 2019. (2) Includes $7.3 million of amortization of intangible assets related to Cleco Power’s wholesale power supply agreements as a result of the 2016 Merger.

Add: Other corporate costs and noncash items (1)

(1) Adjustments made for Other and Elimination totals not allocated to total segment EBITDA.


Note 12 — Regulation and Rates

~~At March 31, 2020,~~ Provision for rate refund on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets consisted primarily of ~~$19.7 million for~~ the ~~estimated refund for the tax-related benefits from the TCJA, $3.5 million for the estimated refund related to the~~ following:


(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
FERC audit	$	2,724	$	3,482
TCJA tax-related benefits	$	2,057	$	28,700
Cleco Katrina/Rita storm recovery charges	$	1,630	$	0
Cost of service savings	$	1,483	$	1,851
Site-specific industrial customer	$	596	$	844
Change in transmission ROE	$	595	$	1,020

FERC ~~audit, $2.2 million for the cost of service savings refunds, and $1.0 million for the change in transmission ROE.~~ Audit

For more information about the FERC audit, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — FERC Audit.”

TCJA

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. As a result of the tax rate reduction, on January 1, 2018, Cleco Power began accruing an estimated reserve for the reduction in the federal statutory corporate income tax rate. In February 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flow through to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. 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 July 2019, the LPSC approved Cleco Power’s motion to address the rate redesign and the regulatory liability for excess ADIT, resulting from the enactment of the TCJA, in Cleco Power’s current base rate case.

On July 15, 2020, the LPSC approved Cleco Power’s application to extend 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 November 2020. The refund will consist of the change in the federal statutory corporate income tax rate from 35% to 21%, which is approximately $2.5 million per month and an additional $4.4 million that will be refunded by the unprotected excess ADIT. At September 30, 2020, Cleco Power had $2.1 million accrued for the estimated federal tax-related benefits from the TCJA. The mechanism to refund the remaining balance of the excess ADIT will be determined in Cleco Power’s current LPSC base rate case. At September 30, 2020, Cleco Power had $366.0 million accrued for the excess ADIT, of which $28.4 million is reflected in current regulatory liabilities. Cleco Power’s current base rate case is ongoing and management is unable to determine its outcome. On September 30, 2020, Cleco Power filed an application to extend the TCJA bill credits from November 30, 2020, until such time that the rate case is complete.

Cleco Katrina/Rita Storm Recovery Charges

Cleco Katrina/Rita had the right to bill 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. Amounts remaining after the final principal and interest payments on the storm recovery bonds, which was paid on March 2, 2020, and payments for final administrative and winding up activities are subject to


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

refund. For more information on the storm recovery bonds, see Note 1 — “Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents” and Note 16 — “Intangible Assets and Liabilities.”

FRP

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of Cleco Power’s current FRP, Cleco Power is allowed 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%, 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. Cleco Power’s FRP had a four-year term, which was set to expire in June 2018. As a result of the 2016 Merger, the FRP was extended an additional two years with an expiration of June 2020, and Cleco Power was required to file a new base rate case in June 2019 with any change in rates to be implemented in July 2020. On June 28, 2019, Cleco Power filed an application with the LPSC for a new FRP. Cleco Power has responded to multiple sets of data requests relating to the new FRP. However, due to COVID-19, there has been a delay in the current base rate case. Unless the 2014 FRP were to be extended by order of the LPSC, the FRP rates established in July 2019 will remain in effect, and an FRP monitoring report for the 12-month period ending June 30, 2020, will not be required. Cleco Power anticipates new rates to be effective in the first half of 2021. However, management is unable to determine the outcome of the base rate case relating to the new FRP.

Under the 2014 FRP, Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ending June 30. Cleco Power filed its monitoring report for the 12 months ended June 30, 2017, on October 31, 2017, indicating that no FRP refund was due. In January 2020, Cleco Power reached an agreement with the LPSC regarding the treatment and realignment of SSR revenue between base and fuel revenue. The result of the realignment confirmed no FRP refund was due for the 12-month period ended June 30, 2017. The monitoring report was approved by the LPSC on February 19, 2020.

Cleco Power filed its monitoring report for the 12 months ended June 30, 2018, on October 31, 2018, indicating no FRP refund was due. The settlement with the LPSC in January 2020 for the treatment and realignment of SSR revenues between base and fuel revenues resulted in a $2.3 million FRP refund for the 12-month period ended June 30, 2018, which was refunded on March 2020 bills as agreed to in the settlement of the 2017 monitoring report. The 2018 monitoring report was approved by the LPSC on March 27, 2020, indicating the FRP refund of $2.3 million and no adjustments to rider FRP.

Cleco Power filed its monitoring report for the 12 months ended June 30, 2019, on October 31, 3019, indicating that no refund was due. Cleco Power has responded to data requests relating to the 2019 FRP monitoring report.

continue until Cleco Power’s next FRP is in effect, which is expected in the first half of 2021. At September 30, 2020, Cleco Power had $1.5 million accrued for the estimated cost of service savings refunds.

Transmission ROE

~~Two~~NaN complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. As ofSeptember 30, 2020, ~~March 31, 2020,~~ Cleco Power had ~~$1.0~~$0.6 million accrued for the change in ROE. For more information on the ROE complaints, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

~~FRP~~

~~Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of~~

Cleco Power’s current FRP, Cleco Power is allowed 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%, 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 28, 2019, Cleco Power filed an application with the LPSC for a new FRP, with anticipated new rates being effective July 1, 2020. Cleco Power has responded to several sets of data requests relating to the new FRP.

Cleco Power must file annual monitoring reports no later than October 31 for the 12-month period ending June 30. In January 2020, Cleco Power reached an agreement with the LPSC Staff regarding the treatment and realignment of SSR revenue between base and fuel revenue that resulted in $2.3 million of refunds for the 2018 monitoring report and confirmed 0 refunds for the 2017 monitoring report. The settlement also applies to treatment of SSR revenues for the 2019 monitoring report. The 2017 monitoring report was approved by the LPSC Staff on February 19, 2020. Cleco Power refunded the $2.3 million for the 2018 monitoring report in March 2020 as agreed to in the settlement of the 2017 monitoring report.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

On April 30, 2020, the LPSC filed the uncontested Joint Report and Draft Order on Cleco Power’s FRP for the 12 months ended June 30, 2018. The conclusions were an earnings-related refund of $2.3 million, which was refunded on March 2020 bills, and no adjustments to rider FRP. Cleco Power expects approval on the 2018 monitoring report in the second quarter of 2020. Cleco Power has also responded to data requests relating to the 2019 FRP monitoring report.

Cleco Power’s monitoring reports also included a $1.2 million annual cost of service savings as a result of the 2016 Merger Commitments. The cost of service savings are not subject to the target ROE or any sharing mechanism. The cost of service savings are refunded annually in September and will continue until Cleco Power’s next FRP is in effect, which is expected in July 2020. At March 31, 2020, Cleco Power had $2.2 million accrued for the estimated cost of service savings refunds.

~~TCJA~~

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. As a result of the tax rate reduction, on January 1, 2018, Cleco Power began accruing an estimated reserve for the reduction in the federal statutory corporate income tax rate. In February 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flow through to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. 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 is being credited to customers over 12 months beginning August 1, 2019. At March 31, 2020, Cleco Power had $19.7 million accrued for the estimated federal tax-related benefits from the TCJA and $1.6 million accrued in related interest.

Also, in July 2019, the LPSC approved Cleco Power’s motion to address the rate redesign and the regulatory liability for excess ADIT, resulting from the enactment of the TCJA, in Cleco Power’s application for its next FRP, which was filed on June 28, 2019.

SSR

In September 2016, Cleco Power filed an Attachment Y with MISO requesting retirement of Teche Unit 3 effective April 1, 2017. MISO conducted a study which determined the proposed retirement of Teche Unit 3 would result in violations of specific applicable reliability standards for which no mitigation is available. As a result, MISO designated Teche Unit 3 as an SSR unit until such time that an appropriate alternative solution could be implemented to mitigate reliability issues. One mitigating factor identified was Cleco Power’s Terrebonne to Bayou Vista Transmission project, which was completed in April 2019. Cleco Power received a termination notice, effective April 30, 2019, and filed paperwork to withdraw the filed Attachment Y. While operating as an SSR unit, Cleco Power received monthly payments that included recovery of expenses, including capital expenditures, related to the operations of Teche Unit 3. Additionally, MISO allocated SSR costs to the load serving entities that required the operation of the SSR unit, including Cleco Power. These payments and cost allocations were finalized as part of a MISO SSR settlement approved in December 2018. Cleco Power operated Teche Unit 3 as an SSR unit from April 2017 until April 2019.

Cleco Power expects Teche Unit 3 to be available to run until the estimated 2021 in-service date of the Bayou Vista to Segura Transmission project, at which time Cleco Power does not expect to offer the unit into MISO, barring any grid or customer reliability issues or other similar reasons. At ~~March 31,~~September 30, 2020, Cleco Power had $6.1 million accrued for the net capital refund for capital expenditures paid for by third parties while operating under the SSR agreement. As part of the settlement, one of the load serving entities agreed to reimburse Cleco Power for their portion of the capital refund. Management is unable to determine the timing of the capital refund.



Note 13 — Variable Interest Entities

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 and Cleco Power’s Condensed 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 and Cleco Power’s Condensed Consolidated Statements of Income.

Oxbow is owned 50% by Cleco Power and 50% by SWEPCO. Cleco Power is not the primary beneficiary because


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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 ~~March 31,~~September 30, 2020,, consisted of its equity investment of ~~$17.1 million.~~$13.1 million. During the three months ended September 30, 2020, Cleco Power received $4.0 million from Oxbow as a return of equity investment.

The following table presents the components of Cleco Power’s equity investment in Oxbow:


INCEPTION TO DATE (THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Purchase price	$	12,873	$	12,873
Cash contributions	6,399		6,399
Dividends	(6,200)		(2,200)
Total equity investment in investee	$	13,072	$	17,072

INCEPTION TO DATE (THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Purchase price $ 12,873
$ 12,873
Cash contributions 6,399
6,399
Dividends (2,200 ) (2,200 )
Total equity investment in investee $ 17,072
$ 17,072

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:


(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Oxbow’s net assets/liabilities	$	26,145	$	34,145
Cleco Power’s 50% equity	$	13,072	$	17,072
Cleco Power’s maximum exposure to loss	$	13,072	$	17,072

(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Oxbow’s net assets/liabilities $ 34,145
$ 34,145
Cleco Power’s 50% equity $ 17,072
$ 17,072
Cleco Power’s maximum exposure to loss $ 17,072
$ 17,072

The following table contains summarized financial information for Oxbow:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Operating revenue	$	2,275	$	2,776	$	33,266	$	7,114
Operating expenses	2,275		2,776		33,266		7,114
Income before taxes	$	0	$	0	$	0	$	0

FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Operating revenue $ 1,882
$ 1,958
Operating expenses 1,882
1,958
Income before taxes $ —
$ —

Prior to June 30, 2020, DHLC ~~mines~~mined lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station. Under the Amended Lignite Mining Agreement, DHLC bills Cleco Power its proportionate share of incurred lignite extraction and associated mining-related costs. Oxbow bills Cleco Power its proportionate share of incurred costs related to mineral rights and land leases. For more information on DHLC and the Oxbow mine, see Note 14 — ~~Litigation,~~“Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Risks and Uncertainties.”



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

Oxbow has no third-party agreements, guarantees, or other third-party commitments that contain obligations affecting Cleco Power’s investment in Oxbow.



Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

Litigation

2016 Merger

In connection with the 2016 Merger, 4 actions were filed in the Ninth Judicial District Court for Rapides Parish, Louisiana and 3 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 4 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). ~~, 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 3 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 3 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 •Cashen v. Cleco Corporation, No. 2014-11236 (filed November 21, 2014). ~~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~~


•	~~Cashen v. Cleco Corporation, No. 2014-11236 (filed November 21, 2014).~~

3 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


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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, ~~and~~ 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. Cleco believes that the allegations of the petitions in each action are without merit and that it has substantial meritorious defenses to the claims set forth in each of the petitions.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

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. According to the petition filed by Gulf Coast in the 12^th Judicial District Court for Avoyelles Parish, Louisiana (the “District Court”), 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 District Court denied Cleco’s exception in December 2015, after considering briefs

and arguments. In January 2016, Cleco appealed the 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 District Court’s denial of Cleco’s exception. In November 2016, the Louisiana Supreme Court denied Cleco’s writ application.

~~Sabine River Flood~~FERC Audit

For more information about the FERC audit, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — FERC Audit.”

~~In March 2017, Cleco was served with~~

TCJA

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. As a ~~summons in~~ ~~Perry Bonin, Ace Chandler, and Michael Manuel, et al v. Sabine River Authority of Texas and Sabine River Authority of Louisiana~~, No. B-160173-C. The action was filed in the 163rd Judicial District Court for Orange County, Texas, and relates to flooding that occurred in Texas and Louisiana in March 2016. The plaintiffs have alleged that the flooding was the result of the ~~release~~tax rate reduction, on January 1, 2018, Cleco Power began accruing an estimated reserve for the reduction in the federal statutory corporate income tax rate. In February 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of ~~water~~the appropriate manner to flow through to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. 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 July 2019, the LPSC approved Cleco Power’s motion to address the rate redesign and the regulatory liability for excess ADIT, resulting from the ~~Toledo Bend spillway gates into~~enactment of the ~~Sabine River. While~~TCJA, in Cleco Power’s current base rate case.

On July 15, 2020, the ~~plaintiffs have made numerous allegations, they have specifically alleged~~LPSC approved Cleco Power’s application to extend 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 November 2020. The refund will consist of the change in the federal statutory corporate income tax rate from 35% to 21%, which is approximately $2.5 million per month and an additional $4.4 million that will be refunded by the unprotected excess ADIT. At September 30, 2020, Cleco Power ~~included as one of several companies and governmental bodies, failed~~had $2.1 million accrued for the estimated federal tax-related benefits from the TCJA. The mechanism to ~~repair 1~~refund the remaining balance of the excess ADIT will be determined in Cleco Power’s current LPSC base rate case. At September 30, 2020, Cleco Power had $366.0 million accrued for the excess ADIT, of which $28.4 million is reflected in current regulatory liabilities. Cleco Power’s current base rate case is ongoing and management is unable to determine its outcome. On September 30, 2020, Cleco Power filed an application to extend the TCJA bill credits from November 30, 2020, until such time that the rate case is complete.

Cleco Katrina/Rita Storm Recovery Charges

Cleco Katrina/Rita had the right to bill 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. Amounts remaining after the final principal and interest payments on the storm recovery bonds, which was paid on March 2, ~~hydroelectric generators at~~2020, and payments for final administrative and winding up activities are subject to


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

refund. For more information on the ~~Toledo Bend Dam,~~storm recovery bonds, see Note 1 — “Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents” and Note 16 — “Intangible Assets and Liabilities.”

FRP

Cleco Power’s annual retail earnings are subject to an FRP that was approved by the LPSC in June 2014. Under the terms of Cleco Power’s current FRP, Cleco Power is allowed 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%, 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. Cleco Power’s FRP had a four-year term, which was set to expire in ~~turn contributed~~June 2018. As a result of the 2016 Merger, the FRP was extended an additional two years with an expiration of June 2020, and Cleco Power was required to file a new base rate case in June 2019 with any change in rates to be implemented in July 2020. On June 28, 2019, Cleco Power filed an application with the LPSC for a new FRP. Cleco Power has responded to multiple sets of data requests relating to the ~~flooding.~~new FRP. However, due to COVID-19, there has been a delay in the current base rate case. Unless the 2014 FRP were to be extended by order of the LPSC, the FRP rates established in July 2019 will remain in effect, and an FRP monitoring report for the 12-month period ending June 30, 2020, will not be required. Cleco Power anticipates new rates to be effective in the first half of 2021. However, management is unable to determine the outcome of the base rate case relating to the new FRP.

Transmission ROE

NaN complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. As of September 30, 2020, Cleco Power had $0.6 million accrued for the change in ROE. For more information on the ROE complaints, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

SSR

~~The suit was removed to federal court in Texas. The new federal case is~~ ~~Perry Bonin, et al. v. Sabine River Authority of Texas et al., No. 17-cv-134, U.S. District Court~~unit into MISO, barring any grid or customer reliability issues or other similar reasons. At September 30, 2020, Cleco Power had $6.1 million accrued for the ~~Eastern District~~net capital refund for capital expenditures paid for by third parties while operating under the SSR agreement. As part of ~~Texas (Bonin~~ ~~Case). The plaintiffs moved~~the settlement, one of the load serving entities agreed to ~~remand the case to state court, but the district court found that the case raises a substantial federal question and denied the motion to remand.~~reimburse Cleco Power along with its co-defendants, filed a motion to dismiss on various grounds, primarily arguing that the plaintiffs’ claims are preempted because they infringe on FERC’s exclusive control of dam operations. The district court granted the motion to dismiss in part, declining to rule on somefor their portion of the ~~arguments raised by~~capital refund. Management is unable to determine the ~~defendants,~~timing of the capital refund.


Note 13 — Variable Interest Entities

Cleco and ~~granted the plaintiffs leave to amend their complaint. The plaintiffs filed~~

~~a Fifth Amended Complaint in March 2018.~~ Cleco Power ~~filed a new motion~~apply the equity method of accounting to ~~dismiss~~report the ~~plaintiffs’ claims.~~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 and Cleco Power’s Condensed 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 and Cleco Power’s Condensed Consolidated Statements of Income.

~~In March 2018, approximately 26 other individual plaintiffs filed a petition against~~Oxbow is owned 50% by Cleco Power and ~~other defendants in~~ ~~Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. D180096-C. The action was filed in the 260th Judicial District Court for Orange County, Texas. The defendants removed the case to federal court in April 2018. The new federal case is~~ ~~Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. 18-cv-153, U.S. District Court for the Eastern District of Texas. The allegations are essentially identical to those in the~~ ~~Bonin~~ ~~Case. Also, in April 2018,~~50% by SWEPCO. Cleco Power ~~filed~~is not the primary beneficiary because


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

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 September 30, 2020, consisted of its equity investment of $13.1 million. During the three months ended September 30, 2020, Cleco Power received $4.0 million from Oxbow as a ~~motion~~return of equity investment.

The following table presents the components of Cleco Power’s equity investment in Oxbow:


INCEPTION TO DATE (THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Purchase price	$	12,873	$	12,873
Cash contributions	6,399		6,399
Dividends	(6,200)		(2,200)
Total equity investment in investee	$	13,072	$	17,072

The following table compares the carrying amount of Oxbow’s assets and liabilities with Cleco Power’s maximum exposure to ~~dismiss~~loss related to its investment in Oxbow:


(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Oxbow’s net assets/liabilities	$	26,145	$	34,145
Cleco Power’s 50% equity	$	13,072	$	17,072
Cleco Power’s maximum exposure to loss	$	13,072	$	17,072

The following table contains summarized financial information for Oxbow:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Operating revenue	$	2,275	$	2,776	$	33,266	$	7,114
Operating expenses	2,275		2,776		33,266		7,114
Income before taxes	$	0	$	0	$	0	$	0

Prior to June 30, 2020, DHLC mined lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station. Under the Amended Lignite Mining Agreement, DHLC bills Cleco Power its proportionate share of incurred lignite extraction and associated mining-related costs. Oxbow bills Cleco Power its proportionate share of incurred costs related to mineral rights and land leases. For more information on DHLC and the ~~same grounds~~Oxbow mine, see Note 14 — “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 ~~previously were successful~~contain obligations affecting Cleco Power’s investment in ~~the~~Oxbow.


Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

~~Bonin~~

Litigation

~~Case.~~

2016 Merger

In ~~July 2018, the district court entered an order consolidating the~~ ~~Addison~~ ~~Case~~connection with the ~~Bonin~~ Case. Management believes that both cases, as they relate to Cleco Power, have no merit. In August 2018, the Judge entered an order requiring the plaintiffs to file a more definitive statement to clarify the plaintiffs’ claims. In response thereto, the plaintiffs filed a Sixth Amended Petition in September 2018. Cleco Power filed a response in October 2018. All claims2016 Merger, 4 actions were dismissed against Cleco Power by ruling of the Judge on March 18, 2019. The plaintiffs filed an appeal of the dismissal with the United States Court of Appeals for the Fifth Circuit. The case is fully briefed before the Fifth Circuit Court of Appeals, and an oral argument was scheduled for the week of March 30, 2020; however, oral arguments have been delayed due to impacts from the COVID-19 pandemic.

~~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, Louisiana and 3 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

The 4 actions filed in the Ninth Judicial District Court for Rapides Parish are captioned as follows:

•Braunstein v. Cleco Corporation, No. ~~263339. Saulsbury Industries,~~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).

The 3 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. ~~removed~~v. Cleco Corporation, No. 2014-11098 (filed November 19, 2014), and

•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 3 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.


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further proceedings. In January ~~2019,~~2018, Cleco ~~Power~~filed a writ with the Louisiana Supreme Court seeking review of the Third Circuit Court of Appeal’s decision. The writ was ~~served with a summons~~denied in ~~Saulsbury Industries, Inc. v. Cabot Corporation~~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 ~~Power LLC, in~~Holdings as defendants per the ~~U.S.~~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 ~~Western District of Louisiana. Saulsbury Industries, Inc. alleging that Cleco Power and Cabot Corporation caused delays in~~hearing, the ~~St. Mary Clean Energy Center project, resulting in alleged impacts~~parties reached an agreement to ~~Saulsbury Industries, Inc.’s direct and indirect costs.~~certify a limited class. On ~~June 5, 2019, Cleco Power and Cabot Corporation each filed separate motions to dismiss. On October 24,~~September 7, 2019, the District Court ~~denied Cleco’s motion as premature and ruled~~certified a class limited to shareholders who voted against, abstained from voting, or did not vote on the 2016 Merger. Cleco believes that ~~Saulsbury Industries, Inc. had six weeks to conduct discovery on specified jurisdictional issues. The current procedural posture~~the allegations of the ~~Western District of Louisiana case reflects a recognition by Cleco Power and Saulsbury Industries, Inc. that subject matter jurisdiction has not been established~~petitions in ~~relation to Cleco Power and Saulsbury Industries, Inc.~~each action are without merit and that ~~this action, insofar as~~ it ~~relates~~has substantial meritorious defenses to ~~Cleco Power and Saulsbury Industries, Inc., will not proceed~~the claims set forth in ~~federal court.~~each of the petitions.

Gulf Coast Spinning

~~On October 10, 2019,~~In September 2015, a potential customer sued Cleco ~~Power was served with~~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 ~~summons in~~ ~~Saulsbury Industries, Inc. v. Cabot Corporationand Cleco Power LLC~~cotton spinning facility near Bunkie, Louisiana. According to the petition filed by Gulf Coast in the ~~16th~~12th Judicial District Court for ~~St. Mary~~Avoyelles Parish, ~~No. 133910-A. Saulsbury Industries, Inc. asserted~~Louisiana (the “District Court”), 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 ~~same claim as the Western District Litigation and further asserts claims for payment on~~project, including lost profits.

Cleco filed an ~~open account. On December 9, 2019, Cleco moved to stay~~Exception of No Cause of Action arguing that the case ~~arguing that the~~

should be dismissed. The District Court denied Cleco’s exception in December 2015, after considering briefs



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

~~Rapides Parish suit should proceed. On February 14, 2020,~~and arguments. In January 2016, Cleco appealed the ~~court granted Cleco’s motion, which stay order remains in place until lifted.~~

~~LPSC Audits~~

~~Fuel Audit~~

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. The LPSC FAC General Order issued in November 1997, in Docket No. U-21497 provides that an audit of FAC filings will be performed at least every other year. Cleco Power has FAC filings for January 2018 and thereafter that remain subject to audit. On April 21, 2020, Cleco Power received notice from the LPSCDistrict Court’s denial of its filing for Request For Proposals to hire outside consultants to perform the FAC audit for the period of January 2018 to December 2019. The total amount of fuel expense expected to be included in the audit is $565.8 million. 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.

~~Environmental Audit~~

In 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides Cleco Power an EAC to recover from its 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 reducedexception by the sale of such allowances. Also eligible for recovery are variable emission mitigation costs, which are the costs of reagents such as ammonia and limestone that are a part of the fuel mix used to reduce air emissions, among other things. Cleco Power has EAC filings for January 2018 and thereafter that remain subject to audit. On March 11, 2020, Cleco Power received notice from the LPSC of its filing for Request For Proposals to hire outside consultants to perform the EAC audit for the period of January 2018 to December 2019. The total amount of environmental expense expected to be included in the audit is $26.2 million. 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 Mercury and Air Toxics Standards (MATS). In June 2015, the U.S. Supreme Court remanded the MATS rule to the D.C.~~Third Circuit Court of ~~Appeals.~~Appeal. In ~~December 2015,~~June 2016, the ~~D.C.~~Third Circuit Court of ~~Appeals remanded~~Appeal denied the ~~rule~~request to have the case dismissed. In July 2016, Cleco filed a writ to the ~~EPA; however, the D.C. Circuit~~Louisiana Supreme Court ~~of Appeals did not vacate this rule. In April 2016, the EPA released~~seeking a ~~final supplemental finding that, even considering costs, it is appropriate and necessary to regulate~~

~~hazardous air pollutants. By the June 2016 deadline, 6 petitions were filed with the U.S. Court of Appeals for the D.C. Circuit Court of Appeals for~~ review of the ~~EPA’s findings. At~~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 District Court lifted the stay at the request of Gulf Coast. The parties are currently participating in discovery. Cleco believes the ~~EPA, in April 2017,~~allegations of the ~~court issued an order holding the cases in abeyance pending the EPA’s review of its supplemental finding. These expenses~~petition are ~~also eligible for recovery through Cleco Power’s EAC and are subject to periodic review~~contradicted by the ~~LPSC.~~written documents executed by Gulf Coast, are otherwise without merit, and that it has substantial meritorious defenses to the claims alleged by Gulf Coast.

FERC Audit

For more information about the FERC audit, see Note 14 — “Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — FERC Audit.”

TCJA

Cleco Katrina/Rita Storm Recovery Charges


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

FRP

Transmission ROE

SSR

Cleco Power expects Teche Unit 3 to be available to run until the estimated 2021 in-service date of the Bayou Vista to Segura Transmission project, at which time Cleco Power does not expect to offer the unit into MISO, barring any grid or customer reliability issues or other similar reasons. At September 30, 2020, Cleco Power had $6.1 million accrued for the net capital refund for capital expenditures paid for by third parties while operating under the SSR agreement. As part of the settlement, one of the load serving entities agreed to reimburse Cleco Power for their portion of the capital refund. Management is unable to determine the timing of the capital refund.


Note 13 — Variable Interest Entities

Oxbow is owned 50% by Cleco Power and 50% by SWEPCO. Cleco Power is not the primary beneficiary because


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

The following table presents the components of Cleco Power’s equity investment in Oxbow:


INCEPTION TO DATE (THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Purchase price	$	12,873	$	12,873
Cash contributions	6,399		6,399
Dividends	(6,200)		(2,200)
Total equity investment in investee	$	13,072	$	17,072

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:


(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Oxbow’s net assets/liabilities	$	26,145	$	34,145
Cleco Power’s 50% equity	$	13,072	$	17,072
Cleco Power’s maximum exposure to loss	$	13,072	$	17,072

The following table contains summarized financial information for Oxbow:


	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Operating revenue	$	2,275	$	2,776	$	33,266	$	7,114
Operating expenses	2,275		2,776		33,266		7,114
Income before taxes	$	0	$	0	$	0	$	0

Prior to June 30, 2020, DHLC mined lignite reserves at Oxbow through the Amended Lignite Mining Agreement. The lignite reserves are intended to be used to provide fuel to the Dolet Hills Power Station. Under the Amended Lignite Mining Agreement, DHLC bills Cleco Power its proportionate share of incurred lignite extraction and associated mining-related costs. Oxbow bills Cleco Power its proportionate share of incurred costs related to mineral rights and land leases. For more information on DHLC and the Oxbow mine, see Note 14 — “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.


Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees

Litigation

2016 Merger

The 4 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).

The 3 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

•Cashen v. Cleco Corporation, No. 2014-11236 (filed November 21, 2014).


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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. Cleco believes that the allegations of the petitions in each action are without merit and that it has substantial meritorious defenses to the claims set forth in each of the petitions.

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. According to the petition filed by Gulf Coast in the 12th Judicial District Court for Avoyelles Parish, Louisiana (the “District Court”), 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 District Court denied Cleco’s exception in December 2015, after considering briefs

Sabine River Flood

In March 2017, Cleco was served with a summons in Perry Bonin, Ace Chandler, and Michael Manuel, et al. v. Sabine River Authority of Texas and Sabine River Authority of Louisiana, No. B-160173-C. The action was filed in the 163rd Judicial District Court for Orange County, Texas, and relates to flooding that occurred in Texas and Louisiana in March 2016. The plaintiffs have alleged that the flooding was the result of the release of water from the Toledo Bend spillway gates into the Sabine River. While the plaintiffs have made numerous allegations, they have specifically alleged that Cleco Power, included as one of several companies and governmental bodies, failed to repair 1 of the 2 hydroelectric generators at the Toledo Bend Dam, which in turn contributed to the flooding. Cleco Power does not operate the hydroelectric generator.

The suit was removed to federal court in Texas. The new federal case is Perry Bonin, et al. v. Sabine River Authority of Texas et al., No. 17-cv-134, U.S. District Court for the Eastern District of Texas (Bonin Case). The plaintiffs moved to remand the case to state court, but the district court found that the case raises a substantial federal question and denied the motion to remand. Cleco Power, along with its co-defendants, filed a motion to dismiss on various grounds, primarily arguing that the plaintiffs’ claims are preempted because they infringe on FERC’s exclusive control of dam operations. The district court granted the motion to dismiss in part, declining to rule on some of the arguments raised by the defendants, and granted the plaintiffs leave to amend their complaint. The plaintiffs filed a Fifth Amended Complaint in March 2018. Cleco Power filed a new motion to dismiss the plaintiffs’ claims.

In March 2018, approximately 26 other individual plaintiffs filed a petition against Cleco Power and other defendants in Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. D180096-C. The action was filed in the 260th Judicial District Court for Orange County, Texas. The defendants removed the case to federal court in April 2018. The new federal case is Larry Addison, et al. v. Sabine River Authority of Texas, et al., No. 18-cv-153, U.S. District Court for the Eastern District of Texas. The allegations are essentially identical to those in the Bonin Case. Also, in April 2018, Cleco Power filed a motion to dismiss on the same grounds that previously were successful in the Bonin Case. In July 2018, the district court entered an order consolidating the Addison Case with the Bonin Case. Management believes that both cases, as they relate to Cleco Power, have no merit. In August 2018, the Judge entered an order requiring the plaintiffs to file a more


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

definitive statement to clarify the plaintiffs’ claims. In response thereto, the plaintiffs filed a Sixth Amended Petition in September 2018. Cleco Power filed a response in October 2018. All claims were dismissed against Cleco Power by ruling of the Judge on March 18, 2019. The plaintiffs appealed the dismissal with the U.S. Court of Appeals for the Fifth Circuit. On June 4, 2020, the Fifth Circuit Court of Appeals affirmed the dismissal of all claims against Cleco Power.

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, No. 263339. 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 Industries 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’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 Corporationand Cleco Power LLC in the 16th Judicial District Court for St. Mary Parish, No. 133910-A. Saulsbury Industries, Inc. asserted the same claim as the Western District Litigation and further asserts claims for payment on an open account. On December 9, 2019, Cleco moved to stay the case, arguing that the Rapides Parish suit should proceed. On February 14, 2020, the court granted Cleco’s motion, which stay order remains in place until lifted. The 16th Judicial District Court for the St. Mary Parish case held a hearing on October 16, 2020, and the judge granted Cleco’s declinatory exceptions of lis pendens. Thus, the St. Mary’s Parish case has been dismissed.

LPSC Audits

Fuel Audit

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. The LPSC FAC General Order issued in November 1997, in Docket No. U-21497 provides that an audit of FAC filings will be performed at least every other year. On March 31, 2020, Cleco Power received a notice of audit from the LPSC for the period of January 2018 to December 2019. The total amount of fuel expense included in the audit is $565.8 million. On September 10, 2020, Cleco Power responded to its first set of data requests from the LPSC. Cleco Power has FAC 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 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.

Environmental Audit

In 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides Cleco Power an EAC to recover from its 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. On March 3, 2020, Cleco Power received notice from the LPSC of the EAC audit for the period of January 2018 to December 2019. The total amount of environmental expense included in the audit is $26.2 million. Cleco Power has responded to several sets of data requests. 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 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 Mercury and Air Toxics Standards (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. Management is unable to determine whether the outcome of the D.C. Circuit Court of Appeals review will result in changes to the standards of MATS.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

FERC Audit

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. In March 2018, the Division of Audits and Accounting, within the Office of Enforcement of FERC, initiated an audit of Cleco Power for the period of January 1, 2014, through June 30, 2019. On September 27, 2019, Cleco Power received the final audit report, which indicated 12 findings of noncompliance with a combination of FERC accounting and reporting requirements and computation of revenue requirements along with 59 recommendations associated with the audit period. Cleco Power submitted a plan for implementing the audit recommendations on October 28, 2019. Cleco Power also submitted the refund analysis on November 7, 2019, which resulted in ~~an estimated~~a refund ~~of $3.5 million~~ related to the FERC audit findings, pending final assessment by the FERC Division of Audits and Accounting. ~~This amount was~~At September 30, 2020, Cleco Power had $2.7 million recorded in Provision for rate refund on Cleco and Cleco Power’s Condensed Consolidated Balance Sheets ~~at March 31, 2020. Cleco Power anticipates this~~for the estimated refund. This amount ~~to be~~is being refunded to ~~its~~Cleco Power’s wholesale transmission customers as a reduction in Attachment O and grandfathered agreement rates over 12 months beginning June 1, 2020.

Transmission ROE

The complaints covered the period December 2013 through May 2016. In June 2016, an administrative law judge issued an initial decision in the second rate case docket recommending a 9.70% base ROE. In September 2016, FERC issued a Final Order in response to the first complaint establishing a 10.32% ROE. However, on November 21, 2019, FERC voted to adopt a new methodology for evaluating base ROE for public utilities under the Federal Power Act. In addition, FERC set the MISO transmission owners’ region-wide base ROE at 9.88% for the refund period covered in the first complaint and going forward. The draft FERC order further found that complainants in the second complaint proceeding failed to show that the 9.88% base ROE was unjust and unreasonable and thus dismissed the second complaint. On May 21, 2020, FERC issued Opinion No. 569-A, which granted rehearing in part of Opinion No. 569, which had revised FERC’s methodology for analyzing the base ROE component of public utility rates under section 206 of the Federal Power Act. Opinion No. 569-A further refines FERC’s ROE methodology and finds that the MISO Transmission Owners’ base ROE should be set at 10.02% instead of 9.88%. Cleco Power is unable to determine when a final FERC Order will be issued. As of ~~March 31,~~September 30, 2020, Cleco Power had ~~$1.0~~$0.6 million accrued for the change in the ROE.

In November 2014, the MISO transmission owners committee, of which Cleco is a member, filed a request with FERC for an incentive to increase the new ROE by 50 basis points for RTO participation as allowed by the MISO tariff. In January 2015, FERC granted the request. Beginning January



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

1, 2020, the collection of the adder is being included in MISO’s transmission rates for a total ROE of 10.38%.

South Central Generating

In 2017, Louisiana Generating received insurance settlement proceeds for costs incurred to resolve a lawsuit which was brought by the EPA and the LDEQ against Louisiana Generating related to Big Cajun II, Unit 3. Entergy Gulf States, as co-owner of Big Cajun II, Unit 3, is expected to be allocated a portion of the insurance settlement proceeds. Any amount allocated to Entergy Gulf States will be determined by ongoing litigation and negotiations. South Central Generating estimated this amount to be $10.0 million. As part of the Cleco Cajun Transaction, Cleco Cajun assumed the $10.0 million contingent liability and NRG Energy indemnified Cleco for losses associated with this litigation matter. As a result, Cleco also recorded a $10.0 million indemnification asset, which was included in the purchase price ~~allocation.~~allocation and included in Other current assets on Cleco’s Condensed Consolidated Balance Sheets.

Prior to the Cleco Cajun Transaction, 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. Management is unable to estimate any potential losses that Cleco Cajun may ultimately be responsible for with respect to any one of these matters. As part of the Cleco Cajun Transaction, NRG Energy indemnified Cleco for losses as of the closing date associated with 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 excess of amounts currently accrued. Management regularly analyzes current information and, as of ~~March 31,~~September 30, 2020, believes the probable and reasonably estimable liabilities based on the eventual disposition of these matters are ~~$5.1~~$5.3 million and has accrued this amount.

Off-Balance Sheet Commitments and 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 and Cleco Power’s Consolidated Balance Sheets because management has determined that Cleco 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
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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 indemnifications relate to environmental matters that may have been present prior to closing. These remaining indemnifications 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 indemnifications 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 indemnifications relate to the fundamental organizational structure of Acadia. These remaining indemnifications 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 indemnifications to Cleco Power as a result of the transfer of Coughlin to Cleco Power in March 2014. Cleco Power also provided indemnifications to Cleco Holdings and Evangeline as a result of the transfer of Coughlin to Cleco Power. The maximum amount of the potential payment to Cleco Power, Cleco Holdings, and Evangeline for their respective indemnifications is $40.0 million, except for indemnifications 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.

As part of the Amended Lignite Mining Agreement, Cleco Power and SWEPCO, joint owners of 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 paid on behalf of the miner would be credited by the lignite miner against future invoices for lignite delivered. The maximum projected payment by Cleco Power under this guarantee is estimated to be $83.0 million; however, the Amended Lignite Mining Agreement does not contain a cap. The projection is based on the forecasted loan and lease obligations to be incurred by DHLC, primarily for purchases of equipment. Cleco Power has the right to dispute the incurrence of loan and lease obligations through the review of the mining plan before the incurrence of such loan and lease obligations. In April 2020, Cleco Power and SWEPCO mutually agreed to not develop additional mining areas for future lignite extraction and subsequently provided notice to the LPSC of the intent to cease mining at the Dolet Hills and Oxbow mines by June 2020. The mine ~~closure is~~closures are subject to LPSC review and approval. As of September 30, 2020, all lignite reserves intended to be extracted from the Oxbow mine 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. The Amended Lignite Mining Agreement does not affect the amount the Registrants can borrow under their credit facilities. Currently, management does not expect to be required to pay DHLC under this guarantee.

~~At March 31, 2020,~~ Cleco Holdings, ~~had a $34.5 million letter~~in relation to Cleco Cajun’s participation in MISO, and Cleco Power have letters of credit to MISO pursuant to energy market ~~requirements related to~~requirements. In June 2020, Cleco ~~Cajun’s participation in MISO. The~~Holdings decreased its MISO letter of credit from $34.5 million to $1.3 million. The letters of credit automatically ~~renews~~renew each

year and ~~has~~have no impact on ~~the~~ 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



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

0 assets held as collateral for third parties that either Cleco Holdings or Cleco Power could obtain and liquidate to recover amounts paid pursuant to the guarantees or indemnification obligations.

Other Commitments

Cleco has accrued for liabilities related to third parties, employee medical benefits, and AROs.

Risks and Uncertainties

Cleco could be subject to possible adverse consequences if Cleco’s counterparties fail to perform their obligations or if Cleco or its affiliates are not in compliance with loan agreements or bond indentures.

Access to capital markets is a significant source of funding for both short- and long-term capital requirements not satisfied by operating cash flows.

Changes in the regulatory environment or market forces could cause Cleco to determine 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.

Cleco Power and Cleco Cajun are participants in the MISO market. 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 higher LMPs. Physical transmission constraints present in the MISO market could increase energy costs within pricing zones. Cleco Power and Cleco Cajun use FTRs to mitigate transmission congestion price risks. Changes to anticipated transmission paths may result in an unexpected increase in energy costs.

On March 1, 2019, Cleco Power began to operate Dolet Hills Power Station from June through September of each year; however, Dolet Hills Power Station will continue to be available to operate in other months, if needed. In January 2020, Cleco Power’s joint owner in Dolet Hills Power Station unilaterally entered into a settlement with the Arkansas Public Service Commission to seek regulatory approval to retire the Dolet Hills Power Station by the end of 2026. This settlement ~~does~~did not bind Cleco Power to agree to retire the Dolet Hills Power Station by 2026.

In April 2020, Cleco Power and SWEPCO mutually agreed to not develop additional mining areas for future lignite extraction and subsequently provided notice to the LPSC of the intent to cease mining at the Dolet Hills and Oxbow mines by June 2020, subject to LPSC review and approval. ~~Early~~As of September 30, 2020, all lignite reserves intended to be extracted from the Oxbow mine 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. Expected early closure of the mines ~~would most likely result~~has resulted in increased costs that will be billed through the fuel adjustment clause, which management currently believes are recoverable. Management does not believe anthe early closure of the mines ~~would~~will have an adverse impact on the recovery value of the ~~plant.~~Dolet Hills Power Station. Cleco Power ~~has the ability to secure alternative fuel sources and~~ expects to have sufficient lignite fuel


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

available to continue seasonal operations of the Dolet Hills Power Station through ~~at least~~ the ~~2020 and~~ 2021 seasonal ~~operations periods.~~ operation period.

Also in April 2020, Cleco Power announced its intent to seek regulatory approval to retire the Dolet Hills Power Station at the end of 2021, subject to recovery mechanisms. This ~~does~~announcement did not bind Cleco Power to a specific retirement plan and Cleco Power ~~will continue~~continued to evaluate the cost of operating the Dolet Hills Power Station compared with other alternatives ~~and decide~~to determine the best course of action for the Dolet Hills Power Station within the LPSC regulatory requirements and recovery mechanisms.

In June 2020, Cleco Power remeasured its ARO liabilities due to the expected abandonment of the Dolet Hills Power Station. Cleco Power’s ARO liability increased $3.3 million as a result of this remeasurement. At September 30, 2020, Cleco Power’s undivided interest in the Dolet Hills Power Station was $156.2 million and was included in base rates.

Fuel costs incurred by Dolet Hills Power Station are recoverable by Cleco Power through active fuel adjustment clauses. Under the Amended Lignite Mining Agreement, DHLC bills Cleco Power its proportionate share of incurred lignite extraction and associated mining-related costs as fuel is delivered. As of September 30, 2020, DHLC estimates $163.5 million of costs will be billed to Cleco Power prior to the closure of the Dolet Hills Power Station. In 2009, Cleco Power acquired an interest in Oxbow, which owns mineral rights and land leases. Under a joint operating agreement pertaining to the Oxbow mineral rights and land leases, Oxbow bills Cleco Power its proportionate share of incurred costs. As of September 30, 2020, Oxbow estimates approximately $10.4 million of costs will be billed to Cleco Power prior to the closure of the Dolet Hills Power Station. If any of these costs are not recoverable, it could materially impact the Registrants’ results of operations, financial condition, or cash flows.



Note 15 — Affiliate Transactions

At ~~March~~September 30, 2020, and December 31, ~~2020,~~2019, Cleco had an affiliate payable of $35.3 million and $33.8 million, respectively, to Cleco Group primarily for ~~affiliate~~ settlement of taxes payable.

Cleco Power has balances that are payable to or due from its affiliates. The following table is a summary of those balances:


	AT SEPT. 30, 2020				AT DEC. 31, 2019
(THOUSANDS)	ACCOUNTS RECEIVABLE		ACCOUNTS PAYABLE		ACCOUNTS RECEIVABLE		ACCOUNTS PAYABLE
Cleco Holdings	$	10,349	$	102	$	10,351	$	194
Support Group	2,031		14,580		3,172		13,890
Cleco Cajun	1,008		6		958		39
Total	$	13,388	$	14,688	$	14,481	$	14,123

AT MAR. 31, 2020 AT DEC. 31, 2019
(THOUSANDS)
ACCOUNTS
RECEIVABLE

ACCOUNTS
PAYABLE

ACCOUNTS
RECEIVABLE

ACCOUNTS
PAYABLE

Cleco Holdings $ 10,420
$ 170
$ 10,351
$ 194
Support Group 1,082
10,197
3,172
13,890
Cleco Cajun 535
119
958
39
Total $ 12,037
$ 10,486
$ 14,481
$ 14,123

Oxbow bills Cleco Power its proportionate share of incurred costs related to mineral rights and land leases. These costs are included in fuel inventory and are recoverable from Cleco Power customers through the LPSC-established FAC or related wholesale contract provisions. During the three and nine months ended September 30, 2020, Cleco Power recorded $1.1 million and $16.6 million, respectively, of its proportionate share of incurred costs. During the three and nine months ended September 30, 2019, Cleco Power recorded $1.4 million and $3.6 million, respectively, of its proportionate share of incurred costs. At September 30, 2020, and December 31, 2019, Cleco Power had $0.3 million and

$0.2 million, respectively, payable to Oxbow. For more information on Cleco Power’s variable interest in Oxbow, see Note 13 — “Variable Interest Entities.”

Note 16 — Intangible Assets and Liabilities

During 2008, Cleco Katrina/Rita acquired a $177.5 million intangible asset which includes $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 0 residual value at the end of its life.

As a result of the 2016 Merger, fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the valuation of the Cleco trade name and long-term wholesale power supply agreements. At the end of their ~~life,~~lives, these intangible assets will have 0 residual value. The trade name intangible asset is being amortized over its estimated economic useful life of 20 years. The intangible assets related to the power supply agreements are amortized over the estimated life of each applicable contract ranging between 7 and 19 years, and the amortization is included in Electric operations on Cleco’s Condensed Consolidated Statements of Income.

As a result of the Cleco Cajun Transaction, fair value adjustments were recorded on Cleco’s Condensed Consolidated Balance Sheet for the difference between the contract and market price of acquired long-term wholesale power agreements. The fair value of intangible assets of $98.9 million and intangible liabilities of $14.2 million was reflected in the purchase price allocation. At the end of their ~~life,~~lives, these intangible assets and liabilities will have 0 residual value. These intangibles are amortized over the estimated life of each applicable contract ranging between 2 and 8 years. The amortization is included in Electric operations on Cleco’s Condensed Consolidated Statements of Income.

As part of the Cleco Cajun Transaction, Cleco assumed an LTSA for maintenance services related to the Cottonwood Plant. An intangible liability of $24.1 million was reflected in the purchase price allocation and is being amortized using the straight-line method over the estimated life of the LTSA of seven years. The amortization is included as a reduction to the LTSA prepayments on Cleco’s Condensed Consolidated Balance Sheet. For more information on the fair value adjustments of intangible assets and liabilities related to the Cleco Cajun Transaction, see Note 2 — “Business Combinations.”

The following tables present Cleco and Cleco Power’s amortization of intangible assets and liabilities:


Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Intangible assets
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	0	$	5,660	$	517	$	15,702
Trade name	$	64	$	64	$	191	$	191
Power supply agreements	$	6,400	$	6,474	$	19,200	$	17,873
Intangible liabilities
LTSA	$	882	$	871	$	2,646	$	2,323
Power supply agreements	$	871	$	882	$	2,613	$	2,352



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30,				FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		2020		2019
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	0	$	5,660	$	517	$	15,702

Cleco
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Intangible assets
Cleco Katrina/Rita right to bill and collect storm recovery charges $ 517
$ 4,870
Trade name $ 64
$ 64
Power supply agreements $ 6,400
$ 5,190
Intangible liabilities
LTSA $ 871
$ 581
Power supply agreements $ 882
$ 211

Cleco Power
FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
Cleco Katrina/Rita right to bill and collect storm recovery charges $ 517
$ 4,870

The following tables summarize the balances for intangible assets and liabilities subject to amortization for Cleco and Cleco Power:


Cleco							Cleco
(THOUSANDS)	AT MAR. 31, 2020			AT DEC. 31, 2019			(THOUSANDS)	AT SEPT. 30, 2020		AT DEC. 31, 2019
Intangible assets							Intangible assets
Cleco Katrina/Rita right to bill and collect storm recovery charges	$	70,594		$	70,594		Cleco Katrina/Rita right to bill and collect storm recovery charges	$	70,594	$	70,594
Trade name	5,100			5,100			Trade name	5,100		5,100
Power supply agreements	184,004			184,004			Power supply agreements	184,004		184,004
Total intangible assets carrying amount	259,698			259,698			Total intangible assets carrying amount	259,698		259,698
Intangible liabilities							Intangible liabilities
LTSA	24,100			24,100			LTSA	24,100		24,100
Power supply agreements	14,200			14,200			Power supply agreements	14,200		14,200
Total intangible liability carrying amount	38,300			38,300			Total intangible liability carrying amount	38,300		38,300
Net intangible assets carrying amount	221,398			221,398			Net intangible assets carrying amount	221,398		221,398
Accumulated amortization	(120,395		)	(115,167		)	Accumulated amortization	(129,815)		(115,167)
Net intangible assets subject to amortization	$	101,003		$	106,231		Net intangible assets subject to amortization	$	91,583	$	106,231

Cleco Power
(THOUSANDS) AT MAR. 31, 2020
AT DEC. 31, 2019
Cleco Katrina/Rita right to bill and collect storm recovery charges $ 177,537
$ 177,537
Accumulated amortization (177,537 ) (177,020 )
Net intangible assets subject to amortization $ —
$ 517

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 segment 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 significant judgments,

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.

Cleco conducted its 2020 annual impairment test using an August 1, 2020, measurement date. The fair value of the Cleco Power reporting unit was estimated 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 weighted-average cost of capital or discount rate. Changes in these assumptions could materially affect the determination of fair value and goodwill impairment at Cleco Power. Based on the tests performed, management has determined that the fair value of the Cleco Power reporting unit exceeds the carrying value resulting in 0 impairment of Cleco Power’s goodwill as of August 1, 2020.

Note 17 — 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
	FOR THE THREE MONTHS ENDED SEPT. 30, 2020		FOR THE NINE MONTHS ENDED SEPT. 30, 2020
(THOUSANDS)	POSTRETIREMENT BENEFIT NET LOSS
Balances, beginning of period	$	(16,657)	$	(17,513)


Amounts reclassified from AOCI
Amortization of postretirement benefit net loss	448		1,304


Balances, Sept. 30, 2020	$	(16,209)	$	(16,209)

FOR THE THREE MONTHS ENDED
MAR. 31, 2019

(THOUSANDS) POSTRETIREMENT BENEFIT NET GAIN
Balances, beginning of period $ 1,786
Amounts reclassified from AOCI
Amortization of postretirement benefit net loss (135 )
Balances, Mar. 31, 2019 $ 1,651


	FOR THE THREE MONTHS ENDED SEPT. 30, 2019		FOR THE NINE MONTHS ENDED SEPT. 30, 2019
(THOUSANDS)	POSTRETIREMENT BENEFIT NET GAIN
Balances, beginning of period	$	1,504	$	1,786



Amounts reclassified from AOCI
Amortization of postretirement benefit net gain	(37)		(319)


Balances, Sept. 30, 2019	$	1,467	$	1,467


Cleco Power
	FOR THE THREE MONTHS ENDED SEPT. 30, 2020						FOR THE NINE MONTHS ENDED SEPT. 30, 2020
(THOUSANDS)	POSTRETIREMENT BENEFIT NET LOSS		NET LOSS ON CASH FLOW HEDGES		TOTAL AOCI		POSTRETIREMENT BENEFIT NET LOSS		NET LOSS ON CASH FLOW HEDGES		TOTAL AOCI
Balances, beginning of period	$	(15,872)	$	(5,740)	$	(21,612)	$	(16,717)	$	(5,868)	$	(22,585)



Amounts reclassified from AOCI
Amortization of postretirement benefit net loss	373		—		373		1,218		—		1,218
Reclassification of net loss to interest charges	—		63		63		—		191		191

Balances, Sept. 30, 2020	$	(15,499)	$	(5,677)	$	(21,176)	$	(15,499)	$	(5,677)	$	(21,176)

Cleco Power
FOR THE THREE MONTHS ENDED MAR. 31, 2020
(THOUSANDS) POSTRETIREMENT
BENEFIT
NET LOSS
NET LOSS
ON CASH FLOW
HEDGES
TOTAL AOCI
Balances, beginning of period $ (16,717 ) $ (5,868 ) $ (22,585 )
Amounts reclassified from AOCI
Amortization of postretirement benefit net loss 426
—
426
Reclassification of net loss to interest charges —
64
64
Balances, Mar. 31, 2020 $ (16,291 ) $ (5,804 ) $ (22,095 )

FOR THE THREE MONTHS ENDED MAR. 31, 2019
(THOUSANDS) POSTRETIREMENT
BENEFIT
NET LOSS
NET LOSS
ON CASH FLOW
HEDGES
TOTAL AOCI
Balances, beginning of period $ (7,060 ) $ (6,122 ) $ (13,182 )
Amounts reclassified from AOCI
Amortization of postretirement benefit net loss 156
—
156
Reclassification of net loss to interest charges —
64
64
Balances, Mar. 31, 2019 $ (6,904 ) $ (6,058 ) $ (12,962 )



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q


	FOR THE THREE MONTHS ENDED SEPT. 30, 2019						FOR THE NINE MONTHS ENDED SEPT. 30, 2019
(THOUSANDS)	POSTRETIREMENT BENEFIT NET LOSS		NET LOSS ON CASH FLOW HEDGES		TOTAL AOCI		POSTRETIREMENT BENEFIT NET LOSS		NET LOSS ON CASH FLOW HEDGES		TOTAL AOCI
Balances, beginning of period	$	(6,775)	$	(5,994)	$	(12,769)	$	(7,060)	$	(6,122)	$	(13,182)


Amounts reclassified from AOCI
Amortization of postretirement benefit net loss	230		—		230		515		—		515
Reclassification of net loss to interest charges	—		63		63		—		191		191

Balances, Sept. 30, 2019	$	(6,545)	$	(5,931)	$	(12,476)	$	(6,545)	$	(5,931)	$	(12,476)

Note 18 — Storm Restoration

In August and October 2020, Cleco Power’s distribution and transmission systems sustained substantial damage from 3 separate hurricanes.

On August 27, 2020, Hurricane Laura made landfall in southwest Louisiana as a Category 4 storm, causing catastrophic damage to portions of Cleco Power’s service territory and causing power outages for approximately 140,000 of Cleco Power’s electric customers located primarily in central and southwest Louisiana. By September 18, 2020, power was restored to 100% of customers who could receive power.

Cleco Power’s current estimate of the total storm restoration costs related to Hurricane Laura is between $185.0 million and $190.0 million. Cleco Power continues to work to restore the distribution and transmission systems to their pre-storm condition. The damage to equipment from the storm required replacement, as well as repair of existing assets. Therefore, the balance sheets of Cleco and Cleco Power reflect the capitalization of approximately 63% of the $180.9 million in restoration costs recorded at September 30, 2020, or approximately $113.8 million. Approximately $9.4 million of the repair-related restoration cost associated with Hurricane Laura was offset against Cleco Power’s existing storm damage reserve, and the remaining $57.7 million was recorded as a regulatory asset, as allowed by the LPSC on September 16, 2020.

On October 9, 2020, Hurricane Delta made landfall in southwest Louisiana as a Category 2 storm resulting in power outages for approximately 132,000 of Cleco Power’s electric customers located primarily in central and south Louisiana. By

October 16, 2020, power was restored to 100% of customers who could receive power. Cleco Power’s current estimate of total storm restoration costs related to Hurricane Delta is between $50.0 million and $55.0 million. Cleco Power anticipates the establishment of a regulatory asset for non-capital expenses incurred related to Hurricane Delta, subject to LPSC approval.

On October 28, 2020, Hurricane Zeta made landfall in southeast Louisiana as a Category 2 storm resulting in power outages for approximately 73,000 of Cleco Power’s electric customers located primarily in southeast Louisiana. By October 31, 2020, service was restored to 100% of customers who could receive power. Cleco Power’s current estimate of total storm restoration costs related to Hurricane Zeta is between $7.0 million and $8.0 million. Cleco Power anticipates the establishment of a regulatory asset for non-capital expenses incurred related to Hurricane Zeta, subject to LPSC approval.

Cleco Power anticipates making a filing with the LPSC in the fourth quarter of 2020 requesting an interim rate recovery for return on the storm restoration costs associated with Hurricanes Laura, Delta, and Zeta until such time securitization of such costs can be completed. Cleco Power, in line with other impacted utilities, will seek available funds from the U.S. government for relief of costs incurred from Hurricanes Laura, Delta, and Zeta. Cleco Power cannot predict the likelihood that any reimbursement from the U.S. government ultimately will be approved. In addition to securitization, other recovery options are being analyzed, including customer surcharge.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in combination with the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and Cleco and Cleco Power’s Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q. The information included therein is essential to understanding the following discussion and analysis. Below is information concerning the consolidated results of operations of Cleco for the three and nine months ended ~~March 31,~~September 30, 2020,, and 2019.

~~2019~~.



OVERVIEW

Cleco is a regional energy company that prior to the close of the Cleco Cajun Transaction, conducted substantially all of its business operations through its primary subsidiary, Cleco Power. As a result of the Cleco Cajun Transaction, Cleco now conducts substantially all of its business operations through its two ~~primary subsidiaries:~~principal operating business segments:

•Cleco Power, a regulated electric utility company that owns 10 generating units with a total nameplate capacity of 3,360 MW and serves approximately 288,000 customers in Louisiana through its retail business and supplies wholesale power in Louisiana and Mississippi; and

•Cleco Cajun, an unregulated electric utility company that owns eight generating assets with a rated capacity of 3,555 MW and supplies wholesale power and capacity in Arkansas, Louisiana, and Texas. Upon the closing of the Cleco Cajun Transaction, Cottonwood Energy entered into the Cottonwood Sale Leaseback.

COVID-19

On March 11, 2020, ~~the World Health Organization~~WHO declared the ~~current~~ COVID-19 outbreak to be a global pandemic, and on March 13, 2020, the U.S. declared a national emergency. In response to these declarations and the rapid spread of COVID-19, federal, state and local governments ~~have~~ imposed varying degrees of restrictions on business and social activities to contain COVID-19, including quarantine and “stay-at-home” orders and directives in Cleco’s service territory. ~~Cleco has modified some of its business operations, as these~~These restrictions have significantly impacted many sectors of the economy, including through record levels of unemployment, with businesses, nonprofit organizations, and governmental entities modifying, curtailing, or ceasing normal operations. ~~Cleco has~~State and local authorities have also ~~modified~~implemented multistep policies with the goal of reopening various sectors of the economy such as retail establishments, health and personal care businesses, and restaurants, among others. However, certain ~~business practices~~jurisdictions have begun reopening only to ~~conform~~delay these plans or return to ~~government~~ restrictions ~~and best practices encouraged by~~in the ~~Centers for Disease Control and Prevention, the World Health Organization, and other governmental and regulatory authorities.~~face of increases in new COVID-19 cases. For example, ~~since March 13, 2020, Cleco temporarily closed all customer service offices, temporarily suspended disconnects and late fees, restricted access to its administrative offices, implemented remote work~~

arrangements, prohibited all non-critical travel for Cleco business, prohibited in-person gatherings of more than 10 people at Cleco work locations, and required all meetings to be held virtually or via telephone.

Cleco provides a critical service to its customers which means that it is paramount that it keeps its employees who operate its business safe and informed and has taken and continues to take and update precautions for that purpose. In addition, Cleco assessed and updated its existing business continuity plans for its business units in the ~~context~~governor of the state of Louisiana issued orders in May 2020 to allow businesses to reopen at varying levels of capacity in May and June 2020. To address the June 2020 spike in COVID-19 ~~pandemic. The LPSC has issued~~cases, such reopening activities were temporarily paused or scaled back, and also included closing certain establishments.

These restrictions resulted in a ~~moratorium on disconnects~~decline in new COVID-19 cases, and in September 2020, the state of ~~customers for non-payment, and accordingly Cleco has taken steps to assure~~Louisiana entered into the next phase of its customers that disconnections for non-payment as well as late fees are temporarily suspended. Cleco is also working with its suppliers to understand the potential impacts to its supply chain. This is a rapidly evolving situation and could lead to extended disruption of economic activity in Cleco’s service territory. Cleco will continue to monitor developments affecting its workforce, customers, and suppliers and take additional precautions as Cleco believes are warranted.multistep reopening plan.

The first priority in Cleco’s response to this crisis has been the health and safety of its employees and those of its customers and other business counterparties. Cleco has implemented preventative measures and developed corporate response plans to minimize unnecessary risk of exposure and prevent infection, while supporting its customers’ operations to the best of its ability in ~~the~~current circumstances. Cleco has an Emergency (Crisis) Response Team for health, safety, and environmental matters and personnel issues, and has established a Pandemic Plan Team to address various impacts of COVID-19 as they have been developing. This team provides leadership and guidance for planning, risk management, and any policy changes. The team ensures that ~~areas of~~ Cleco ~~plan, manage,~~plans, manages, and safely ~~execute~~executes the pandemic plan set forth by management. In addition, Cleco ~~employees are required to report daily to their manager or supervisor any changes~~has assessed and updated its existing business continuity plans for its business units in the context of the COVID-19 pandemic. The implementation of these modifications and taking the stated precautionary measures has resulted in the COVID-19 pandemic having a low impact to the ~~employee’s health,~~Cleco workforce allowing Cleco to continue providing reliable service to its customers.

Beginning on March 13, 2020, and as a result of an LPSC executive order, Cleco Power suspended the ~~employee’s family’s health,~~assessment of late fees, disconnections, and ~~travel plans. This is reported~~the utilization of collection agencies to help customers facing financial challenges related to the ~~Pandemic Plan Team at~~COVID-19 pandemic. On July 1, 2020, the LPSC issued an order ending the moratorium on disconnections effective July 16, 2020. However, Cleco extended its suspension and reinstated disconnections and late fees beginning October 1, 2020. On July 16, 2020, Cleco began setting up interest-free payment plan arrangements for customers with past due balances to be repaid over a ~~minimum~~period of ~~three times per week. The results are then communicated on a weekly update call~~up to all employees. Proper measures are taken for any employee at risk of having COVID-19 and measures are taken to protect any employees with which the at-risk employee had been in contact. Cleco also has modified certain business practices, including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences, to conform to government restrictions and best practices encouraged by the Centers for Disease Control and Prevention, the World Health Organization and other federal, state, and local governmental and regulatory authorities.18 months. Cleco is ~~continuing~~also working with its suppliers to ~~address concerns~~understand the potential impacts to ~~protect the health and safety of~~ its employees and those of its customers and other business counterparties, and this includes changes to comply with health-related guidelines as they are modified and supplemented. There is considerable uncertainty regarding the extent to which COVID-19supply chain. Cleco will continue to ~~spread~~monitor developments affecting its workforce, customers, and the extent and duration of governmental and other measures implemented to try to slow the spread of COVID-19, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders and business and



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

~~government shutdowns. Restrictions of this nature have caused, and may continue to cause, Cleco, its~~ suppliers and ~~other business counterparties to experience operational delays.~~take additional precautions as Cleco deems warranted.

~~In addition,~~ Cleco has implemented certain measures that it believes will provide financial flexibility and help maintain its liquidity. On March 23, 2020, Cleco Holdings made an $88.0 million draw on its revolving credit facility, and Cleco Power made a $150.0 million draw on its revolving credit facility. While Cleco continues to assess the COVID-19 situation, ~~at this time~~ Cleco cannot predict the full impact that COVID-19 or the significant disruption and volatility currently being experienced in the markets will have on its business, cash flows, liquidity, financial condition, and results of operations at this time, due to numerous uncertainties. The ultimate impacts will depend on future developments, including, among others, the ultimate geographic spread of COVID-19, the consequences of governmental and other measures designed to prevent the spread of COVID-19, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, including the LPSC and FERC, Cleco’s customers and suppliers, and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.operations. For additional discussion regarding certain risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors — ~~COVID-19.”~~COVID-19” in this Quarterly Report on Form 10-Q.

Cleco Cajun ~~Transaction~~

Upon completion of the Cleco Cajun Transaction on February 4, 2019, Cleco Cajun became a reportable segment and is reflected as such in this Quarterly Report on Form 10-Q. For more information on the Cleco Cajun Transaction, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 2 — Business ~~Combinations~~.Combinations.” Cleco’s


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

condensed consolidated financial statements for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2019, include the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, until ~~March 31,~~September 30, 2019.

Cleco Cajun includes 13 power purchase agreements totaling nearly 2,200 MW with a mixture of cooperatives and municipal bodies. Collectively, 93% of Cleco Cajun’s capacity is contracted through April 2025, and Cleco Cajun routinely seeks to grow the amount of power sold pursuant to these existing agreements. These contracts provide Cleco Cajun with predictable cash flow and market risk mitigation through at least 2025, but may prevent Cleco Cajun from taking advantage of rising market rates for power.

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 comply with increasingly stringent environmental standards, and compliance with the commitments made to the LPSC as a result of the Cleco Cajun Transaction.

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 impacts cost recovery, the ROE, and the ~~ROE,~~current rate case, as well as the recovery of costs related to 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 the related operating challenges and uncertainties, including increased wholesale competition. Cleco Power’s current key initiatives are continuing construction on the Bayou Vista to Segura Transmission project; continuing the DSMART project; and maintaining and growing its wholesale and retail business. These initiatives are discussed below.

Hurricanes Laura, Delta, and Zeta

On August 27, 2020, Hurricane Laura made landfall in southwest Louisiana as a Category 4 storm causing catastrophic damage to portions of Cleco Power’s service territory and causing power outages for approximately 140,000 of Cleco Power’s electric customers located primarily in central and southwest Louisiana. Cleco Power sustained significant damage to its distribution and transmission facilities. By September 18, 2020, Cleco Power had restored power to 100% of customers who could receive power.

In September 2020, Cleco Power recognized a regulatory asset for non-capital expenses related to Hurricane Laura, as

allowed by the LPSC and plans to request regulatory approval from the LPSC to create a regulatory asset that represents incremental, non-capitalized restoration costs incurred as a result of Hurricanes Delta and Zeta. Cleco Power anticipates making a filing with the LPSC in the fourth quarter of 2020 requesting interim rate recovery for return on storm restoration costs associated with Hurricanes Laura, Delta, and Zeta until such time securitization of such costs can be completed. Although Cleco Power believes it has sufficient liquidity to meet its current obligations and to fund Hurricanes Laura, Delta, and Zeta restoration efforts from a combination of cash on hand and available capacity under its revolving credit facilities, Cleco Power is exploring options to supplement its liquidity until such time securitization of such costs can be completed. For more information on Hurricanes Laura, Delta, and Zeta, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 18 — Storm Restoration.”

Bayou Vista to Segura Transmission Project

The Bayou Vista to Segura Transmission project includes the construction of 48 miles of 230kV transmission line, a 230/138kV substation, and three substation expansions in south Louisiana. The project is expected to cost approximately ~~$136.7~~$125.8 million. The project is expected to increase reliability, provide transmission system redundancy, and provide

hurricane hardening for customers in south Louisiana. Cleco Power received MISO approval for the project in December 2017. Construction has begun on expansions to existing substations, with the northern phase expected to be completed in the ~~first~~second quarter of 2021 and the southern phase expected to be completed in the fourth quarter of 2021. As of ~~March 31,~~September 30, 2020, Cleco Power had spent ~~$15.6~~$37.9 million on the project.

DSMART Project

The DSMART project includes modernization of Cleco Power’s distribution system by replacing or upgrading distribution line equipment utilizing 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, time to locate faults, and improved operational efficiencies. 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 2025. In January 2019, Cleco Power began the first phase of the project. As of ~~March 31,~~September 30, 2020, Cleco Power had spent ~~$2.7~~$10.6 million on the project.

Other

Cleco Power is working to secure load growth opportunities that include renewing existing franchises and wholesale contracts, pursuing new wholesale contracts and franchises, and adding new retail load opportunities with large industrial, commercial, and residential load. The retail opportunities include sectors such as agriculture, oil and gas, chemicals, metals, national accounts, government and military, wood and paper, health care, information technology, transportation, and other manufacturing.



CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


RESULTS OF OPERATIONS

Comparison of the Three Months Ended ~~March 31,~~September 30, 2020, and 2019


Cleco
	FOR THE THREE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019		VARIANCE		CHANGE
Operating revenue, net	$	417,451	$	487,971	$	(70,520)	(14.5)	%
Operating expenses	295,699		386,432		90,733		23.5	%
Operating income	121,752		101,539		20,213		19.9	%
Interest income	910		1,690		(780)		(46.2)	%
Allowance for equity funds used during construction	144		3,619		(3,475)		(96.0)	%

Other expense, net	(3,374)		(1,363)		(2,011)		(147.5)	%
Interest charges	34,060		35,832		1,772		4.9	%
Federal and state income tax expense	25,075		14,088		(10,987)		(78.0)	%
Net income	$	60,297	$	55,565	$	4,732	8.5	%

Cleco
FOR THE THREE MONTHS ENDED MAR. 31,
FAVORABLE/(UNFAVORABLE)
(THOUSANDS) 2020
2019
VARIANCE
CHANGE
Operating revenue, net $ 347,572
$ 344,186
$ 3,386
1.0 %
Operating expenses 292,907
293,600
693
0.2 %
Operating income 54,665
50,586
4,079
8.1 %
Interest income 1,157
1,491
(334 ) (22.4 )%
Allowance for equity funds used during construction (74 ) 5,688
(5,762 ) (101.3 )%
Other (expense) income, net (12,709 ) 2,777
(15,486 ) (557.7 )%
Interest charges 35,149
33,999
(1,150 ) (3.4 )%
Federal and state income tax expense 1,562
5,986
4,424
73.9 %
Net income $ 6,328
$ 20,557
$ (14,229 ) (69.2 )%
Includes the financial results of Cleco Cajun from the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019, and January 1, 2020, through March 31, 2020.

COVID-19 Impacts

The rapid spread of COVID-19 and the varying degrees of restrictions on business and social activities imposed by



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

federal, state, and local governments to contain COVID-19, including quarantine and “stay-at-home” orders and directives in Cleco’s service territory, have caused Cleco to experience increasingly adverse business ~~conditions, especially in the latter half of March 2020.~~conditions. While Cleco continues to assess the COVID-19 situation, at this time Cleco cannot estimate with any degree of certainty the full impact of the COVID-19 ~~outbreak~~pandemic on its financial condition and future results of operations, although Cleco expects the COVID-19 situation to adversely impact future quarters. For additional discussion regarding certain risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors — COVID-19” in this Quarterly Report on Form 10-Q.

Operating Revenue, Net

Operating revenue, net ~~increased $3.4~~decreased $70.5 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~higher electric operations revenue of $31.3 million and higher other operations revenue of $11.0 million at Cleco Cajun, partially offset by $38.4~~$38.7 million of lower fuel cost recovery revenue and $12.3 million of lower base revenue at Cleco Power.

Also contributing to this decrease was $14.5 million of lower electric operations revenue at Cleco Cajun.

Operating Expenses

Operating expenses ~~increased $0.7~~decreased $90.7 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to $31.4 million of higher Cleco Cajun expenses, as well as $8.8 million of higher other operations and maintenance expenses and $2.7 million of higher taxes other than income taxes at Cleco Power. These increases were partially offset by $38.0$38.6 million of lower recoverable fuel and purchased power, $5.1 million of lower other operations and maintenance expenses, and $4.6 million of lower depreciation and amortization expenses at Cleco ~~Power and $2.2~~Power. Also contributing to this decrease were $30.9 million of lower ~~Cleco Cajun Transaction costs~~fuel used for electric generation and $4.0 million of lower other operations and maintenance expenses at Cleco ~~Holdings.~~Cajun.

Allowance for equity funds used during construction

Allowance for equity funds used during construction decreased ~~$5.8~~$3.5 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~$4.5~~$2.2 million ofrelated to lower Cleco Power construction costs as a result of various projects being placed in service in 2019 and ~~$1.0~~$1.3 million due to lower AFUDC rates driven by the impact of

Cleco Power’s $150.0 million short-term debt borrowings outstanding under its revolving credit facility.

Other ~~(Expense) Income,~~Expense, Net

Other ~~(expense) income,~~expense, net increased ~~$15.5~~$2.0 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~$11.2~~$2.6 million of higher pension non-service costs at Cleco Power, partially offset by $0.7 million for the ~~decrease~~increase in cash surrender value of certain trust-owned life insurance policies as a result of ~~unfavorable~~favorable market conditions at Cleco ~~Holdings~~Holdings.

Interest Charges

Interest charges decreased $1.8 million during the third quarter of 2020 compared to the third quarter of 2019. Lower rates on Cleco Holding’s variable rate debt associated with the Cleco Cajun Transaction and ~~$2.0~~the 2016 Merger contributed $2.2 million and $1.4 million, respectively, of the decrease. Also contributing to this decrease was $0.9 million of lower interest accrued on a tax rate refund at Cleco Power. Partially offsetting these decreases were $1.9 million of higher ~~pension non-service costs~~interest associated with Cleco Holding’s senior notes issued in September 2019 and $1.3 million of lower allowance for borrowed funds used during construction at Cleco Power.

Income Taxes

Federal and state income tax expense ~~decreased $4.4~~increased $11.0 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~$2.6~~$8.5 million for adjustments to tax returns as filed, $4.0 million for the change in pretax income, excluding AFUDC equity, ~~and $1.2~~$2.1 million for the flowthrough of state tax ~~expenses.~~benefits, $1.8 million to record tax expense at the projected annual effective tax rate, $0.8 million of state tax expense, and $0.7 million of permanent tax deductions. These increases were partially offset by $6.6 million for the amortization of excess ADIT.

The effective income tax ~~rate~~rates for the ~~first~~third quarter of 2020 and 2019 ~~was 19.8%~~were 29.4% and ~~22.6%~~20.2%, respectively. The estimated annual effective income tax ~~rate~~rates used during the ~~first~~third quarter of 2020 and 2019 for Cleco may not be indicative of the full-year income tax ~~rate.~~rates.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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


Cleco Power
			FOR THE THREE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019			VARIANCE		CHANGE
Operating revenue
Base	$	185,597	$	197,882		$	(12,285)	(6.2)	%
Fuel cost recovery	103,255		141,987			(38,732)		(27.3)	%
Electric customer credits	(16,534)		(13,711)			(2,823)		(20.6)	%
Other operations	17,775		18,485			(710)		(3.8)	%
Affiliate revenue	1,506		334			1,172		350.9	%
Operating revenue, net	291,599		344,977			(53,378)		(15.5)	%
Operating expenses
Recoverable fuel and purchased power	103,426		142,070			38,644		27.2	%
Non-recoverable fuel and purchased power	8,818		9,669			851		8.8	%
Other operations and maintenance	52,595		57,718			5,123		8.9	%
Depreciation and amortization	40,268		44,903			4,635		10.3	%
Taxes other than income taxes	11,408		12,485			1,077		8.6	%


Total operating expenses	216,515		266,845			50,330		18.9	%
Operating income	75,084		78,132			(3,048)		(3.9)	%
Interest income	789		1,421			(632)		(44.5)	%
Allowance for equity funds used during construction	144		3,619			(3,475)		(96.0)	%
Other expense, net	(3,408)		(1,231)			(2,177)		(176.8)	%
Interest charges	18,441		17,983			(458)		(2.5)	%
Federal and state income tax expense	18,076		12,431			(5,645)		(45.4)	%
Net income	$	36,092	$	51,527		$	(15,435)	(30.0)	%

Cleco Power
FOR THE THREE MONTHS ENDED MAR. 31,
FAVORABLE/(UNFAVORABLE)
(THOUSANDS) 2020
2019
VARIANCE
CHANGE
Operating revenue
Base $ 147,999
$ 142,385
$ 5,614
3.9 %
Fuel cost recovery 76,431
114,790
(38,359 ) (33.4 )%
Electric customer credits (8,340 ) (8,160 ) (180 ) (2.2 )%
Other operations 15,764
19,430
(3,666 ) (18.9 )%
Affiliate revenue 1,106
300
806
268.7 %
Operating revenue, net 232,960
268,745
(35,785 ) (13.3 )%
Operating expenses

Recoverable fuel and purchased power 76,834
114,794
37,960
33.1 %
Non-recoverable fuel and purchased power 7,692
8,991
1,299
14.4 %
Other operations and maintenance 56,944
47,700
(9,244 ) (19.4 )%
Depreciation and amortization 43,677
42,377
(1,300 ) (3.1 )%
Taxes other than income taxes 12,276
9,978
(2,298 ) (23.0 )%
Total operating expenses 197,423
223,840
26,417
11.8 %
Operating income 35,537
44,905
(9,368 ) (20.9 )%
Interest income 954
994
(40 ) (4.0 )%
Allowance for equity funds used during construction (74 ) 5,688
(5,762 ) (101.3 )%
Other (expense) income, net (2,667 ) 268
(2,935 ) *
Interest charges 18,581
17,145
(1,436 ) (8.4 )%
Federal and state income tax expense 3,338
7,998
4,660
58.3 %
Net income $ 11,831
$ 26,712
$ (14,881 ) (55.7 )%
* Not meaningful

The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:


	FOR THE THREE MONTHS ENDED SEPT. 30,
(MILLION kWh)	2020	2019	FAVORABLE/ (UNFAVORABLE)
Electric sales
Residential	1,159	1,177		(1.5)	%
Commercial	741	786		(5.7)	%
Industrial	481	477		0.8	%
Other retail	32	35		(8.6)	%
Total retail	2,413	2,475		(2.5)	%
Sales for resale	917	983		(6.7)	%
Total retail and wholesale customer sales	3,330	3,458		(3.7)	%

FOR THE THREE MONTHS ENDED MAR. 31,
(MILLION kWh) 2020
2019
FAVORABLE/
(UNFAVORABLE)

Electric sales
Residential 780
787
(0.9 )%
Commercial 582
582
— %
Industrial 484
490
(1.2 )%
Other retail 31
31
— %
Total retail 1,877
1,890
(0.7 )%
Sales for resale 650
619
5.0 %
Total retail and wholesale customer sales 2,527
2,509
0.7 %



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

The following table shows the components of Cleco Power’s base revenue:


	FOR THE THREE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		FAVORABLE/ (UNFAVORABLE)
Electric sales
Residential	$	98,236	$	99,136		(0.9)	%
Commercial	48,539		55,278			(12.2)	%
Industrial	21,470		19,329			11.1	%
Other retail	2,800		2,926			(4.3)	%
Surcharge	(2)		6,049			(100.0)	%
Total retail	171,043		182,718			(6.4)	%
Sales for resale	14,554		15,164			(4.0)	%
Total base revenue	$	185,597	$	197,882		(6.2)	%

FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS) 2020
2019
FAVORABLE/
(UNFAVORABLE)

Electric sales
Residential $ 61,890
$ 56,104
10.3 %
Commercial 47,056
44,863
4.9 %
Industrial 20,580
20,649
(0.3 )%
Other retail 2,679
2,558
4.7 %
Surcharge 2,442
5,321
(54.1 )%
Total retail 134,647
129,495
4.0 %
Sales for resale 13,352
12,890
3.6 %
Total base revenue $ 147,999
$ 142,385
3.9 %

Cleco Power’s residential customers’ demand for electricity is largely affected by weather. Weather generally is measured in cooling degree-days and heating degree-days. A cooling degree-day is an indication of the likelihood that a consumer will use air conditioning, while a heating degree-day is an indication of the likelihood that a consumer will use heating. An increase in heating degree-days does not produce the same increase in revenue as an increase in cooling degree-days because alternative heating sources are more 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.

The following chart shows how ~~heating and~~ cooling 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 THREE MONTHS ENDED SEPT. 30,
				CHANGE
	2020	2019	NORMAL	PRIOR YEAR		NORMAL

Cooling degree-days	1,604	1,716	1,511	(6.5)	%	6.2	%

FOR THE THREE MONTHS ENDED MAR. 31,
CHANGE
2020
2019
NORMAL
PRIOR YEAR
NORMAL
Heating degree-days 586
733
891
(20.1 )% (34.2 )%
Cooling degree-days 264
108
78
144.4 % 238.5 %

Base

Base revenue ~~increased $5.6~~decreased $12.3 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~the absence of $4.6~~$6.5 million of ~~deferrals to~~lower revenue as a ~~regulatory liability for over collections~~result of ~~revenue related to the St. Mary Clean Energy Center project~~lower usage due to the ~~delay in the project’s commercial operational date and the absence~~impacts of ~~$2.6 million for the reversal of the accumulated LCFC revenue, partially offset by $1.7~~Hurricane Laura, $6.0 million of lower Cleco Katrina/Rita storm restoration surcharge revenue as a result of the ~~completion of~~final principal and interest payments on the Cleco Katrina/Rita ~~bond repayment~~bonds in March ~~2020.~~ 2020, and $5.9 million of lower usage from milder summer weather. These decreases were partially offset by $5.9 million of higher rates.

For information on the effects of future energy sales on the results of operations, financial condition, or cash flows of Cleco Power, see Part I, Item 1A, “Risk Factors — Operational Risks — Future Electricity Sales” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019. For more information on the implications of COVID-19, see “— Overview — COVID-19” and Part II, Item 1A, “Risk Factors — COVID-19” in this Quarterly Report on Form 10-Q. For more information on the implications of Hurricane Laura, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 18 — Storm Restoration,”“— Overview — Cleco Power — Hurricanes Laura, Delta, and Zeta,” and Part II, Item 1A, “Risk Factors —


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Storm Restoration Costs” in this Quarterly Report on Form 10-Q.

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 ~~77%~~72% of Cleco Power’s total fuel cost during the ~~first~~third quarter of 2020 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. For more information on Cleco Power’s most current fuel audit, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

Electric Customer Credits

~~Other Operations Revenue~~

~~Other operations revenue decreased $3.7~~Electric customer credits increased $2.8 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to a net $8.2 million of higher estimated refunds for the federal tax-related benefits of the TCJA, partially offset by $3.0 million for the absence of ~~$2.4 million of net generation revenue~~refunds due to Cleco Power’s wholesale transmission customers as a result of the ~~Teche Unit 3 SSR ending in April 2019~~FERC audit and ~~$0.5~~$2.3 million for the absence of ~~lower forfeited discounts.~~FRP refunds. For more information on the ~~SSR,~~TCJA, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 12 — Regulation and Rates— ~~SSR.~~TCJA.”

Other Operations and Maintenance Expense

Other operations and maintenance expense ~~increased $9.2~~decreased $5.1 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~$3.5~~$2.8 million of lower generating station outage maintenance expense, $1.6 million of lower customer service expenses largely as the result of a decrease in temporary staffing and consulting services, and $0.8 million of lower net adjustments to the provision for credit losses. Also contributing to the decrease was $0.9 million of lower distribution operations expense and $0.7 million of lower distribution maintenance expense. These decreases were partially offset by $2.3 million of higher fees for outside services ~~$2.9 million of higher generating station outage maintenance expenses, and $2.3 million of higher uncollectible accounts expense.~~mostly relating to information technology services.

Depreciation and Amortization

Depreciation and amortization ~~increased $1.3~~decreased $4.6 million during the ~~first~~third quarter of 2020 compared to the ~~first~~third quarter of 2019 primarily due to ~~$3.0~~$5.7 million of lower amortization of storm damages as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds and the absence of $1.7 million of amortization of corporate franchise taxes regulatory asset, partially offset by $1.5 million of higher depreciation on normal recurring additions to fixed assets and ~~$2.1~~$0.9 million of higher amortization of intangible property due to the implementation of the START project, partially offset by $2.7 million of lower amortization of storm damages which is based on collections from customers, and the absence of $1.1 million of deferrals of corporate franchise taxes to a regulatory asset.project.

~~Taxes Other Than Income Taxes~~

Taxes other than income taxes increased $2.3 million during the first quarter of 2020 compared to the first quarter of 2019 primarily due to $1.4 million of higher property taxes and $0.5 million of higher franchise taxes.

Allowance for Equity Funds Used During Construction

million ofrelated to lower construction costs as a result of the St. Mary Clean Energy Center project, the Coughlin Pipeline project, the Terrebonne to Bayou Vista Transmission project, and the START project being placed in service in ~~2019 and $1.0~~2019. Also contributing to the decrease was $0.9 million due to lower AFUDC rates driven by the impact of Cleco Power’s $150.0 million short-term debt borrowings outstanding under its revolving credit facility.

Other expense, net

Other expense, net increased $2.2 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to higher pension non-service costs as a result of a lower discount rate.

Income Taxes

Federal and state income tax expense increased $5.6 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to $8.8 million for adjustments to tax returns as filed, $2.3 million to record tax expense at the projected annual effective tax rate, $2.1 million for the flowthrough of state tax benefits, and $1.7 million of permanent tax deductions. These increases were partially offset by $6.6 million for the amortization of excess ADIT, $1.4 million for the change in pretax income, excluding AFUDC equity, and $1.3 for state tax expense.

The effective income tax rates for the third quarter of 2020 and 2019 were 33.4% and 19.4%, respectively. The estimated annual effective income tax rates used during the third quarter of 2020 and 2019 for Cleco Power may not be indicative of the full-year income tax rates.


Cleco Cajun
			FOR THE THREE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019			VARIANCE		CHANGE
Operating revenue
Electric operations	$	99,956	$	114,453		$	(14,497)	(12.7)	%

Other operations	31,331		33,737			(2,406)		(7.1)	%
Affiliate revenue	—		31			(31)		100.0	%
Operating revenue, net	131,287		148,221			(16,934)		(11.4)	%
Operating expenses
Fuel used for electric generation	(6,006)		24,891			30,897		124.1	%
Purchased power	52,104		52,709			605		1.1	%
Other operations and maintenance	22,205		26,221			4,016		15.3	%
Depreciation and amortization	10,547		10,009			(538)		(5.4)	%
Taxes other than income taxes	2,320		4,239			1,919		45.3	%

Total operating expenses	81,170		118,069			36,899		31.3	%
Operating income	50,117		30,152			19,965		66.2	%
Interest income	10		220			(210)		(95.5)	%
Other income, net	4		46			(42)		(91.3)	%
Interest charges	(484)		—			484		100.0	%
Federal and state income tax expense	12,258		7,612			(4,646)		(61.0)	%
Net income	$	38,357	$	22,806		$	15,551	68.2	%

Electric Operations

Electric operations revenue decreased $14.5 million during the third quarter of 2020 compared to the third quarter of 2019



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q

primarily due to lower wholesale revenue as a result of $10.7 million of lower fuel rates and $4.2 million of lower usage.

Other Operations Revenue

Other operations revenue decreased $2.4 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to $1.6 million of lower transmission revenue and $0.8 million of lower variable lease payments.

Fuel Used for Electric Generation

Fuel used for electric generation decreased $30.9 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to $16.8 million of higher mark-to-market gains for gas related derivative contracts, $13.1 million of lower gas consumption, and $1.7 million of lower coal consumption.

Other Operations and Maintenance Expense

Other operations and maintenance expense decreased $4.0 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to lower generation operations expense as a result of a decrease in volume production.

Income Taxes

Federal and state income tax expense increased $4.6 million during the third quarter of 2020 compared to the third quarter of 2019 primarily due to $4.2 million for the change in pretax income and $1.5 million of state tax expense, partially offset by $1.1 million of permanent tax deductions.

The effective income tax rates for the third quarter of 2020 and 2019 were 24.2% and 25.0%, respectively. The estimated annual effective income tax rates used during the third quarter of 2020 and 2019 for Cleco Cajun may not be indicative of the full-year income tax rates.

Comparison of the Nine Months Ended September 30, 2020, and 2019


Cleco
	FOR THE NINE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019		VARIANCE		CHANGE
Operating revenue, net	$	1,122,782	$	1,230,030	$	(107,248)	(8.7)	%
Operating expenses	856,170		990,709		134,539		13.6	%
Operating income	266,612		239,321		27,291		11.4	%
Interest income	2,964		4,456		(1,492)		(33.5)	%
Allowance for equity funds used during construction	197		14,825		(14,628)		(98.7)	%
Other (expense) income, net	(15,827)		292		(16,119)		*
Interest charges	103,923		105,671		1,748		1.7	%
Federal and state income tax expense	40,230		32,355		(7,875)		(24.3)	%
Net income	$	109,793	$	120,868	$	(11,075)	(9.2)	%
*Not meaningful

COVID-19 Impacts

The rapid spread of COVID-19 and the varying degrees of restrictions on business and social activities imposed by federal, state, and local governments to contain COVID-19, including quarantine and “stay-at-home” orders and directives in Cleco’s service territory, have caused Cleco to experience increasingly adverse business conditions, especially since the latter half of March 2020. While Cleco continues to assess the

COVID-19 situation, at this time Cleco cannot estimate with any degree of certainty the full impact of the COVID-19 pandemic on its financial condition and future results of operations, although Cleco expects the COVID-19 situation to adversely impact future quarters. For additional discussion regarding certain risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors — COVID-19” in this Quarterly Report on Form 10-Q.

Operating Revenue, Net

Operating revenue, net decreased $107.2 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $99.2 million of lower fuel cost recovery revenue and $10.8 million of lower base revenue at Cleco Power, partially offset by $9.3 million of higher other operations revenue at Cleco Cajun, which is partially the result of the Cleco Cajun Transaction closing in February 2019.

Operating Expenses

Operating expenses decreased $134.5 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $98.5 million of lower recoverable fuel and purchased power expenses, partially offset by $15.9 million of higher other operations and maintenance expenses at Cleco Power. Also contributing to this decrease was $44.4 million of lower fuel expense at Cleco Cajun.

Allowance for equity funds used during construction

Allowance for equity funds used during construction decreased $14.6 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $12.0 million related to lower Cleco Power construction costs as a result of various projects being placed in service in 2019 and $2.6 million due to lower AFUDC rates driven by the impact of Cleco Power’s $150.0 million short-term debt borrowings outstanding under its revolving credit facility.

Other (Expense) Income, Net

Other (expense) income, net increased ~~$2.9~~$16.1 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to ~~$2.0 million of higher pension non-service costs and $0.7~~$8.0 million for the decrease in the cash surrender value of ~~company-owned~~certain trust-owned life insurance ~~policies.~~policies as a result of unfavorable market conditions and $1.4 million of higher SERP non-service costs at Cleco Holdings. Also contributing to the increase was $6.5 million of higher pension non-service costs at Cleco Power.

Interest Charges

Interest charges decreased $1.7 million during the first nine months of 2020 compared to the first nine months of 2019. Lower rates on Cleco Holdings’ variable rate debt associated with the Cleco Cajun Transaction and the 2016 Merger contributed to $7.5 million and $3.7 million, respectively, of the decrease. Partially offsetting these decreases were $6.9 million of higher interest associated with Cleco Holdings’ senior notes issued in September 2019 and $5.0 million of lower allowance for borrowed funds used during construction at Cleco Power.

Income Taxes

Federal and state income tax expense increased $7.9 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $8.5 million for adjustments to tax returns as filed, $5.1 million for the flowthrough of state tax benefits, $2.6 million for the change in pretax income,


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

excluding AFUDC equity, and $1.1 million of permanent tax deductions. These increases were partially offset by $6.6 million for the amortization of excess ADIT, $1.4 million to record tax expense at the projected annual effective tax rate, and $0.9 million for miscellaneous tax items.

The effective income tax rates for the nine months ended September 30, 2020, and 2019 were 26.8% and 21.1%, respectively. The estimated annual effective income tax rates used during the nine months ended September 30, 2020, and 2019 for Cleco might not be indicative of the full-year income tax rates.

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


Cleco Power
			FOR THE NINE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019		VARIANCE		CHANGE
Operating revenue
Base	$	497,589	$	508,435	$	(10,846)	(2.1)	%
Fuel cost recovery	255,336		354,534		(99,198)		(28.0)	%
Electric customer credits	(33,974)		(30,565)		(3,409)		(11.2)	%
Other operations	49,443		53,318		(3,875)		(7.3)	%
Affiliate revenue	3,852		971		2,881		296.7	%
Operating revenue, net	772,246		886,693		(114,447)		(12.9)	%
Operating expenses
Recoverable fuel and purchased power	256,017		354,532		98,515		27.8	%
Non-recoverable fuel and purchased power	23,996		25,713		1,717		6.7	%
Other operations and maintenance	164,207		148,330		(15,877)		(10.7)	%
Depreciation and amortization	125,541		126,610		1,069		0.8	%
Taxes other than income taxes	33,132		33,023		(109)		(0.3)	%


Total operating expenses	602,893		688,208		85,315		12.4	%
Operating income	169,353		198,485		(29,132)		(14.7)	%
Interest income	2,498		3,281		(783)		(23.9)	%
Allowance for equity funds used during construction	197		14,825		(14,628)		(98.7)	%
Other expense, net	(9,498)		(2,091)		(7,407)		(354.2)	%
Interest charges	55,624		52,498		(3,126)		(6.0)	%
Federal and state income tax expense	30,770		34,407		3,637		10.6	%
Net income	$	76,156	$	127,595	$	(51,439)	(40.3)	%

The following table shows the components of Cleco Power’s retail and wholesale customer sales related to base revenue:


	FOR THE NINE MONTHS ENDED SEPT. 30,
(Million kWh)	2020	2019	FAVORABLE/ (UNFAVORABLE)
Electric sales
Residential	2,843	2,855		(0.4)	%
Commercial	1,959	2,118		(7.5)	%
Industrial	1,417	1,483		(4.5)	%
Other retail	94	97		(3.1)	%
Total retail	6,313	6,553		(3.7)	%
Sales for resale	2,289	2,387		(4.1)	%
Total retail and wholesale customer sales	8,602	8,940		(3.8)	%

The following table shows the components of Cleco Power’s base revenue:


	FOR THE NINE MONTHS ENDED SEPT. 30,
(THOUSANDS)	2020		2019		FAVORABLE/ (UNFAVORABLE)
Electric sales
Residential	$	239,196	$	229,430		4.3	%
Commercial	143,516		149,089			(3.7)	%
Industrial	61,220		61,575			(0.6)	%
Other retail	8,146		8,029			1.5	%
Surcharge	2,440		16,973			(85.6)	%
Total retail	454,518		465,096			(2.3)	%
Sales for resale	43,071		43,339			(0.6)	%
Total base revenue	$	497,589	$	508,435		(2.1)	%

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 degree-days.


			FOR THE NINE MONTHS ENDED SEPT. 30,
				2019 CHANGE
	2020	2019	NORMAL	PRIOR YEAR		NORMAL
Heating degree-days	615	778	942	(21.0)	%	(34.7)	%
Cooling degree-days	2,866	2,869	2,531	(0.1)	%	13.2	%

Base

Base revenue decreased $10.8 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $13.4 million of lower 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, $9.6 million related to lower usage from milder weather, $6.3 million of lower revenue as a result of lower usage due to the impacts of Hurricane Laura, and $5.6 million of lower revenue as a result of lower usage due to the impacts of COVID-19. These decreases were partially offset by $8.5 million of higher revenue related to commercial operations of the St. Mary Clean Energy Center project, $7.3 million of higher rates, the absence of a $4.3 million reversal of accumulated LCFC revenue, $2.1 million of the accrual for the decrease in shared services related to the Cleco Cajun Transaction, and $2.0 million of higher deferrals to a regulatory asset for the revenue requirement related to the Coughlin Pipeline project.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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 75% of Cleco Power’s total fuel cost during the first nine months of 2020 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. For more information on fuel audits, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Fuel Audit.”

Electric Customer Credits

Electric customer credits increased $3.4 million during the first nine months of 2020 compared to the first nine months of 2019 primarily related to a net $8.1 million of higher estimated refunds for the federal tax-related benefits of the TCJA, partially offset by $2.3 million for the absence of refunds due to Cleco Power’s wholesale transmission customers as a result of the FERC audit and $2.3 million for the absence of FRP refunds. For more information on the TCJA, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 12 — Regulation and Rates — TCJA.”

Other Operations Revenue

Other operations revenue decreased $3.9 million during the first nine months of 2020 compared to the first nine months of 2019 primarily related to $3.2 million of lower net generation revenue as a result of the Teche Unit 3 SSR ending in April 2019. For more information on the SSR, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 12 — Regulation and Rates — SSR.”

Other Operations and Maintenance Expense

Other operations and maintenance expense increased $15.9 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $11.9 million of higher fees for outside services mostly relating to information technology services, START project expenses, and consulting expenses, $4.4 million of higher generation operation expenses largely due to fewer outages and the St. Mary Clean Energy Center project becoming operational in August 2019, and $2.0 million of higher customer service expenses primarily related to adjustments to the provision for credit losses as a result of the COVID-19 disconnection moratorium order issued by the LPSC in March 2020. These increases were partially offset by $4.1 million of lower distribution operations and maintenance expenses as a result of more costs being capitalized due to Hurricane Laura.

Depreciation and Amortization

Depreciation and amortization expense decreased $1.1 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $13.6 million of lower amortization of storm damages as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds, partially offset by $7.7 million of higher normal recurring additions to fixed assets and $5.0 million of higher amortization

of intangible property due to the installation of the START project.

Allowance for Equity Funds Used During Construction

Allowance for equity funds used during construction decreased $14.6 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $12.0 million related to lower construction costs as a result of the St. Mary Clean Energy Center project, the Coughlin Pipeline project, the Terrebonne to Bayou Vista Transmission project, and the START project being placed in service in 2019. Also contributing to this decrease was $2.6 million due to lower AFUDC rates driven by the impact of Cleco Power’s $150.0 million short-term debt borrowings outstanding under its revolving credit facility.

Other Expense, Net

Other expense, net increased $7.4 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to higher pension non-service costs as a result of a lower discount rate.

Interest Charges

Interest charges increased ~~$1.4~~$3.1 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to $5.0 million of lower allowance for borrowed funds used during construction primarily due to the St. Mary Clean Energy Center project, the Coughlin Pipeline project, the Terrebonne to Bayou Vista Transmission project, and the START project being placed in service in 2019. These increases were partially offset by $2.0 million of lower interest on tax rate refunds.

Income Taxes

Federal and state income tax expense decreased ~~$4.7~~$3.6 million during the first ~~quarter~~ nine months of 2020 compared to the first ~~quarter~~ nine months of 2019 primarily due to ~~$2.8~~$8.3 million for the change in pretax income, excluding AFUDC equity, ~~and $1.6~~$6.6 million for the amortization of excess ADIT, $3.7 for state tax ~~expenses.~~expense, and $0.5 million to record tax expense at the projected annual effective tax rate. These decreases were partially offset by $8.8 million for adjustments to tax returns as filed, $5.1 million for the flowthrough of state tax benefits, and $2.1 million of permanent tax deductions.

The effective income tax ~~rate~~rates for the ~~first~~ ~~quarter of~~ nine months ended September 30, 2020, and 2019 ~~was~~ ~~22.0%~~ were 28.8% and ~~23.0%~~21.2%, respectively. The estimated annual effective income tax ~~rate~~rates used during the ~~first~~ ~~quarter of~~ nine months ended September 30, 2020, and 2019 for Cleco Power may not be indicative of the full-year income tax ~~rate.~~rates.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Cleco Cajun
FOR THE THREE MONTHS ENDED MAR. 31,

FAVORABLE/(UNFAVORABLE)
(THOUSANDS) 2020
2019
VARIANCE
CHANGE
Operating revenue
Electric operations $ 89,147
$ 58,194
$ 30,953
53.2 %
Electric customer credits (153 ) —
(153 ) (100.0 )%
Other operations 30,961
19,965
10,996
55.1 %
Affiliate revenue 161
—
161
100.0 %
Operating revenue, net 120,116
78,159
41,957
53.7 %
Operating expenses
Fuel used for electric generation 15,572
9,922
(5,650 ) (56.9 )%
Purchased power 44,675
30,445
(14,230 ) (46.7 )%
Other operations and maintenance 20,516
14,410
(6,106 ) (42.4 )%
Depreciation and amortization 10,103
5,410
(4,693 ) (86.7 )%
Taxes other than income taxes 3,473
3,145
(328 ) (10.4 )%
Total operating expenses 94,339
63,332
(31,007 ) (49.0 )%
Operating income 25,777
14,827
10,950
73.9 %
Interest income 155
254
(99 ) (39.0 )%
Other income (expense), net 34
(496 ) 530
106.9 %
Interest charges 10
—
(10 ) (100.0 )%
Federal and state income tax expense 6,421
3,529
(2,892 ) (81.9 )%
Net income $ 19,535
$ 11,056
$ 8,479
76.7 %
Represents the financial results from the closing of the Cleco Cajun Transaction on February 4, 2019, through March 31, 2019, and January 1, 2020, through March 31, 2020.


Cleco Cajun
	FOR THE NINE MONTHS ENDED SEPT. 30,
					FAVORABLE/(UNFAVORABLE)
(THOUSANDS)	2020		2019		VARIANCE		CHANGE
Operating revenue
Electric operations	$	273,836	$	274,610	$	(774)	(0.3)	%
Other operations	92,928		83,619		9,309		11.1	%
Electric customer credits	(153)		(1,267)		1,114		87.9	%
Affiliate revenue	204		31		173		100.0	%
Operating revenue, net	366,815		356,993		9,822		2.8	%
Operating expenses
Fuel used for electric generation	13,366		57,724		44,358		76.8	%
Purchased power	138,744		136,259		(2,485)		(1.8)	%
Other operations and maintenance	62,894		64,313		1,419		2.2	%
Depreciation and amortization	30,995		25,555		(5,440)		(21.3)	%
Taxes other than income taxes	9,585		11,583		1,998		17.2	%

Total operating expenses	255,584		295,434		39,850		13.5	%
Operating income	111,231		61,559		49,672		80.7	%
Interest income	269		842		(573)		(68.1)	%
Other income, net	82		(444)		526		118.5	%
Interest charges	(353)		—		353		100.0	%
Federal and state income tax expense	27,280		15,169		(12,111)		(79.8)	%
Net income	$	84,655	$	46,788	$	37,867	80.9	%

~~Electric~~Other Operations Revenue

~~Electric~~Other operations revenue increased ~~$31.0~~$9.3 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to ~~the increase in wholesale revenue, which is~~

~~partially the result of the Cleco Cajun Transaction closing in February 2019.~~

~~Other Operations Revenue~~

~~Other operations revenue increased $11.0 million during the first quarter of 2020 compared to the first quarter of 2019 primarily due to $5.7~~$5.8 million of higher lease revenue, including variable lease revenue, as a result of the Cottonwood Sale Leaseback and ~~$3.6~~$3.4 million of higher transmission revenue from wholesale customers. These increases were partially the result of the Cleco Cajun Transaction closing in February 2019. For more information on the Cottonwood Sale Leaseback agreement, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 4 — Leases — Cottonwood Sale Leaseback Agreement.”

Fuel Used for Electric Generation

Fuel used for electric generation ~~increased $5.7~~decreased $44.4 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to $21.8 million of higher mark-to-market ~~losses~~gains for gas related derivative contracts, $15.0 million of lower coal consumption, and ~~higher fuel costs, which is partially the result~~$7.7 million of ~~the Cleco Cajun Transaction closing in February 2019.~~lower gas consumption.

Purchased Power

Purchased power increased ~~$14.2~~$2.5 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019

primarily due to a$4.9 million of higher ~~amount~~volume of purchased power from MISO, which is the result of the Cleco Cajun Transaction closing in February 2019, and $3.4 million of higher transmission costs. These increases were partially offset by $5.5 million of higher mark-to-market gains on FTRs.

Other Operations and Maintenance

Other operations and maintenance decreased $1.4 million during the first nine months of 2020 compared to the first nine months of 2019 primarily due to $5.0 million of lower generating station outage maintenance expense. This decrease was partially offset by $1.6 million of higher outside services mostly related to information technology services, $1.3 million of higher transmission expense, and $1.1 million of higher salaries, primarily the result of the Cleco Cajun Transaction closing in February 2019.

~~Other Operations and Maintenance Expense~~

Other operations and maintenance expense increased $6.1 million during the first quarter of 2020 compared to the first quarter of 2019 primarily due to $3.7 million of higher generation operations expenses and $2.3 million of higher administrative and generations expenses. These increases were partially the result of the Cleco Cajun Transaction closing in February 2019.

Depreciation and Amortization

Depreciation and amortization increased ~~$4.7~~$5.4 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to normal recurring additions to fixed assets. This increase was ~~partially~~primarily the result of the Cleco Cajun Transaction closing in February 2019.

Income Taxes

Federal and state income tax expense increased ~~$2.9~~$12.1 million during the first ~~quarter~~nine months of 2020 compared to the first ~~quarter~~nine months of 2019 primarily due to ~~$2.4~~$10.5 million for the ~~increase~~change in pretax income and ~~$1.0~~$3.3 million for state tax ~~expenses. These increases were~~expenses, partially offset by ~~$0.5~~$1.5 million of ~~miscellaneous~~permanent tax ~~items.~~deductions.

The effective income tax ~~rate~~rates for the ~~first quarter of~~nine months ended September 30, 2020, and 2019 ~~was 24.7%~~were 24.4% and ~~24.2%~~24.5%, respectively. The estimated annual effective income tax ~~rate~~rates used during the ~~first quarter of~~nine months ended September 30, 2020, and 2019 for Cleco Cajun may not be indicative of the full-year income tax ~~rate.~~rates.

Non-GAAP Measures

The following tables set forth a reconciliation of net income, the nearest comparable GAAP financial performance measure, to EBITDA for the three and nine months ended September 30, 2020, and 2019:


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


	FOR THE THREE MONTHS ENDED SEPT. 30,
	2020					2019
(THOUSANDS)	CLECO POWER		CLECO CAJUN			CLECO POWER		CLECO CAJUN
Net income	$	36,092	$	38,357		$	51,527	$	22,806
Add: Depreciation and amortization	40,268		11,344		(1)	44,903		10,880		(2)
Less: Interest income	789		10			1,421		220
Add: Interest charges	18,441		(484)			17,983		—
Add: Federal and state income tax expense	18,076		12,258			12,431		7,612
EBITDA	$	112,088	$	61,465		$	125,423	$	41,078
(1) Includes $3.1 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(2.3) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. (2) Includes $3.2 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(2.3) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction.


	FOR THE NINE MONTHS ENDED SEPT. 30,
	2020					2019
(THOUSANDS)	CLECO POWER		CLECO CAJUN			CLECO POWER		CLECO CAJUN
Net income	$	76,156	$	84,655		$	127,595	$	46,788
Add: Depreciation and amortization	125,541		33,385		(1)	126,610		27,679		(2)
Less: Interest income	2,498		269			3,281		842
Add: Interest charges	55,624		(353)			52,498		—
Add: Federal and state income tax expense	30,770		27,280			34,407		15,169
EBITDA	$	285,593	$	144,698		$	337,829	$	88,794
(1) Includes $9.3 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(6.9) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction. (2) Includes $8.3 million of amortization of intangible assets and liabilities related to wholesale power supply agreements as a result of the Cleco Cajun Transaction and $(6.1) million of deferred lease revenue amortization as a result of the Cleco Cajun Transaction.


~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~FINANCIAL CONDITION

~~FINANCIAL CONDITION~~

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, including the impact of COVID-19, 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 ~~March 31,~~September 30, 2020:

SENIOR UNSECURED DEBT

CORPORATE/LONG-TERM ISSUER

S&P

MOODY’S

FITCH

S&P

MOODY’S

FITCH

Cleco Holdings

BBB-

Baa3

BBB-

Baa3

BBB-

Cleco Power

BBB+

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.

Cleco Holdings and Cleco Power pay fees and interest under their bank credit agreements based on the highest ~~rating~~ratings held. Savings are dependent upon the level of borrowings. 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.

With respect to any open trading contracts that Cleco has or may initiate in the future, Cleco may be required to provide credit support or pay liquidated damages. 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, 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.

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. For more information about 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 of Cleco Power” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019. For more information about credit support see Item 1, “Financial Statements and Supplementary Data — Notes to the Financial Statements — Note 14 —

Litigation — Off-Balance Sheet Commitments and Guarantees.”

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


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

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 to fail to meet their obligations to the Registrants or to delay payment of such obligations. The lower interest rates to which the Registrants have been exposed have been beneficial to debt issuances; however, these rates have negatively affected interest income for the Registrants’ short-term investments.

TCJA

The provisions of the TCJA reduced the top federal statutory corporate income tax rate from 35% to 21%. As a result of the tax rate reduction, on January 1, 2018, Cleco Power began accruing an estimated reduction in reserve for the federal statutory corporate income tax rate. In February 2018, the LPSC directed utilities, including Cleco Power, to provide considerations of the appropriate manner to flowthrough to ratepayers the benefits of the reduction in corporate income taxes as a result of the TCJA. After various filings and settlement discussions, on July 10, 2019, the LPSC approved for Cleco Power to accrue rate refunds 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 ~~is being~~was credited to customers over 12 months beginning August 1, 2019. ~~At March 31, 2020, Cleco Power had $19.7 million accrued for the estimated tax-related benefits from the TCJA and $1.6 million accrued for related interest.~~

~~Also, on~~In July ~~10,~~ 2019, the LPSC approved Cleco Power’s motion to address the rate redesign and the regulatory liability for excess ADIT, resulting from the enactment of the TCJA, in Cleco Power’s current base rate case.

On July 15, 2020, the LPSC approved Cleco Power’s application to extend 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 ~~its next FRP,~~the period of August 2020 through November 2020. The refund will consist of the change in the federal statutory corporate income tax rate from 35% to 21%, which ~~was filed on June 28, 2019, with anticipated new rates being effective July 1, 2020.~~is approximately $2.5 million per month and an additional $4.4 million that will be refunded by the unprotected excess ADIT. At ~~March 31,~~September 30, 2020, Cleco Power had ~~a regulatory liability of $375.0~~$2.1 million accrued for the ~~portion~~estimated federal tax-related benefits from the TCJA. The mechanism to refund the remaining balance of the ~~net reduction to~~excess ADIT ~~subject to regulatory treatment. Due to~~will be determined in Cleco Power’s current LPSC base rate case. At September 30, 2020, Cleco Power had $366.0 million accrued for the ~~uncertainty around the regulatory treatment, the entire regulatory liability~~excess ADIT, of which $28.4 million is reflected in ~~non-current~~current liabilities. Cleco Power’s current base rate case is ongoing and management is unable to determine its outcome. On September 30, 2020, Cleco Power filed an application to extend the TCJA bill credits from November 30, 2020, until such time that the rate case is complete.

Fair Value Measurements

Various accounting pronouncements require certain assets and liabilities to be measured at their fair values. Some assets and liabilities are required to be measured at their fair value each reporting period, while others are required to be measured only one time, generally the date of acquisition or debt issuance. Cleco and Cleco Power are required to disclose the fair value of certain assets and liabilities by one of three levels. Other financial assets and liabilities are reported at their carrying values at their date of issuance on the



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

consolidated balance sheets with their fair values as of the balance sheet date disclosed within the three levels. For more information about fair value levels, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 7 — Fair Value Accounting.”

Cash Generation and Cash Requirements

Restricted Cash and Cash Equivalents

Various agreements to which Cleco is subject contain covenants that restrict its use of cash. As certain provisions under these agreements are met, cash is transferred out of related escrow accounts and becomes available for its intended purposes and/or general corporate purposes. For more information on Cleco and Cleco Power’s restricted cash and cash equivalents, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting Policies — Restricted Cash and Cash Equivalents.”

Debt

Cleco

At ~~March 31,~~September 30, 2020, Cleco had $238.0 million of short-term debt outstanding under its $475.0 million revolving credit facilities, at an average all-in interest rate of ~~2.11%~~1.64%. As a result of the COVID-19 pandemic, Cleco has implemented certain measures that it believes will provide financial flexibility and help Cleco maintain liquidity. For additional discussion regarding certain risks associated with the COVID-19 pandemic, see Part II, Item 1A “Risk Factors — COVID-19” in this Quarterly Report on Form 10-Q. Cleco had no short-term debt at December 31, 2019.

At ~~March 31,~~September 30, 2020, Cleco’s long-term debt and finance leases outstanding was ~~$3.18~~$3.30 billion, of which ~~$63.9~~$64.0 million was due within one year. The long-term debt due within one year at ~~March 31,~~September 30, 2020, primarily represents $63.3 million of principal payments on Cleco Holdings’ debt as required by the Cleco Cajun Transaction commitments to the LPSC. Long-term debt ~~decreased~~increased by ~~$13.5~~$106.8 million from December 31, 2019, primarily due to Cleco Power’s $125.0 million term loan agreement entered into on August 28, 2020, partially offset by the $11.1 million final principal payment made on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020. For more information on Cleco’s debt, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 8 — Debt.”

Cash and cash equivalents available at ~~March 31,~~September 30, 2020, were ~~$350.2~~$528.7 million combined with $237.0 million available revolving credit facility capacity ($87.0 million from Cleco Holdings and $150.0 million from Cleco Power) for total liquidity of ~~$587.2~~$765.7 million. For more information on the credit facility capacity, see “— Credit Facilities.” Cleco Holdings and Cleco Power have uncommitted lines of credit that allow up to $10.0 million each in short-term borrowings, but no more than $10.0 million in the aggregate, to support their working capital needs.

At ~~March 31,~~September 30, 2020,, 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 1, ~~“Notes~~


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

“Notes to the Unaudited Condensed Consolidated Financial Statements — Note 7 — Fair Value Accounting.”

At ~~March 31,~~September 30, 2020, and December 31, 2019, Cleco had a working capital surplus of ~~$184.1~~$248.0 million and $126.7 million, respectively. The ~~$57.4~~$121.3 million increase in working capital is primarily due to:

•a ~~$233.9~~$412.4 million increase in cash and cash equivalents, primarily due to the draws on Cleco’s revolving credit facilities

and the issuance of Cleco Power’s $125.0 million term loan,


•	~~a $62.1~~•a $62.0 million decrease in long-term debt due within one year ~~primarily due to the long-term refinancing of $50.0 million 2008 series A GO Zone bonds and the~~ ~~$11.1 million~~ ~~final principal payment on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020,~~

~~a $50.6 million decrease in accounts payable, excluding FTR purchases,~~ primarily due to the ~~short-term incentive plan payments~~long-term refinancing of $50.0 million 2008 series A GO Zone bonds and the $11.1 million final principal payment on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020,

•a $29.1 million decrease in ~~March 2020,~~provision for rate refund primarily due to refunds to Cleco Power customers for tax-related benefits of the TCJA,

•a $23.0 million increase in accumulated deferred fuel, excluding Cleco Power FTRs, primarily due to additional deferrals through a fuel surcharge at Cleco Power and the timing of ~~property tax payments, lower accruals for fuel costs, and lower MISO power purchases and load charges, and~~collections at Cleco Power,

•a ~~$26.2~~$16.7 million increase in fuel inventory primarily due to ~~higher purchases of~~a decrease in coal ~~and higher deliveries of lignite~~consumption at Cleco ~~Power.~~Cajun, and

•a $12.1 million increase in energy risk management assets primarily due to the purchase of additional other commodity derivatives.

These increases in working capital were partially offset by:

•a $238.0 million increase in short-term debt due to draws on Cleco’s $475.0 million revolving credit facilities,

•a ~~$22.7~~$124.5 million increase in ~~accrued interest~~accounts payable, excluding Cleco Power FTR purchases, primarily due to ~~the timing of interest payments on long-term debt,~~accruals for storm restoration costs associated with Hurricane Laura,

•a ~~$15.0~~$31.4 million increase in taxes payable primarily due to accruals of property taxes ~~and higher provisions for income taxes,~~

~~an $11.8~~•a $23.0 million ~~decrease~~increase in customer accounts receivable primarily due to a decrease in customer usage, a decrease in fuel surcharges, the timing of customer collections, and the absence of the Cleco Katrina/Rita storm restoration surcharge,

~~a $10.7 million decrease in cash surrender value of life insurance policies primarily due to market changes,~~

~~a $7.0 million decrease in restricted cash and cash equivalents, and~~

~~a $6.9 million decrease in accumulated deferred fuel, excluding Cleco Power FTRs,~~regulatory liabilities primarily due to the reclassification of the short term portion of the regulatory liability related to the TCJA, partially offset by credits to Cleco Power’s retail customers for the over-collection of revenue from the delay of the St. Mary Clean Energy Center project, and

•a $21.1 million increase in interest accrued primarily to the timing of ~~collections.~~interest payments on long-term debt.

Cleco Holdings

At ~~March 31,~~September 30, 2020, Cleco Holdings had $88.0 million of short-term debt outstanding under its $175.0 million revolving credit facility, at an all-in interest rate of ~~2.50%~~2.035%. For more information on Cleco Holding’s revolving credit facility, see “— Credit Facilities.” 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. There were no amounts outstanding under the uncommitted line of credit at ~~March 31,~~September 30, 2020. Cleco Holdings had no short-term debt outstanding at December 31, 2019.

At ~~March 31,~~September 30, 2020, Cleco Holding’s long-term debt outstanding was $1.67 billion, of which $63.3 million was due within one year. The long-term debt due within one year at ~~March 31,~~September 30, 2020, represents principal payments on Cleco

Holdings’ debt as required by the Cleco Cajun Transaction commitments to the LPSC.

Cash and cash equivalents available at Cleco Holdings at ~~March 31,~~September 30, 2020, were ~~$93.5~~$97.7 million, combined with $87.0 million revolving credit facility capacity for total liquidity of ~~$180.5~~$184.7 million.

Cleco Power

At ~~March 31,~~September 30, 2020, Cleco Power had $150.0 million of short-term debt outstanding under its $300.0 million revolving credit facility, at an all-in interest rate of ~~1.875%~~1.41%. For more information on Cleco Power’s revolving credit facility, see “— Credit Facilities.” As a result of the COVID-19 pandemic, Cleco has implemented certain measures that it believes will provide financial flexibility and help Cleco maintain liquidity. For additional discussion regarding certain risks associated with the COVID-19 pandemic, see Part II, Item 1A “Risk Factors — COVID-19” in this Quarterly Report on Form 10-Q. Although Cleco Power believes it has sufficient liquidity to meet its current obligations and to fund Hurricanes Laura, Delta, and Zeta restoration efforts from a combination of cash on hand and available capacity under its revolving credit facilities, Cleco Power is exploring options to supplement its liquidity until such time securitization of such costs can be completed. For more information on Hurricanes Laura, Delta, and Zeta, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 18 — Storm Restoration.” Cleco Power has an uncommitted line of credit that allows up to $10.0



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

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. There were no amounts outstanding under the uncommitted line of credit at ~~March 31,~~September 30, 2020. Cleco Power had no short-term debt outstanding at December 31, 2019.

At ~~March 31,~~September 30, 2020, Cleco Power’s long-term debt outstanding was ~~$1.38~~$1.50 billion, of which ~~$0.6~~$0.7 million was due within one year. For Cleco Power, long-term debt ~~decreased $10.9~~increased $114.0 million from December 31, 2019, primarily due to the $125.0 million term loan agreement entered into on August 28, 2020, partially offset by the $11.1 million final principal payment made on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020.

On August 28, 2020, Cleco Power entered into a $125.0 million variable rate bank term loan due June 28, 2022. Proceeds from the term loan will be used to fund capital expenditures and working capital requirements of Cleco Power and other general corporate purposes. For more information on Cleco Power’s debt, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 8 — Debt.”

Cash and cash equivalents available at ~~March 31,~~September 30, 2020, were ~~$189.4~~$325.4 million, combined with $150.0 million revolving credit facility capacity for total liquidity of ~~$339.4~~$475.4 million.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

At ~~March 31,~~September 30, 2020, and December 31, 2019, Cleco Power had a working capital surplus of ~~$92.9~~$61.7 million and $33.5 million, respectively. The ~~$59.4~~$28.1 million increase in working capital is primarily due to:

•a ~~$133.9~~$270.0 million increase in cash and cash equivalents, primarily due to the draw on the ~~Cleco Power~~revolving credit facility and the issuance of a $125.0 million term loan,


•	~~a $61.0~~ •a $60.9 million decrease in long-term debt due within one year ~~primarily due to the long-term refinancing of $50.0 million 2008 series A GO Zone bonds and the~~ ~~$11.1 million~~ ~~final principal payment on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020,~~

~~a $28.0 million decrease in accounts payable, excluding FTR purchases,~~ primarily due to the ~~timing~~long-term refinancing of ~~property tax payments~~$50.0 million 2008 series A GO Zone bonds and the ~~short-term incentive plan payments~~$11.1 million final principal payment on the Cleco Katrina/Rita storm recovery bonds on March 2, 2020,

•a $29.2 million decrease in ~~March 2020, and~~provision for rate refund primarily due to refunds to customers for tax-related benefits of the TCJA,

•a ~~$20.9~~$23.0 million increase in accumulated deferred fuel primarily due to additional deferrals through a fuel surcharge and the timing of collections,

•a $15.7 million increase in customer accounts receivable primarily due to the hold on disconnects and late fees as a result of the COVID-19 pandemic, partially offset by the timing of a payment from a wholesale customer, and

•a $9.0 million increase in material and supplies inventory primarily due to higher purchases ~~of coal~~for storm restoration and ~~higher deliveries of lignite.~~other projects.

These increases in working capital were partially offset by:

•a $150.0 million increase in short-term debt due to a draw on the ~~Cleco Power~~revolving credit facility,

•a ~~$15.3~~$132.9 million increase in ~~accrued interest~~accounts payable, excluding FTR purchases, primarily due to ~~the timing of interest payments on long-term debt,~~

~~an $8.4 million decrease in customer accounts receivable primarily due~~expenditures related to ~~a decrease in customer usage, a decrease in fuel surcharges, the timing of customer collections, and the absence of the Cleco Katrina/Rita~~accruals for storm restoration ~~surcharge, and~~costs associated with Hurricane Laura,

~~an $8.1~~•a $51.9 million increase in taxes payable primarily due to accruals of property taxes and higher provisions for income taxes,

•a $23.0 million increase in regulatory liabilities primarily due to the reclassification of the short term portion of the regulatory liability related to the TCJA, partially offset by ~~a decrease in federal income tax accrued as a result~~credits to retail customers for the over-collection of revenue from the delay of the ~~CARES Act.~~St. Mary Clean Energy Center project, and

•a $13.6 increase in interest accrued primarily due to timing of interest payments on long-term debt.

Credit Facilities

At ~~March 31,~~September 30, 2020, Cleco had two separate revolving credit facilities, one for Cleco Holdings in the amount of $175.0 million with outstanding borrowings of $88.0 million and one for Cleco Power in the amount of $300.0 million with outstanding borrowings of $150.0 million. The total of all revolving credit facilities creates a maximum aggregate capacity of $475.0 million with outstanding borrowings of $238.0 million.

Cleco Holdings’ ~~$175.0 million~~revolving credit facility provides for working capital and other financing needs. The revolving credit facility includes restrictive financial covenants and expires in ~~2021.~~2022. Under covenants contained in Cleco Holdings’ revolving credit facility, Cleco is required to maintain total indebtedness less than or equal to 65% of total capitalization. At ~~March 31,~~September 30, 2020, Cleco Holdings was in compliance with the covenants of its revolving credit

facility. The borrowing costs under the facility currently are equal to LIBOR plus ~~1.75%~~1.875% or

ABR plus ~~0.75%~~0.875%, plus commitment fees of ~~0.275%~~0.3%. If Cleco Holdings’ credit ratings were to be downgraded one level by ~~either agency,~~the credit rating agencies, Cleco Holdings ~~would~~may be required to pay higher fees and additional interest of ~~0.075% and~~ 0.50%~~, respectively,~~ under the pricing levels of its revolving credit facility.

Cleco Power’s ~~$300.0 million~~revolving credit facility provides for working capital and other financing needs. The revolving credit facility includes restrictive financial covenants and expires in ~~2021.~~2022. Under covenants contained in Cleco Power’s revolving credit facility, Cleco Power is required to maintain total indebtedness less than or equal to 65% of total capitalization. At ~~March 31,~~September 30, 2020, Cleco Power was in compliance with the covenants of its revolving credit facility. The borrowing costs under the facility currently are equal to LIBOR plus ~~1.125%~~1.25% or ABR plus ~~0.125%~~0.25%, plus commitment fees of ~~0.125%~~0.15%. If Cleco Power’s credit ratings were to be downgraded one level by ~~either agency,~~the credit rating agencies, Cleco Power ~~would~~may be required to pay higher fees and additional interest of ~~0.05% and~~ 0.125%~~, respectively,~~ under the pricing levels of its revolving credit facility.

If Cleco Holdings or Cleco Power were to default under the 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 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.

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 ~~March 31,~~September 30, 2020, 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 ~~March 31,~~September 30, 2020, 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 — Regulatory Compliance” and “— Holding Company” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December, 31, 2019.



CLECO
CLECO POWER						2020 ~~1ST~~3RD QUARTER FORM 10-Q

Cleco Consolidated Cash Flows

Net Operating Cash Flow

Net cash provided by operating activities was ~~$60.2~~$255.1 million and ~~$108.1~~$340.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and 2019, respectively. Net cash provided by operating activities decreased ~~$47.9~~$85.7 million primarily due to:

•higher payments for fuel ~~purchases~~inventory of ~~$24.8~~$44.4 million primarily due to higher gas purchases, higher solid fuel purchases, and higher per unit lignite costs,

•lower collections from Cleco Power customers of ~~petroleum coke~~$25.0 million due to the rate refund for the tax-related benefits from the TCJA, which began being credited to customers in August 2019,

•higher operations and ~~coal,~~maintenance payments related to hurricane and other storm restoration activities of $21.4 million at Cleco Power,

•higher payments for purchased power of $14.5 million primarily due to the closing of the Cleco Cajun Transaction in February 2019,

•lower Cleco Katrina/Rita storm restoration surcharge collections from Cleco Power customers of $13.4 million as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds in March 2020, and

•higher payout for employee benefits of $7.1 ~~million,~~million.

~~lower net fuel and purchased power collections of $6.2 million primarily due to timing of collections at Cleco Power,~~

~~higher payments of $6.1 million primarily due to timing of vendor payments, and~~

~~higher interest payments of $3.3 million.~~

These decreases were partially offset by:

~~higher receipts for other accounts receivable of $8.5 million, including the timing of receipts of joint owners’ portion of generating station expenditures and~~

•higher collections ~~from~~for electric and other operations revenue at Cleco Cajun ~~customers~~ of ~~$6.0~~$21.1 million partially the result of the Cleco Cajun Transaction closing in February 2019 and

•lower pension plan contributions of $12.3 million.

Net Investing Cash Flow

Net cash used in investing activities was ~~$65.4~~$210.7 million and ~~$892.7 million~~$1.05 billion during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and 2019, respectively. Net cash used in investing activities decreased ~~$827.3~~$836.3 million primarily due to:

•the absence of payment for the acquisition of all the membership interest in South Central Generating of $962.2 million, partially offset by the absence of cash received of $147.2 million during the Cleco Cajun Transaction and

•lower additions to property, plant, and equipment, net of AFUDC, of ~~$12.3~~$21.5 million.

Net Financing Cash Flow

Net cash provided by financing activities was ~~$226.8~~$347.0 million and ~~$770.6~~$688.0 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and 2019, respectively. Net cash provided by financing activities decreased ~~$543.8~~$340.9 million primarily due to:

•the absence of borrowings of $400.0 million related to the financing of the Cleco Cajun Transaction in February 2019,

•the absence of issuance of $300.0 million in senior notes at Cleco Holdings in September 2019, and

•lower contributions from Cleco Group of $384.9 million.

These decreases were partially offset by:

•lower repayments of long-term debt of $379.5 million,

•higher draws on revolving credit facilities of $130.0 million,

•the borrowing of a $125.0 million term loan at Cleco Power in August 2020, and

•lower payments on revolving credit facilities of $108.0 million.

Cleco Power Cash Flows

Net Operating Cash Flow

Net cash provided by operating activities was ~~$44.1~~$188.0 million and ~~$70.0~~$272.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and 2019, respectively. Net cash provided by operating activities decreased ~~$25.9~~$84.8 million primarily due to:

•higher payments to vendors of $34.1 million primarily due to timing of vendor payments primarily related to other operating and maintenance activities,

•lower collections from customers of $25.0 million due to the rate refund for the tax-related benefits from the TCJA, which began being credited to customers in August 2019,

•higher operations and maintenance payments related to hurricane and other storm restoration activities of $21.4 million,

•higher payments for fuel inventory of $18.3 million primarily due to higher gas purchases and higher per unit lignite costs,

•lower Cleco Katrina/Rita storm restoration surcharge collections from customers of ~~$15.1~~$13.4 million as a result of the final principal and interest payments on the Cleco Katrina/Rita bonds in March 2020,

•lower cash receipts of advance deposits for operations and maintenance costs on jointly owned generating units of $7.1 million,

•higher vendor payments of $6.9 million primarily due to higher purchases of ~~petroleum coke~~supplies and ~~coal,~~

materials,

~~lower net fuel and purchased power collections~~•higher payments to vendors of ~~$6.2~~$4.4 million primarily due to ~~timing of collections,~~higher purchased power, and

~~higher vendor payments of $3.5 million, and~~

•higher payout for employee benefits of $3.3 million.

These decreases were partially offset ~~by higher receipts~~by:

•lower payments for ~~other accounts receivable~~affiliate settlements of ~~$5.8~~$42.8 million ~~including the timing~~and

•lower pension plan contributions of ~~receipts of joint owners’ portion of generating station expenditures.~~$12.3 million.

Net Investing Cash Flow

Net cash used in investing activities was ~~$61.3~~$200.7 million and ~~$75.1~~$229.8 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, and 2019, respectively. Net cash used in investing activities decreased ~~$13.8~~$29.0 million primarily due to to:

•lower additions to property, plant, and equipment, net of ~~AFUDC.~~AFUDC, of $27.6 million and

•higher returns of equity investment in investees of $3.5 million.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Net Financing Cash Flow

Net cash provided by financing activities was ~~$138.8~~$261.9 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2020. Net cash used in financing activities was ~~$10.5~~$21.0 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2019. Net cash provided by financing activities increased ~~$149.3~~$282.9 million primarily due to:

•the borrowing of a $125.0 million term loan in August 2020,

•higher draws on revolving credit facilities of $117.0 million, ~~and~~

•lower payments on revolving credit facilities of $33.0 ~~million.~~million, and

•lower repayments of long-term debt of $9.5 million.

Contractual Obligations

Cleco, in the normal course of business activities, enters into a variety of contractual obligations. Some of these result in direct obligations that are reflected in Cleco’s Condensed Consolidated Balance Sheets while others are commitments, some firm and some based on uncertainties, that are not reflected in the Condensed Consolidated Financial Statements. For more information regarding Cleco’s Contractual Obligations, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Contractual Obligations” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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 them 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 on-balance sheet guarantees, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — 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 or cyber attack or other event could significantly disrupt operations; cause harm to the public or



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

employees; result in outages or reduced generating output; result in damage to ~~Cleco��s~~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. In addition, the Cleco Cajun Transaction could increase the risk associated with cybersecurity that could have a material adverse effect on Cleco’s results of operations, financial condition, or cash flows including phishing attacks, denial of service attacks, and employee insider attacks. 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 ~~Digital~~Information and ~~Information~~Supply Chain Officer leads Cleco’s cybersecurity team and oversees Cleco’s cybersecurity maturity plan. Each ~~quarter,~~month, management provides cybersecurity updates to Cleco’s ~~Board of Managers.~~Asset Management Committee. For more information on risks related to Cleco’s cybersecurity, see Part I, Item 1A, “Risk Factors —

Operational Risks — Technology and Terrorism Threats” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Regulatory and Other Matters

Environmental Matters

Cleco is subject to extensive environmental regulation by federal, state, and local authorities and is required to comply with numerous environmental laws and regulations, and to obtain and comply with numerous governmental permits, in operating its facilities. In addition, existing environmental laws, regulations, and permits could be revised or reinterpreted; new laws and regulations could be adopted or become applicable to Cleco or its facilities; and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions, water and/or waste management. Cleco may incur significant additional costs to comply with these revisions, reinterpretations, and requirements. Cleco Power could then seek recovery of additional environmental compliance costs as riders through the LPSC’s EAC or FRP. If Cleco fails to comply with these revisions, reinterpretations, and requirements, it could be subject to civil or criminal liabilities and fines.

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 federal regulation classifies CCRs as nonhazardous waste under Subtitle D of the Resource Conservation and Recovery Act and allows beneficial use of CCRs with some restrictions. The rule establishes extensive requirements for existing and new CCR landfills and surface impoundments. These requirements include 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. As a result of the Court of Appeals for the D.C. Circuit vacating several requirements in the CCR regulation, on December 2, 2019, the EPA published a proposed rule titled Hazardous and Solid Waste Management System: Disposal of Coal Combustion Residuals From Electric Utilities; A Holistic Approach to Closure Part A: Deadline To Initiate Closure (Part A rule). The proposed regulation was finalized on August 28, 2020, and sets deadlines for costly modifications including retrofitting of clay-lined impoundments with compliant liners or closure of the impacted impoundments. By the November 30, 2020, deadline, Cleco will submit an application to the EPA specifying its intended course of action in order to comply with the final rule. The application is subject to EPA approval.

In September 2017, the EPA published a rule postponing for a two year period the earliest compliance dates for some of the wastewater streams that fall under the Effluent Limitations Guidelines and Standards for the Steam Electric Power Generating Point Source Category rule. On October 13, 2020, the EPA published final revisions to the rule that would revise the technology-based effluent limitation guidelines and standards applicable to flue gas desulfurization and bottom ash transport waste waters. The rule may require costly technological upgrades at Cleco’s facilities, particularly if additional wastewater treatment systems are required to be installed or if waste streams must be eliminated. Until Cleco and the agencies have come to agreement on how compliance with the rule will be achieved, management cannot predict what the final standards will entail, what controls the EPA and


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

the state of Louisiana may require of Cleco, or if the new rule will have a material impact on the results of operations, financial condition, or cash flows of the Registrants.

For a discussion of other Cleco environmental matters, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit” in this Quarterly Report on Form 10-Q and Part I, Item 1, “Business — Environmental Matters” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Retail Rates of Cleco Power

Fuel Rates

Environmental Rates

In July 2009, the LPSC issued Docket No. U-29380 Subdocket A, which provides Cleco Power an EAC to recover from customers certain costs of environmental compliance. These expenses are eligible for recovery through Cleco Power’s EAC and are subject to periodic review by the LPSC. For more information on the EAC and the most recent environmental audit, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — LPSC Audits — Environmental Audit.”

Energy Efficiency

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. Cleco Power has recovered approximately $3.3 million annually for each of the program years through an approved rate tariff. In January 2018, Cleco began recovering an additional $3.3 million annually for estimated costs related to programs specific to political subdivisions.

On December 17, 2019, the LPSC initiated an audit on program years three and four to consider all program costs. Cleco Power has responded to several sets of data ~~request~~requests regarding the audit. A preliminary report has been received by Cleco Power with no material findings. Cleco Power has program year 2019 and thereafter subject to audit. Management is unable to predict or give a reasonable estimate of the outcome of the audit.

Generally, utility companies are allowed to recover from customers the accumulated decrease in revenues associated with the energy efficiency programs. On October 21, 2019, Cleco Power received notice of approval from the LPSC allowing recovery of the accumulated LCFC revenues until such a time that base rates reset, which is expected in ~~July 2020.~~the first half of 2021.

Wholesale Rates

The rates Cleco, through Cleco Power and Cleco Cajun, charges its wholesale customers are subject to FERC’s triennial market power analysis. 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’s next triennial market power analysis is expected to be filed ~~during the fourth quarter of~~in December 2020.

Transmission Rates

Two complaints were filed with FERC seeking to reduce the ROE component of the transmission rates that MISO transmission owners, including Cleco, may collect under the MISO tariff. For more information about the ROE complaints, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation — Transmission ROE.”

For information about the risks associated with Cleco’s participation in MISO, see Part II, Item 1A, “Risk Factors — Regulatory Risks — MISO” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

For information on transmission rates of Cleco, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition —



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

Regulatory and Other Matters — Transmission Rates of Cleco Power” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Transmission, Distribution, and Generation Projects

Cleco Power’s significant ongoing projects include the Bayou Vista to Segura transmission project and the DSMART distribution project. For information on these projects, see “— Overview — Cleco Power.”

Market Restructuring

Wholesale Electric Markets

RTO

For information on Cleco Power’s operations within MISO and for information on regulatory aspects of wholesale electric markets 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 — Market Restructuring — Wholesale Electric Markets” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~.2019.

ERO

The Energy Policy Act of 2005 added Section 215 to the Federal Power Act, which provides for a uniform system of mandatory, enforceable reliability standards. In 2006, FERC named NERC as the ERO that will be required to develop and enforce the mandatory reliability standards.

A NERC Reliability Standards audit is conducted every three years for Cleco Power and Cleco Cajun. On October 17, 2019, Cleco Power’s NERC Reliability Standards audit was completed. The final report was issued on October 31, 2019. ~~Cleco Power is unable to determine the timing of NERC’s approval~~The final disposition of the ~~audit report due to the impact~~single notice of ~~the COVID-19 pandemic.~~potential violation


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

resulted in no financial penalty. The Cleco Cajun NERC Reliability Standards audit occurred during April 2019. There were no violations or areas of concern discovered during the Cleco Cajun audit.

A NERC ~~CIP~~Critical Infrastructure Protection (CIP) audit is also conducted every three years. Cleco Power’s ~~next~~current NERC CIP audit ~~has been delayed due to~~began in the ~~impact of the COVID-19 pandemic; however, it is expected to be complete by the end of the third~~second quarter of 2020. The audit was completed on August 14, 2020. The final report was issued on November 5, 2020. Cleco Cajun’s most recent CIP audit occurred during June 2019. The ~~preliminary findings have been received by Cleco Cajun.~~final report was issued on June 27, 2019.

Management is unable to predict the final financial outcome of the ~~current~~most recent Cleco ~~Power NERC Reliability Standards~~Cajun CIP audit, the current Cleco ~~Cajun~~Power CIP audit or 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 II, Item 1A, “Risk Factors — Regulatory Compliance — Reliability and CIP Standards Compliance” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Retail Electric Markets

For information on the regulatory aspects of retail electric markets affecting Cleco Power, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Regulatory and Other Matters — Market Restructuring — Retail Electric Markets” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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, which vary from 10 years to more than 50 years. Historically, Cleco Power has been substantially successful in the timely renewal of franchises as each neared the end of its term. Cleco Power’snext municipal franchise expires in April 2022.

For more information on franchises, see Part I, Item 1, “Business Regulatory Matters, Industry Developments, and Franchises — Franchises” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Recent Authoritative Guidance

For a discussion of recent authoritative guidance, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 3 — Recent Authoritative Guidance.”



CRITICAL ACCOUNTING POLICIES

Cleco’s critical accounting policies include accounting policies that are important to Cleco’s financial condition and results of operations and that require management to make difficult, subjective, or complex judgments about future events, which could result in a material impact to the financial statements of Cleco. The preparation of financial statements contained in this report requires management to make estimates and assumptions. Estimates and assumptions about future events and their effects cannot be made with certainty. These estimates involve judgments regarding many factors that in and of themselves could materially affect the financial statements and disclosures. On an ongoing basis, these estimates and assumptions are evaluated and, if necessary, adjustments are made when warranted by new or updated information or by a change in circumstances or environment. Actual results may differ significantly from these estimates under different assumptions or conditions.

For more information on Cleco’s critical accounting policies, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” in the Registrant’s Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.



CLECO POWER — NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

Cleco Power meets the conditions specified in General Instructions H(1)(a) and (b) to Form 10-Q and is, therefore, permitted to use the reduced disclosure format for wholly owned subsidiaries of reporting companies. Accordingly, Cleco Power has omitted from this report the information called for by Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Item 3 (Quantitative and Qualitative Disclosures about Market Risk) of Part I of Form 10-Q and the following Part II items of Form 10-Q: Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds) and Item 3 (Defaults upon Senior Securities).



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



RISK OVERVIEW

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 manage these and other risks.

Counterparty Credit Risk

When Cleco enters into bilateral commodity derivative or physical commodity transactions, 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 losses.

Cleco monitors and manages its credit risk exposure through credit risk management policies and procedures that include:

•routine review of counterparty credit quality and credit exposure,

•entering into industry standard ~~industry~~ master agreements with specific terms and conditions for credit exposure and non-performance, and

•exchanging guarantees or forms of cash equivalent collateral for financial assurance.

For more information, see Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition — Liquidity and Capital


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CLECO POWER						2020 3RD QUARTER FORM 10-Q

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. Future actions or inactions of the federal government, including a failure to increase the government debt limit, could increase the actual or perceived risk that the U.S. may not pay its obligations when due and may disrupt financial markets, including capital markets, potentially limiting availability and increasing costs of capital. The inability to raise capital on favorable terms could negatively affect Cleco’s ability to maintain and expand its businesses. 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. Cleco Holdings and Cleco Power pay fees and interest under their respective revolving credit facilities based on the highest rating held. For more information, see Item 2, “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 revolving credit facility with fixed-rate debt. 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 ~~March 31,~~September 30, 2020, Cleco Holdings had $88.0 million of short-term debt outstanding under its $175.0 million revolving credit facility at an all-in interest rate of ~~2.50%~~2.035%. The borrowing costs under Cleco Holdings’ revolving credit facility currently are equal to LIBOR plus ~~1.75%~~1.875% or ABR plus ~~0.75%~~0.875%, plus commitment fees of ~~0.275%~~0.30%.

At ~~March 31,~~September 30, 2020, Cleco Holdings had $330.0 million long-term variable rate bank term loans outstanding. One bank term loan ~~has~~had a balance of $300.0 million outstanding, at an interest rate of LIBOR plus ~~1.625%~~1.875%, for an all-in interest rate of ~~2.275%~~2.035% at ~~March 31,~~September 30, 2020. Another bank term loan ~~has~~had a balance of $30.0 million outstanding, at an interest rate of LIBOR plus ~~1.625%~~1.875%, for an all-in interest rate of ~~2.275%~~2.035% at ~~March 31,~~September 30, 2020. ~~The weighted average rate for all outstanding term loan debt was 3.11%.~~ 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 Holdings’ pretax earnings of $4.2 ~~million.~~million on an annualized basis. The weighted average rate for all outstanding term loan debt at Cleco Holdings for the nine months ended September 30, 2020, was 2.38%.

At ~~March 31,~~September 30, 2020, Cleco Power had $150.0 million of short-term debt outstanding under its $300.0 million revolving credit facility at an all-in interest rate of ~~1.875%~~1.41%. Cleco Power’s borrowing costs under its $300.0 million revolving credit facility currently are equal to LIBOR plus ~~1.125%~~1.25% or ABR plus ~~0.125%~~0.25%, plus commitment fees of ~~0.125%~~0.15%.

At September 30, 2020, Cleco Power had a $125.0 million long-term variable rate bank term loan outstanding, at an

interest rate of LIBOR plus 1.25%, for an all-in interest rate of 1.40%. Each 1% increase in the interest rate applicable to Cleco Power’s ~~short-term~~short- and long-term variable rate debt would result in a decrease in Cleco Power’s pretax earnings of ~~$1.5 million.~~$2.8 million on an annualized basis. The weighted average rate for the outstanding term loan debt at Cleco Power for the nine months ended September 30, 2020, was 1.41%.

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 Power and Cleco Cajun’s financial performance can be impacted by changes in commodity prices that impact fuel costs, generation revenues, and customer supply cost and revenue. Cleco’s Energy Market Risk Management Policy authorizes hedging commodity price risk with physical or financially settled derivative instruments within approved guidelines 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.

Cleco Power and Cleco Cajun, 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.

During the three and nine months ended ~~March 31,~~September 30, 2020, Cleco Cajun entered into other commodity derivative contracts including fixed price physical forwards and financially settled swap transactions.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

The following tables present the fair values of derivative instruments and their respective line items as recorded on Cleco and Cleco Power’s Consolidated Balance Sheets at ~~March 31,~~September 30, 2020:

Cleco

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

(THOUSANDS)

BALANCE SHEET LINE ITEM

AT SEPT. 30, 2020

Commodity-related contracts

FTRs

Current

Energy risk management assets

7,907

Current

Energy risk management liabilities

(2,580)

Other commodity derivatives

Current

Energy risk management assets

12,067

Non-current

Other deferred charges

5,276

Commodity-related contracts, net

22,670

Cleco
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS) BALANCE SHEET LINE ITEM AT MAR. 31, 2020
Commodity-related contracts
FTRs
Current Energy risk management assets $ 1,779
Current Energy risk management liabilities (683 )
Other commodity derivatives
Current Energy risk management assets 213
Current Energy risk management liabilities (9,014 )
Non-current Other deferred credits (3,480 )
Commodity-related contracts, net $ (11,185 )

Cleco Power
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
(THOUSANDS) BALANCE SHEET LINE ITEM AT MAR. 31, 2020
Commodity-related contracts
FTRs
Current Energy risk management assets $ 1,673
Current Energy risk management liabilities (524 )
Commodity-related contracts, net $ 1,149

Cleco Power

DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS

(THOUSANDS)

BALANCE SHEET LINE ITEM

AT SEPT. 30, 2020

Commodity-related contracts

FTRs

Current

Energy risk management assets

7,177

Current

Energy risk management liabilities

(1,765)

Commodity-related contracts, net

5,412


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

Cleco monitors the Value at Risk (VaR) of its other commodity derivative contracts requiring derivative accounting treatment. Cleco applies a ~~parametric~~portfolio VaR covariance analytical approach within a 5-day holding period at a 95% confidence interval. VaR is defined as the minimum expected loss over a given holding period at a given confidence level based on observable market price volatilities.

The following table presents the VaR of other commodity derivative contracts for the three and nine months ended ~~March 31,~~September 30, 2020, as well as the VaR at ~~March 31,~~September 30, 2020, based on these assumptions:


			FOR THE THREE MONTHS ENDED MAR. 31, 2020									FOR THE THREE MONTHS ENDED SEPT. 30, 2020						FOR THE NINE MONTHS ENDED SEPT. 30, 2020
(THOUSANDS)	AT MAR. 31, 2020		HIGH		LOW		AVERAGE		(THOUSANDS)	AT SEPT. 30, 2020		HIGH		LOW		AVERAGE		HIGH		LOW		AVERAGE
Cleco	$	4,558	$	4,997	$	2,087	$	4,264	Cleco	$	6,347	$	6,347	$	4,196	$	5,083	$	6,507	$	2,087	$	4,746

For more information on the accounting treatment and fair value of FTRs and other commodity derivatives, see Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 1 — Summary of Significant Accounting

Policies — Derivatives and Other Risk Management Activity” and “Note 7 — Fair Value Accounting — Commodity Contracts.”



ITEM 4. 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 ~~March 31,~~September 30, 2020. Based on the evaluations, the CEO and CFO have concluded that the Registrants’ disclosure controls and procedures are ineffective as of ~~March 31,~~September 30, 2020, due to the material weaknesses in internal control over financial reporting as previously disclosed in Part II, Item 9A, “Controls and Procedures” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

In light of the foregoing conclusion, the Registrants undertook additional procedures to allow the Registrants’ management to conclude that reasonable assurance exists regarding the reliability of financial reporting and the preparation of the condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. Accordingly, the Registrants’ management concluded that the Registrants’ condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for the three months ended ~~March 31,~~September 30, 2020, fairly present, in all material respects, the Registrants’ financial position, results of operations, and cash flows for the periods presented in such financial statements.

Remediation Plan

The Registrants began taking steps to remediate the underlying cause of these material weaknesses and improve the design and operating effectiveness of its internal control over financial reporting during the three month period ending September 30, 2019, and has continued this effort through ~~March 31,~~September 30, 2020.

As the management of the Registrants continues to evaluate and work to improve the Registrants’ internal control over financial reporting, the Registrants may take additional measures to address these control deficiencies, or the

Registrants may modify some of the remediation measures to improve the design and/or operating effectiveness of those measures. Management of the Registrants has made

significant progress in its remediation efforts, including but not limited to the following:

•Replacement of failed meters.

•Development and implementation of a plan to monitor meter failures.

•Proposed automation and configurations to allow for automated exception identification in key processes.

•Implementation of estimation monitoring with the ability to pause the billing process and request new reads.

•Development of analytics for comparison of the number of bills estimated and the estimation amount.

•Designed and implemented new controls (both preventive and detective) to address gaps in relevant risks.

~~Commenced~~•Completed assessment of the newly implemented ERP system to identify opportunities for more comprehensive control coverage over identified risks ~~as well as opportunities for~~and is in the process of implementing enhanced system automation.

However, the material weakness in IT general controls and the material weakness over revenue will not be considered remediated until the applicable new controls operate for a sufficient period of time where management is able to conclude, through testing, that these controls are operating effectively.



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

Changes in Internal Control over Financial Reporting

There have been no changes in the Registrants’ internal control over financial reporting that occurred during the three months ended ~~March 31,~~September 30, 2020, that have materially affected, or are reasonably likely to materially affect, the Registrants’ internal control over financial reporting, with the exception of the remediation efforts discussed above.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q


~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

PART II — OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



CLECO

For information on legal proceedings affecting Cleco, see Part I, Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”



CLECO POWER

For information on legal proceedings affecting Cleco Power, see Part I, Item 1, “Notes to the Unaudited Condensed Consolidated Financial Statements — Note 14 — Litigation, Other Commitments and Contingencies, and Disclosures about Guarantees — Litigation.”



ITEM 1A. RISK FACTORS

~~Other than the addition of the~~The following risk ~~factor below, there have been no material changes from~~factors, which supplement the risk factors disclosed in Part I, Item 1A, “Risk Factors” in the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019. For risks that~~2019, and updates the risk factor disclosed in Part II, Item 1A, “Risk Factors” in the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, could ~~affect actual~~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, see the risk factors disclosed under Part I, Item 1A, “Risk Factors” of the Registrants’ Combined Annual Report on Form 10-K for the fiscal year ended December 31,2019.~~Registrants.


OPERATIONAL RISKS

COVID-19

The Registrants face risks related to COVID-19 and other health epidemics and outbreaks, including economic, regulatory, legal, workforce, and ~~cyber-security~~cybersecurity risks, which could have a material adverse impact on the results of operations, financial condition, cash flows or liquidity of the Registrants.

The ~~recent~~ outbreak of COVID-19 is a rapidly evolving situation that is adversely affecting current global economic activities and conditions. An extended slowdown of economic growth, decreased demand for commodities, and/or material changes in governmental or regulatory policy in the U.S. could result in lower growth and reduced demand for and usage of electricity in Cleco’s service territory, and those of its wholesale customers, as businesses and facilities continue to close, remain closed, or ~~remain closed.~~implement reduced working hours. The ability of Cleco’s customers, contractors, and suppliers to meet their obligations to Cleco, including payment obligations, could also be negatively affected under the current economic conditions.

~~The~~Beginning on March 13, 2020, and as a result of an LPSC ~~has~~executive order, Cleco Power suspended the assessment of late fees, disconnections, and the utilization of collection agencies to help customers facing financial challenges related to the COVID-19 pandemic. On July 1, 2020, the LPSC issued aan order ending the moratorium on ~~disconnects of customers for non-payment. Accordingly,~~disconnections effective July 16, 2020. However, Cleco ~~has taken steps to assure customers that~~extended its suspension and reinstated disconnections ~~for non-payment~~ and late fees ~~are temporarily suspended, which in turn~~beginning October 1, 2020. On July 16, 2020, Cleco began setting up interest-free payment plan arrangements for customers with past due balances to be repaid over a period of up to 18 months. Failure to collect these balances could negatively impact Cleco’s ~~revenue. Additionally, the~~cash flow. The LPSC, in response to a federal mandate or otherwise, could impose restrictions on the rates Cleco charges to provide its services, including the inability to implement approved rates, or delay actions with respect to Cleco’s rate

cases and filings. For example, on June 28, 2019, Cleco Power filed an application with the LPSC for a new FRP, with anticipated new rates being effective July 1, 2020. However, due to COVID-19, there has been a delay in the current base rate case and Cleco Power now anticipates new rates to be effective in the first half of 2021. In addition, the COVID-19 ~~outbreak~~pandemic may affect Cleco’s ability to timely satisfy regulatory requirements such as recordkeeping and/or timely reporting requirements. AsAdditionally, as the EPA and many state environmental agencies have issued enforcement discretion policies for such issues, it is unclear whether the effect of any possible noncompliance due to COVID-19 will be ~~material.~~material.

On May 18, 2020, Cleco reopened customer service offices implementing precautionary protective measures and protocols to allow in-person meetings with restrictions in size and mandatory protective gear. Cleco has also implemented precautionary measures for employees or contractors testing positive for COVID-19, exhibiting COVID-19 symptoms, or awaiting COVID-19 test results. In the event a substantial portion of Cleco’s workforce were to be impacted by COVID-19 for an extended period of time, Cleco may face challenges with respect to its services or operations, and it may not be able to execute its capital plan as anticipated. There is considerable uncertainty regarding the

extent to which COVID-19 will continue to spread and the extent and duration of governmental and other measures implemented to try to slow the spread of COVID-19, such as large-scale travel bans and restrictions, border closures, quarantines, shelter-in-place orders, and business and government shutdowns. Restrictions of this nature have caused, and may continue to cause, Cleco, its suppliers, and other business counterparties to experience operational delays. The COVID-19 outbreak may significantly worsen in the U.S. during the upcoming winter months, which may cause federal, state and local governments to reconsider restrictions on business and social activities. In the event governments increase restrictions, the reopening of the economy may be further curtailed. Cleco has modified and continues to modify certain business and workforce practices (including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. However, the quarantine of personnel or the inability to access ~~Cleco’s~~Cleco’s facilities or customer sites could adversely affect its operations. Also, Cleco has a limited number of highly skilled employees for some of its operations. If a large proportion of Cleco’s employees in those critical positions were to contract COVID-19 at the same time, Cleco would rely upon its


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q

business continuity plans in an effort to continue operations at its facilities, but there is no certainty that such measures will be sufficient to mitigate the adverse impact to Cleco’s operations that could result from shortages of highly skilled employees.

As many of Cleco’s employees and third-party service providers work remotely in accordance with government mandates, Cleco faces heightened ~~cyber-security~~cybersecurity risks related to unauthorized system access, aggressive social engineering tactics, and adversaries attacking the information technology systems, network infrastructure, technology and facilities used to conduct its businesses. Cleco will continue to monitor developments affecting its employees, customers, and operations.

While the full impact on Cleco’s business from the ~~recent~~ outbreak of COVID-19 is unknown at this time and difficult to predict, various aspects of its business could be adversely affected by COVID-19. While there are many unknowns as to the duration and severity of the COVID-19 ~~outbreak,~~pandemic, as of the date of this Quarterly Report on Form 10-Q, it has caused significant volatility in global markets and has had an adverse impact on the operations of some of Cleco’s customers and suppliers, which could affect Cleco’s operations and its ability to access capital. The continued spread of COVID-19 and efforts to contain COVID-19, such as the imposition of additional quarantines or closures or reduced operations of businesses and other institutions, could result in an economic slowdown, which could adversely affect customer demand and consumption, cause delayed payments or uncollectible accounts, disrupt supply chains and markets, cause potential delays in the timing of completion of capital projects, or cause



~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

other unpredictable events. These impacts could ultimately result in a downgrade of Cleco’s credit ratings. Any of the foregoing events or other unforeseen consequences of

COVID-19 could have a material adverse effect on the results of operations, financial condition, cash flows, or liquidity of the Registrants.

Weather Sensitivity

Cleco’s operations and power generation could be harmed due to the impact of severe weather or other natural disaster, which could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.

Severe weather, such as hurricanes and tropical storms, and other natural disasters, such as floods, could cause major damage to Cleco’s equipment and facilities, disruptions in service, and damage to the properties of Cleco’s customers. For example, in August and October 2020, Cleco’s service territory sustained substantial damage from three separate hurricanes. On August 27, 2020, Hurricane Laura made landfall hitting the southwest coast of Louisiana causing power outages for approximately 140,000 of Cleco Power’s electric customers. On October 9, 2020, Hurricane Delta made landfall in southwest Louisiana resulting in power outages for approximately 132,000 of Cleco Power’s electric customers. On October 28, 2020, Hurricane Zeta made landfall in southeast Louisiana resulting in power outages for approximately 73,000 of Cleco Power’s electric customers.

Any future severe weather or other natural disaster 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. Damage to the properties of Cleco’s customers as a result of severe weather or other natural disaster could result in reduced demand for and usage of electricity in Cleco’s service territory and the service territory of Cleco’s wholesale customers. Severe weather or other natural disasters could also disrupt the delivery of equipment and supplies necessary to Cleco’s business. Cleco Power’s recovery of severe weather or other natural disaster costs 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 and natural disasters could have a material adverse effect on the results of operations, financial condition, or cash flows of the Registrants.


REGULATORY RISKS

Storm Restoration Costs

Cleco Power’s ability to recover costs resulting from Hurricanes Laura, Delta, and Zeta are subject to LPSC review and approval, and recovery of some costs could be disallowed.

On August 27, 2020, Hurricane Laura made landfall in southwest Louisiana as a Category 4 storm causing catastrophic damage to portions of Cleco’s service territory and causing power outages for approximately 140,000 of Cleco Power’s electric customers located primarily in central and southwest Louisiana. Cleco Power sustained significant damage to its distribution and transmission facilities. Cleco Power’s current estimate of the total storm restoration costs related to Hurricane Laura is between $185.0 million and $190.0 million. On October 9, 2020, Hurricane Delta made landfall in southwest Louisiana as a Category 2 storm resulting in power outages for approximately 132,000 of Cleco Power’s electric customers located primarily in central and south Louisiana. Cleco Power’s current estimate of total storm restoration costs related to Hurricane Delta is between $50.0 million and $55.0 million. On October 28, 2020, Hurricane Zeta made landfall in southeast Louisiana as a Category 2 storm resulting in power outages for approximately 73,000 of Cleco Power’s electric customers located primarily in southeast Louisiana. Cleco Power’s current estimate of total storm restoration costs related to Hurricane Zeta is between $7.0 million and $8.0 million. Restoration costs incurred by Cleco Power from damages caused by Hurricanes Laura, Delta, and Zeta are subject to a prudency review by the LPSC in which Cleco Power will be required to demonstrate that the costs were prudently incurred. Accordingly, Cleco Power may not be able to recover some of the restoration costs incurred, which could be material. Cleco Power may seek recovery of a portion of the restoration costs through the issuance of dedicated securitization bonds, which would require prior approval by the LPSC and would be repaid over time through a system restoration charge imposed on Cleco Power’s customers. The inability of Cleco Power’s customers to continue paying their utility bills or a decision by the LPSC to deny Cleco Power’s request to recover incurred restoration costs could have a material adverse effect on the results of operations, financial condition, and cash flow of the Registrants.


CLECO
CLECO POWER						2020 3RD QUARTER FORM 10-Q



ITEM 6. EXHIBITS

CLECO
10.1			~~Form of Fourth Agreement to Extend the Board of Managers Services~~Term Loan Agreement dated as of ~~April 30,~~August 28, 2020 ~~by and~~ among ~~Cleco Group LLC, Cleco Corporate Holdings LLC, and~~ Cleco Power LLC, the Lenders from time to time party thereto and ~~Manager~~Sumitomo Mitsui Banking Corporation, as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on September 2, 2020)
31.1			CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.2			CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.1			CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.2			CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
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 POWER
10.1			~~Form of Fourth Agreement to Extend the Board of Managers Services~~Term Loan Agreement dated as of ~~April 30,~~August 28, 2020 ~~by and~~ among ~~Cleco Group LLC, Cleco Corporate Holdings LLC, and~~ Cleco Power LLC, the Lenders from time to time party thereto and ~~Manager~~Sumitomo Mitsui Banking Corporation, as administrative agent (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on September 2, 2020)
31.3			CEO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
31.4			CFO Certification pursuant to section 302 of the Sarbanes-Oxley Act of 2002
32.3			CEO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
32.4			CFO Certification pursuant to section 906 of the Sarbanes-Oxley Act of 2002
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						2020 3RD QUARTER FORM 10-Q


~~CLECO~~
~~CLECO POWER~~		~~2020 1ST QUARTER FORM 10-Q~~

SIGNATURES

Pursuant to the requirements 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/ F. Tonita Laprarie
						F. Tonita Laprarie
						Controller and Chief Accounting Officer

Date: November 9, 2020

~~Date:~~ ~~May 12, 2020~~

Pursuant to the requirements 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/ F. Tonita Laprarie
						F. Tonita Laprarie
						Controller and Chief Accounting Officer

Date: November 9, 2020

~~Date:~~ ~~May 12, 2020~~


TABLE OF CONTENTS
				PAGE
GLOSSARY OF TERMS				3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS				5

~~TABLE OF CONTENTS~~ PART I
Financial Information		~~PAGE~~
~~GLOSSARY OF TERMS~~ITEM 1.			3
~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS~~		5

~~PART I~~	~~Financial Information~~
~~ITEM 1.~~	Cleco — Condensed Consolidated Financial Statements (Unaudited)	7
			Cleco Power — Condensed Consolidated Financial Statements (Unaudited)	1417
			Notes to the Unaudited Condensed Consolidated Financial Statements	2126
ITEM 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	4051
ITEM 3.			Quantitative and Qualitative Disclosures about Market Risk	5168
ITEM 4.			Controls and Procedures	5270

PART II			Other Information
ITEM 1.			Legal Proceedings	5471
ITEM 1A.			Risk Factors	5471
~~ITEM 6.~~			~~Exhibits~~	55
	~~Signatures~~	56



Purchase Price Allocation
(THOUSANDS)	AT FEB. 4, 2019
Current assets
Cash and cash equivalents	$	146,494
Customer and other accounts receivable	49,809
Fuel inventory	22,060
Materials and supplies	25,659
Energy risk management assets	4,193
Other current assets	10,056
Non-current assets
Property, plant, and equipment, net	741,203
Prepayments	36,166
Restricted cash and cash equivalents	707
Intangible assets	98,900
Other deferred charges	133
Total assets acquired	1,135,380
Current liabilities
Accounts payable	38,478
Taxes payable	723
Energy risk management liabilities	241
Other current liabilities	14,570
Non-current liabilities
Accumulated deferred federal and state income taxes, net	7,165
Deferred lease revenue	58,300
Intangible liabilities	38,300
Asset retirement obligations	15,323
Operating lease liabilities	110
Total liabilities assumed	173,210
Total purchase price consideration	$	962,170



	FOR THE THREE MONTHS ENDED MAR. 31,
(THOUSANDS)	2020			2019
Components of periodic benefit costs
Service cost	$	95		$	113
Interest cost	733			825
Amortizations
Prior period service credit	(40		)	(35		)
Net loss	757			392
Net periodic benefit cost	$	1,545		$	1,295



Cleco
	FOR THE THREE MONTHS ENDED MAR. 31, 2020
(THOUSANDS)	POSTRETIREMENT BENEFIT NET LOSS
Balances, beginning of period	$	(17,513	)
Amounts reclassified from AOCI
Amortization of postretirement benefit net gain	414
Balances, Mar. 31, 2020	$	(17,099	)